If you’re considering getting your foot on the UK property ladder and are saving up for a deposit, one of the first important decisions you’ll have to make is whether to buy freehold or leasehold. In recent years, leasehold ownership has had a bad rap and many of the vulnerabilities of the system came to public attention during the leasehold scandal of 2017.
But leasehold ownership doesn’t have to be a problem. In fact, there are many advantages to owning a property in this way. It all comes down to your individual situation, your goals and your aspirations.
What Are Freehold And Leasehold?
There are two main types of property ownership in the UK. When you buy a freehold property, you own the building and the land it stands on. The vast majority of houses are owned like this. However, if you buy a leasehold property — nearly all flats and maisonettes — you acquire the right to occupy the property according to the terms of the Lease while the building remains the property of the freehold owner.
A long residential lease is granted for a set period of time, typically 99 years, 125 years or even 999 years. At present, there are an estimated 4.8 million leasehold properties in the UK, which equates to 20 per cent of the housing stock. These can be bought and sold freely on the open market, with the value of the property depending, among many other factors, on the number of years left on the Lease.
So, why should you buy one?
1. Cheaper than Freehold
Leasehold properties are typically flats and maisonettes, which are generally smaller and cheaper than freehold houses, making them a great option for first-time buyers. Various affordable home ownership schemes are available. These properties, whether period conversions, purpose-built blocks or brand new homes, are also more likely to be in city centre locations, benefitting from shorter commuting times. In London, more than 99 per cent of new-build sales this year were leasehold.
2. Ability To Extend The Lease
If you’re worried about the property being a depreciating asset on account of the decreasing number of years on the lease, you should know that it is possible to extend the lease so it won’t hamper its future potential to sell.
Subject to certain eligibility criteria that must be met, a statutory lease extension will allow you to add 90 years to your lease at a fair market price while abolishing any ground rent. You can use this calculator to work out how much this is likely to cost.
3. No Building Maintenance
The upkeep of the building and communal areas is the responsibility of the freeholder. All leaseholders are required to pay an annual service charge to cover these and other relevant costs. Assuming the freehold is well managed, with a sinking fund in place for larger capital projects (new roof, painting/decorating, window replacements etc), you’ll be able to focus on home ownership without worrying about building works.
4. No Upkeep Of Shared Facilities
The service charge mentioned above also covers any communal garden areas, lifts and car parking, CCT and other security features, as well as any shared leisure facilities such as swimming pools, fitness suites or kids’ play areas. With all the maintenance and upkeep taken care of via local tradesmen that are appointed and supervised by the freeholder or their management company, it leaves residents to enjoy the shared facilities worry-free.
5. Ability To Take Collective Action
Should you be deeply concerned with the way the building is managed or the level of service charge levied, leaseholders can take control away from the freeholder and manage it themselves via their Right to Manage (RTM). They also have the right to collective enfranchisement — buying the freehold from the landlord. All that’s required is for 50 per cent of leaseholders to be in agreement in order to move forward with such a plan.
6. Good Buy-To-Let Investment
Finally, while you might be keen to step on the first rung of the property ladder, there are multiple reasons for buying your own home. You might be more interested in spotting an affordable buy-to-let investment opportunity, and a leasehold flat can be an excellent choice. With leasehold property generally being cheaper than freehold, it could put a property in a good location with high rental demand within reach of your budget. This means more rental income for you in the shorter term while also benefitting from long-term capital appreciation.
