Leasehold Vs Freehold

Hello

I wanted to write a post about what leasehold and freehold mean. We came massively unstuck because we didn't do enough research on this before going ahead with our flat purchase. DISCLAIMER I am writing this as I understand it from reading the leasehold contract for the flat we were buying. Each contract might be slightly different. This blog post is written to provide you with a basis for doing your own research. Please feel free to add comments (politely) if you feel I have got something wrong. So here goes;

Leasehold

- Leasehold means that you own the right to live in the property for a set period of time (the length of the lease). When we were looking to purchase the flat we did some research that suggested it meant that you own a small box (flat) inside a larger box (whole building). This is not the case. The person who owns the freehold owns the land, building and each flat.

- The length of the lease determines how long you can stay in the property. Leases are usually 100+ years to begin with. As the length of the lease that remains gets smaller the value of the property reduces. Once you get down to 70-80years left the flat will be unsellable as no mortgage lender will lend on a lease this short. You can pay to extend the lease but this may cost upwards of £15,000!

- Leasehold applies to virtually all flats in the UK. Those that are freehold are difficult to get a mortgage for.

- You pay off a mortgage.

- Buildings insurance may be set up by the freeholder, rather than you having to arrange it. But it may not be the best or best value insurance.

- There are restrictions on hanging your washing out on balconies and getting your own satellite dish. There should be a satellite dish on the building that all leaseholders can use.

- You cannot make structural changes to the property.

- You will most likely need to get permission for pets and wooden floors.

- There are rules on how late you can play loud music (this is one of the few advantages of a leasehold)

- You will have to pay ground rent (approx £100+/year)

- You will have to pay service charges for the maintenance of communal areas. This is the killer. There are no guidelines or protection for tenants* with regards to how much can be charged for these services. The flat we looked at had a service charge of £130/month. This was basic, if the accumulated funds weren't enough for the work done that year they could ask for additional money from each tenant. You have no option but to pay these charges. if you do not pay you will be charged interest until you do.

- If you do not follow the rules set out in the contract you could be evicted.

- You may need to get permission to decorate your home.

- Structural issues to the building as a whole will not be your responsibility, but you will have to pay a share of the cost.

- You might be subject to inspections and the freeholder can enter the property if they so choose.

Freehold

- Freehold means that you own the building and the land that it sits on (once you have paid off the mortgage).

- Most houses in the UK are freehold.

- You pay off a mortgage

- Buildings insurance is arranged by you. It may be an essential condition of your mortgage if you have one.

- You can make structural changes as long as you get the correct planning permission and follow building regulations.

- You do not have to pay ground rent or services charges, but you will be responsible for maintaining the whole property.

- You cannot be evicted from the property.

*An organisation called the Leasehold Valuation Tribunal will look at disputes, but from my research they are not very helpful.

I hope you find this helpful if you are unsure whether to go for a leasehold or freehold property.