When looking to purchase a new home you will notice that the property details will note if it’s leasehold or freehold. You may be left wondering what the difference is and what its implications are for you as the homeowner.

Freehold

If you’re buying a freehold property you are purchasing the land that it is built on. Your name will be listed on the land registry as the ‘freeholder’. The main benefits of purchasing a freehold property include:

• No need to pay ground rents or service charges.
• No limitations on what you can do in your home, for example you are free to own pets or carry out building work (with planning permission).
• No fear of declining value purely related to the term of a lease running out, or the need to pay for an expensive renewal of the lease.

There are very few disadvantages to owning a freehold property apart from the fact that the initial outlay is more expensive, as you are purchasing the land and the property. You are also responsible for maintaining the interior and exterior of the property, including elements such as the roof, exterior walls and fences. For some people this may be seen as too much of a responsibility and a cost burden, should anything need to be fixed or replaced.

Leasehold

If you buy a leasehold property you are entering a legal agreement where you own the property but not the land that it is built on. You will enter a lease agreement with the freeholder of the land – the landlord, for a set period of time. The length of the lease varies and can be anything from as short as 40 years to as long as 999 years. Once the lease comes to an end the property reverts back into the hands of the freeholder. Therefore properties with a lease of 80 years or less are best to be avoided. Although most homebuyers prefer to purchase a freehold property there are some advantages to leasehold including:

• Usually less expensive to buy.
• Usually come with less responsibility for personally having to repairing and maintain external walls and roofs – as this will be covered by the monthly service charge.

The main disadvantages to purchasing a leasehold property include:

• The declining value of leasehold property is the biggest deterrent to purchasing a leasehold property. Buying a home with a leasehold term of less than 80 years is best to be avoided, as your mortgage provider is unlikely to lend you the money and it will be very difficult to sell the property on.
• Costly annual maintenance fees which cover the maintenance of the building, the communal areas and the external grounds. These costs usually increase annually and you may be asked to pay additional one off costs for substantial renovations, such as the need for a new roof.
• Annual ground rent payment to the freeholder.
• Restrictions on how you can use your property e.g. no pets and no sub-letting.
• The need to obtain permission from the freeholder to do any major works to the property.
• You are at risk of forfeiting the lease if you do not make your monthly/annual service charge payments on time.
• There can often be disputes between the freeholder and the leaseholder over issues such as the upkeep of the communal areas, planning permission and the general feeling from the leaseholder that the freeholder is charging too much for the service charge.