When buying a property, one important consideration is whether it’s freehold or leasehold. These two types of property ownership work very differently from both a practical and legal standpoint and understanding the key differences will help you make a confident, informed decision.
In this article, we explain what freehold and leasehold mean, how each type of ownership affects your rights and responsibilities, and what buyers should look out for.
What is freehold?
Freehold means you own both the property and the land it sits on indefinitely, unless you choose to sell or transfer it.
As the freeholder, you have full control over the property, including the freedom to make alterations (subject to planning and building regulations).
This is the most common form of ownership in the UK, particularly for houses and is often seen as the most desirable option as freehold offers long-term security, fewer restrictions and greater control.
In comparison to leaseholds, freehold properties generally retain their value better over time and are typically easier to sell or remortgage.
What is leasehold?
A leasehold property means you own the property for the duration of the lease, but not the land it sits on. The land remains owned by the freeholder or landlord.
Leasehold is typical for flats, where you may own the interior of your property but not the structure or communal areas.
Unlike freeholds, leaseholds typically come with service charges and ground rent which contribute towards the maintenance of shared areas. The cost of these charges will be set by the building owner and will vary from property to property.
Lease lengths vary significantly, ranging from several decades to up to 999 years. However, leasehold properties tend to decrease in value as the lease term tapers over time.
What are the advantages and disadvantages to freehold and leasehold?
Being aware of the advantages and disadvantages to both freehold and leasehold properties may help you determine which form of ownership is most suitable for you.
The advantages of freehold
- You own the property and land indefinitely, giving you full control.
- Service charges usually don’t apply unless you share communal areas.
- You have greater flexibility for extensions and alterations (subject to planning permission and building regulations).
- Freehold properties do not lose value due to an expiring lease.
- The legal structure is simpler, with no lease terms or freeholder involvement.
The disadvantages of freehold
- You are responsible for all structural, external and land maintenance which can be costly.
- Freeholds typically cost more to purchase than comparable leaseholds.
- Restrictive covenants may still apply, potentially limiting your plans for the property (e.g. business use, fence heights or new structures).
The advantages of leasehold
- Less maintenance responsibility, as structural repairs and maintenance are usually handled by the freeholder or landlord.
- Leasehold properties are often cheaper to purchase.
The disadvantages of leasehold
- You only own the property for the duration of the lease with no land ownership.
- Leaseholders may be liable for ground rent charges.
- Service charges can fluctuate, making budgeting more challenging.
- Leases often contain restrictions on alterations, business use and pets (amongst other things).
- The property generally loses value as the lease term shortens.
- Lease extensions can be expensive depending on the remaining term.
What should I check for when buying a freehold or leasehold property?
Buying a property is a major decision and huge milestone in many people’s lives.
Reviewing these details early with a mortgage adviser ensures you understand your obligations and can move forward with confidence.
The first important thing to consider, is whether the property you’re looking to buy is leasehold or freehold.
Once this has been established, there are some important additional considerations for you to make:
Freeholds
Although simpler than leaseholds, there are still key points to check:
You may be liable for estate or management charges
These charges are common on new housing developments and cover the upkeep of shared spaces such as roads, green areas and play areas.
Check that any restrictive covenants do not impose on your properly plans
A restrictive covenant is a rule attached to a property that tells you what you can’t do with the house or land.
These may limit building work, business use or parking which makes reviewing them early essential if you intend to renovate or extend the property.
Leaseholds
As leaseholds typically come with more obligations and restrictions, there are some key areas to check:
The remaining length of the lease
A lease term that has fallen below 80 years will usually reduce the property’s value and increase extension costs, making it more challenging to sell and less valuable.
If you are liable for ground rent or service charges
Depending on when your lease was renewed or extended, you may be liable for ground rent or service charges. These charges can fluctuate, with ground rent being reduced to a nil rate if your lease qualifies.
Be aware of any restrictions that may limit your property use
Some leases will come with restrictions on subletting, alterations, business use and pets. Being aware of any restrictions before committing to a product will ensure the property suits your plans and way of life.
Check if your rights include term extensions and freehold purchases
Most lease holders have a statutory right to extend their lease by 90 years on top of what remains, and many house leaseholders are able to purchase the freehold outright.
If you own a flat, you and other flat owners may be able to buy the freehold together through a process called collective enfranchisement.
These rights can significantly affect the long-term value, costs and flexibility of owning a leasehold property. If these rights are limited or unavailable, it may restrict your options and make selling or remortgaging more challenging.
How can Cooper Associates Mortgages help?
The legal landscape is evolving, with ongoing leasehold and freehold reforms aiming to make ownership simpler and fairer. But what do these changes mean for you?
Our independent advisers will help you stay informed and make confident, future-proof decisions. We offer whole-of-market advice bespoke to you and tailored to suit your financial circumstances.
To begin your journey towards the right ownership option for you, get in touch today. Our team is always happy to help.
