Understanding The Difference Between Leasehold and Freehold Properties
When looking for properties to buy, you’ll likely come across two terms: freehold and leasehold. At first glance, these terms might seem complicated, but they’re fairly simple to understand. However, knowing what freehold and leasehold mean and the difference between them is important as they can affect how you buy your property and may need to be factored into your budget. The Doctors Mortgages Online team has put together this handy guide to the key differences between freehold and leasehold properties to keep you informed as you start your home-buying journey.
What Is A Freehold Property?
Freehold is generally the most common way to buy a house in the UK. When a property is sold as freehold, it means you own the building and the land it’s built on, including spaces like private drives and gardens, forever (or until you decide to sell).
Unlike leasehold properties, you won’t need to set money aside to cover a lease, ground rent, or service charges to maintain common areas. However, you’ll be responsible for keeping your property and the land it’s on in tip-top condition, so you’ll need to factor these costs into your general household budget.
What Is A Leasehold Property?
When you buy a leasehold, you own the property for a set period but not the land it’s built on. The land is owned by someone else (a freeholder) to whom you will need to pay a lease fee to lease the land your property is built on. Typically, in the UK, leases last anywhere between 90 and 999 years, but you’ll need to check your lease agreement to see how long your lease is for. If the lease expires, the property will go back to the freeholder, but you can usually extend the lease.
Flats are most commonly sold as leaseholds. When you buy a leasehold property, you’ll need to pay ground rent to cover the lease and a service charge to cover the upkeep of communal spaces like gardens, hallways, bin stores, and stairways. These costs will need to be considered in your budget.
What’s The Difference Between Them?
As you can see, there are some stark differences between freehold and leasehold properties. The main difference is how you own the property – whether you own the building and the land it’s on or whether you own the property for a set period and not the land. When it comes to freehold properties, you are responsible as the owner for maintaining any gardens and driveways. For leaseholds, the landlord will be responsible for this and any other communal areas, and you’ll have to pay a charge for this to happen.
When it comes to remortgaging, you can do this with a freehold property easily, but for leaseholds, the lender will usually want to see that there are at least 70 years left on the lease.
Can Buying A Leasehold Property Make It More Difficult To Get A Mortgage?
It’s natural to wonder whether buying a leasehold property might affect your chances of being approved for a mortgage. The good news is that lenders don’t view leasehold properties any differently than freehold ones. However, the additional fees associated with leasehold properties must be factored into your affordability.
Whether or not you get approved for a mortgage for a leasehold property depends on how long is left on the lease. Lenders won’t give you a mortgage if the lease expires before the mortgage does. In this case, you’ll have to see if you can renew the lease so the purchase meets your lender’s requirements.
We’re Here To Help
There’s a lot to think about when buying a property, and choosing between a leasehold and a freehold is another thing to add to the list. While most houses are freehold and most flats are leasehold, the type of property you go for will depend on your lifestyle and preferences. If you need help getting a mortgage for a leasehold or freehold property, our team is here to help. Get in touch with us today.
