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Leasehold vs freehold
If you’re looking to move house, or you’re buying a house and want to know more about the difference between leasehold and freehold, this is the page for you.
In this article
With a freehold property, you own the building and the land it sits on. There is no limit to how long you can own a freehold property. You’re free to change the property if you have the necessary planning permission from the local authority.
You are also responsible for caring for the freehold property – from the roof to the walls, and any of your possessions within the property.
What is a share of a freehold?
Having a share of a freehold means you own part of the freehold, instead of the owning it outright – this usually occurs when buying a freehold flat, rather than a house.
It can give you more control over your flat than a leasehold, as you’ll be directly involved in making decisions about the property and land.
If a freehold is split among lots of shareholders any decisions have to be made as a group before they happen.
Not all lenders have the same criteria for freehold mortgages, so be sure to check before buying a freehold property.
Can I buy a freehold flat I am currently leasing?
Buying the rights to your freehold flat – or even just a share – can be difficult. You might have to pay more if you already have a long lease.
However, you may find you end up saving on lease extensions and there is a chance that you could add extra value to the property.
What is a flying freehold?
A flying freehold is where all or part of a property is over another property or piece of land. For example, if your neighbour’s balcony overhangs your property, it’s considered a flying freehold. Other situations where a flying freehold may happen include:
- a cellar or basement vault that runs beneath another property
- archways
- rooms built across passageways
- semi-detached or adjacent terraced properties that do not have a defined vertical lining dividing them.
When applying for a mortgage, it’s wise to check whether a property has a flying freehold. If it does, it could come with extra risks and complications. Lenders may also not be able to offer you a mortgage on a flying freehold.
A leasehold means you own the property for a set period, but not the land it’s built on. The initial lease can last between 125 and 999 years.
Once this set period, or lease, ends, the leasehold property will return to the owner of the land. Flats are often sold as leaseholds. Some new-build houses may also be sold as leaseholds on shared-ownership agreements.
A leasehold will involve getting into a contract with the freeholder of the property. This contract will usually outline everyone’s responsibilities. For the leaseholder, these responsibilities may involve:
- paying certain yearly costs
- monthly service charges that could cover repairs, ground rent, maintenance, and/or upkeep.
The freeholder may be responsible for the exterior walls and roof of the property. They also look after common areas such as the entrance hall and staircase. Some leaseholders may exercise their ‘right to manage’, in which case the maintenance is down to the leaseholder.
Buying a leasehold property
Before making an offer on a leasehold property, it’s important to consider the following factors.
Length of the lease
The length of the lease can affect the value of a property. Over time, the lease term goes down, which can make a property less desirable. A lease should have at least 70 years or more left, or you could struggle to get a mortgage.
Extending the lease
As a leasehold property owner, you can ask to extend the lease at any time. Qualifying tenants who own their home for two years have the right to extend their lease by 90 years for a flat, or 50 years for a house.
Qualification is usually based on having an original lease for more than 21 years. The cost of extending your lease will depend on the type of property. If you can't come to an agreement with the freeholder, you can appeal.
Charges on leasehold properties
Freeholders are usually responsible for the maintenance and repair of the building. This is unless leaseholders exercise their ‘right to manage’, or they pass responsibility to a third party such as a managing agent.
Leaseholders will usually pay towards the costs of repairs and maintenance by paying a monthly service charge. They may also need to pay into a fund to cover unexpected repairs or maintenance.
How it might affect getting a mortgage or reselling the property
You can buy or sell the physical property but having a lease term of 100+ years usually means more market value.
Less than 70 years can be considered risky and could make it difficult to get a mortgage as a buyer or sell as an owner.
Let’s look at the benefits and disadvantages of both leasehold and freehold home ownership.
The content on this page is for reference and does not constitute finance advice.
For impartial financial advice, we recommend government bodies like the MoneyHelper.
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