House Buying 101: Leasehold vs. Freehold

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It may sound insignificantly technical, but knowing your leasehold from your freehold is essential when it comes to making an offer on a property. Even if you found your dream home, its status should play a significant role in your decision to buy.

  • What is a leasehold? If you purchase a property on leasehold, then you only have ownership of the property and its land, for the length of the lease you have agreed with the freeholder (also known as the landlord). Once the leasehold expires, the freeholder becomes the owner once again. Leaseholders pay a range of maintenance fees and an annual ‘ground rent’ to the freeholder. Leaseholds are usually available in blocks of flats, and you can usually buy your freehold - meaning you’ll have a share with other fellow freeholders in the building.
  • What is a freehold? When buying a freehold property, you have complete ownership of the property and its land. Unlike a leasehold property, you don’t have to pay any charges like ground rent and maintenance. Most standalone houses on the market are sold freehold.
  • Why does this matter? As a rule of thumb, leases of less than 90 years can be a cause of problems for leaseholders. If you have a short lease, your property can still decline in value even when property prices in the area are rising - which means you may have more difficulty trying to resell it. Many leaseholders have a legal right to extend their lease, but doing so can be an extremely complicated process.

Photo by Patrick Perkins on Unsplash.