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When you buy a property, it will generally be either on a freehold or leasehold basis. It’s important to learn the differences, so you know exactly what kind of ownership you’ll have when you buy your home. We’ll help you understand what freehold and leasehold really mean in this guide.
Freehold and leasehold are essentially types of property ownership. The kind you choose will determine whether you pay ground rent, what kind of changes you can make to the property and for how long you’ll own it.
A freehold is the permanent and absolute tenure of land or property. Basically, if you buy a freehold property, it means you own that property and the land on which it stands outright, in perpetuity. It’s completely yours unless you decide to sell it.
Every property will have a freehold, you just might not own it. If you don’t own your freehold, then you’ll have a landlord who does – they’re called the freeholder. The freeholder can be an individual or a company, like a housing association.
As a rule of thumb, houses are typically available as freehold properties while most flats are available as leasehold. However, leasehold houses and freehold flats do exist - we talk about these more below.
It’s worth noting that there are slightly different rules and processes for buying the freehold on flats from houses. See below for more information.
A leasehold is the holding of a property by lease. Leasehold ownership is different from renting as you do, technically, own your property, but you only own it for the length of your lease agreement with your freeholder. Unlike a freehold, you don’t own the land on which your property stands. Instead, someone else will own the freehold – the actual land and the building itself - and you pay for the right to live in the property for a selected period, i.e. until the lease ends.
Your lease agreement will determine what you do and don’t own, and what you can and can’t do to the property, e.g. put up a satellite TV dish or move an internal wall. The ownership of the property returns to the landlord when your lease ends.
The majority of flats you can buy are leasehold, but there are some leasehold houses as well.
Within local regulations you can do what you like to a freehold property. If you want to change things about a leasehold, you need to get the freeholder’s permission within the terms of the lease.
When considering the freehold vs leasehold dilemma, it’s a good idea to look at the benefits and drawbacks of each.
Before you decide whether it’s worth buying a leasehold property, there are few things you should understand.
As a leaseholder, you have the right to know the freeholder’s name and address. You can use the land and property register to find out who owns the freehold on your property.
Recently, developers have been selling leasehold houses. They’re not as common as freehold houses, but they do exist. So, what exactly does it mean when you buy a leasehold house? Do you only own some of the rooms? What about the garden? How much freedom do you have with redecorating? What bills will you pay?
These are all common – and necessary – questions you should know the answers to before you decide whether you should buy a leasehold house.
Leasehold ownership of a house usually includes the interior and exterior of the property. This is different from a flat in which you usually only own the interior. Leasehold ownership of a house often includes some of the land, e.g. a garden or driveway, but not necessarily the whole property.
This usually means you can make some changes to the property, but it’s always best to check the terms of your lease or speak with the freeholder – otherwise you could face penalties if you violate the lease. Lenders will sometimes decline these properties depending on the ongoing costs of the lease, like the service charge and the ground rent.
A lot of leasehold houses are available through shared ownership schemes. These work slightly differently. You purchase a share – or percentage - of the property and pay rent on the remainder that’s still owned by a landlord. You don’t pay any rent to a third party on a normal leasehold property like you would on a shared ownership one. However, you usually have to pay annual ground rent as well as an annual service charge.
Some flats are also available under shared ownership schemes. See our Shared Ownership guide for more information.
You have the legal right to apply to buy the freehold on your house so long as you meet certain criteria. You can approach your landlord at any time to buy the freehold outright, but this doesn’t mean they have to sell.
If you’re the leaseholder of a shared ownership home, you reserve the right to purchase additional shares until you own 100%. Sometimes this coincides with buying the freehold on your house, but the ins and outs will depend on the actual lease.
Someone will almost always own the leasehold on a flat. Even if you rent a flat, you’re renting it off someone.
Leasehold ownership of a flat relates primarily to the interior of the flat itself, the walls, the ceiling, the floorboards, etc. It doesn’t usually relate to the structure of the property, the exterior or anything outside of the flat. Any communal areas and the land on which the flat stands are owned and maintained by the freeholder. The leaseholder pays a communal service charge for the upkeep.
As the leaseholder, you have some rights to the property. You don’t have any rights if you’re simply renting. You can usually paint the walls and change the carpets in a leasehold, etc. but it’s always best to check the terms of your lease first.
Buying the freehold is obviously a little more complicated for flats than houses, as your flat will likely be built on the same land and be part of the same building as the other flats in the building complex. Consequently, you can’t be the sole freehold owner unless the freeholder sells the whole complex to just you. If you own a leasehold flat and want to purchase the freehold, you would usually only purchase a share of the freehold in which you’d jointly own the freehold along with the building’s other tenants. This is known as shared freeholders. It’s also sometimes called collective enfranchisement.
Leasehold mortgages can be a little more complex than mortgages for freehold properties, but the products available to you are the same, e.g. you can have fixed, variable and tracker rate, etc. mortgages for leasehold or freehold properties. Each lender will have their own stipulation as to what kinds of mortgages they offer but there are a lot of options available in the market.
You can take out mortgages on both freehold and leasehold properties, but most lenders will only allow you to borrow for leases of 80 years or above. You can sometimes find lenders willing to loan on leases between 70-80 years, but it’s unusual to find a lender for anything below that. This is because the cost of extending a lease or buying the freehold greatly increases when the remaining years on the lease drop below 80 years.
It’s not always as straight-forward as freehold vs leasehold; what suits you ultimately depends on your unique situation. Our advisers can explain your options to you in a lot more detail. Call us now on: 0344 346 3672.
If you already know whether you want a freehold or leasehold property and are keen to start your house-hunting journey, read our House Buying guide for tips.