When you’re looking to buy a new home, you’ll find yourself inundated with information about each and every property you cast an eye on; from guide prices to dimensions, EPC ratings, nearby schools, and even transport links.
But one vitally important piece of information you’ll rarely find in the estate agent’s window or on a developer’s website; is whether the house sale in question is leasehold or freehold. The answer to this could make or break a property purchase, and can have huge consequences down the line if it’s something you forget to do your research on.
But if you’re new to these terms, don’t worry. We’re here to run through the basics.
What do leasehold and freehold mean?
These two terms refer to the two contrasting forms of legal home ownership.
If you own the property’s freehold, you’ll outright own both the building and the land it’s on, for an unlimited amount of time. You’ll be named as the ‘freeholder’ in the land registry and are likely to own the ‘title absolute’. You single-handedly own the property outright, for as long as you like, with little or no complications.
Buying a leasehold property is more complicated. Though you still buy and own the home in a traditional sense, only you acquire a lease from the freeholder to have the property for a set amount of time. This isn’t like a long-term renting arrangement though, because that time period is usually over 100 years – a lifetime to most – and could be as many as 999 years. But be aware, there are some leasehold arrangements out there that will only last 40 years or even less.
When you’re buying a leasehold property, you will become party to a contract with the freeholder that sets out each party’s rights and responsibilities. This will include things like:
Leasehold vs freehold
It goes without saying that buying a freehold home is commonly thought of as preferable to a leasehold, however it really does depend on your personal circumstances. As a freeholder you have total control, and there’s no danger to your property value from a lease running down over time. In many cases, such as when buying a flat in an apartment building, buying a leasehold is almost an inevitability. In situations like these, you’ll want to look for the longest leases possible, whereby the clock running down on the lease later in your ownership won’t come to affect the home’s value or desirability.
What happens when the leasehold expires?
When the lease on a property runs out, full ownership reverts back to the freeholder. In theory, you could lose everything you’ve invested and be forced to move out, which is why the market treats any leases with just a few decades left with such caution. Thankfully, you are entitled to request an extension to your lease long before it expires, or could even include it as a condition before you agree to purchase the lease.
Can I renew or extend my lease?
To protect against risky and costly short leases, Government legislation has made it much easier for leaseholders to extend their leases if they wish to, or even buy outright and become the freeholder in some cases. You don’t need to wait until your lease expires to renew either – it can be done far in advance if you want to protect the value of your home. But you should note that the process will usually cost quite a lot of money.
Should I buy a leasehold property?
Ultimately, only you can decide whether buying leasehold is right for you. It should certainly be a factor in your decision, but it may be something worth putting up and dealing with if it means you get to buy your dream home.
The key thing to look out for on leasehold properties is the remaining term of the lease. If there are well over 100 years remaining, then you won’t see your property’s value affected for decades to come. But once you get to the point where are less than 90 or so years remaining, you should expect to see your house’s worth depreciate over time, relative to the movement of the wider market.
Leasehold properties with 40 or less years remaining should certainly be approached cautiously. Buyers can expect to see the house’s value fall quite dramatically, with it essentially being worthless in the months before the lease expires. No mortgage lender would lend on a lease with that few years remaining, so you could only even consider it if you are a cash buyer.
If you are considering buying a leasehold, on top of enquiring about the remaining term, make sure you speak to the freeholder and discuss the kind of fees and responsibilities involved. What freeholder’s charge can vary significantly and may affect the viability of your purchase. You can find out more about the buying process here.
Whether you’d like to negotiate an extension or want someone to talk to about the legal complexities of buying a leasehold property, speaking to a property lawyer should get you all the help and advice you need. Find out more when you get in touch with My Home Move Conveyancing today.
Disclaimer: The article above is only a rough guide on purchasing leasehold and freehold properties.