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The Leasehold Scandal: Should I Buy A Leasehold Or Freehold Property?

MORTGAGES | 12.04.2017

When purchasing a property, you’ll probably notice the words ‘freehold’ or ‘leasehold’ in everything from the estate agent’s advert to the contracts sent to you by solicitors.

Most people pay very little attention to the words above, assuming that the type of property they’re buying is unimportant. However, thanks to the dramatically titled ‘leasehold scandal’, some homeowners are beginning to wish they’d done a little more research before signing on the dotted line.

Wondering whether to buy a freehold or leasehold property? Read on to learn more.

What is the difference between freehold and leasehold?

When you buy a freehold home, you buy the property itself and the land it’s built on. When you buy a leasehold home, you buy the property itself but the land is owned by a landlord. In most cases, this makes you a ‘tenant’ and means you’ll have to pay rent to the landlord each year to cover the cost of renting the ground. You may also be required to pay maintenance costs to the landlord. This money will be used to maintain the property and land.

What is the ‘leasehold scandal’?

Leasehold properties have been a hot topic for discussion recently, after numerous homeowners raised concerns regarding increasing ground rents. Some homeowners feel that the amount they’re being charged is unaffordable and others bought their properties without reading or understanding the terms of their lease. The issue has been dubbed the ‘leasehold scandal’ by those campaigning to make it easier for owners to purchase the freehold themselves. Generally, those campaigning for a rule change have three main concerns:

The cost of ground rent
Service and maintenance charges
The length of their home’s lease

What types of property are leasehold?

Flats and apartments are usually leasehold because they’re all built on the same land. In some cases, houses can be leasehold too. This is usually the case with new build properties, but if you’re buying an older house, it’s still wise to check whether it’s freehold or leasehold so you can decide which option is right for you.

How important is the length of the lease?

Each leasehold home has a certain number of years left on the lease. The lease could last for anything up to 999 years. Generally, the longer the lease, the better. If the lease is for less than 80 years, you may struggle to obtain a mortgage for the property and you may also find it difficult to sell the property onto a new buyer.

Can I extend the lease?

If you want to extend the lease, you’ll need to ask the landlord for permission. This will usually cost upwards of £5,000 and the exact cost will depend on the value of the property and the number of years you wish to extend the lease by.

How much ground rent will I pay on a leasehold property?

The amount of ground rent you’ll pay will depend on the property and the landlord in question. Before signing your contract or parting with your deposit, be sure to read through the terms of your lease thoroughly until you understand how much you’ll be expected to pay. Be sure to factor these costs into your budget and consider if you’ll be able to pay the ground rent if it increases. In some cases, landlords may increase the cost of rent based on inflation while others may double the rent each year.

How much will I pay in maintenance charges on a leasehold property?

Service and maintenance charges vary from property to property and will usually cover costs such as the maintenance of communal gardens, hallways, car parks, driveways and roads. Familiarise yourself with the cost of these charges before you sign your contract because you will need to factor these expenses into your budget. It’s also worth considering whether you’ll be able to afford payments if maintenance charges increase. Some landlords will increase such charges based on inflation. You may also face unexpected costs if essential work needs to be completed in an emergency.

Can I buy the freehold for my home?

If you’re a leasehold home owner, it may be possible to purchase the freehold for your property. Although this can cost thousands of pounds, it will stop you having to pay ground rent and in some cases it can add value to your home. If you’re living in a leasehold flat, rather than a house, purchasing the freehold can be a little more difficult. In most cases, you’ll need to get permission from other residents in the building and you may need to purchase the freehold with them and become joint owners.

Should I buy a leasehold property?

Leasehold properties have become extremely common and in many parts of the country, home buyers have little choice but to buy a home without the freehold. For this reason, it’s unrealistic to suggest buyers avoid this type of property completely. Although there has recently been reports of landlords increasing ground rents to an unaffordable level, there are others who offer their tenants affordable rates and a fantastic service for many years. If you’re thinking of buying a leasehold property, it’s wise to do your research so that you understand the terms of your lease and can afford the payments requested. It’s also a good idea to discuss the property and the lease’s terminology with your solicitor. It’s their job to explain the terms and conditions while also sharing their thoughts on how the lease could affect your home’s value.

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