Leasehold vs freehold, know the differences

by Cheyne Wilcocks MSc, DipPFS, Cert CII(MP & ER) | 1st November 2019 | Insight

I am going to take a look at the main differences between a leasehold property and a freehold property and why it is important you are very clear which category your proposed property purchase falls into.

Leasehold main characteristics

If you are considering the purchase of a leashold property you need to understand you will not own the property outright. Moreover, the freeholder (or landlord) may have restrictions in place that would affect your occupation. Such restrictions could include no pets, express permission from the freeholder before any remedial works take place and a total ban on sub-letting. Such restrictions, as well as any other pertinent fact, will be highlighted by your legal representative.

Leasehold arrangements are desirable with certain types of property. Let'e assume you have a flat within a block of eight on the second floor under the roof. What would happen if the roof sprung a leak into your flat? Would you be responsible for the repair because it is affecting your flat? Without a leasehold arrangement you could well be! Under a leasehold arrangement it should fall to the freeholder to repair the roof as well as up keep any communal areas. Again, the freeholder's responsibilities need to be confirmed by your legal representative before purchase.

Freehold main characteristics

A freehold property means that when purchased you own it outright. You have the freedom to make changes (within local planning laws), sell the property in its entirety or let it out.

Let us consider your imaginary flat mentioned above again, only this time it is freehold. Responsibility for the roof repair becomes that much more complicated which is why a freehold flat within a converted house would need special attention before purchase.

Lender's view

A lender will consider a freehold hold house as good security for the loan. However, in the main, they will not lend on a freehold flat within a block. When it comes to leaseholds, following consideration of the terms, they will pay particular attention to the remaining term on the lease. Again, in the main, anything less than 80 years remaining they may have difficulty underwriting the loan.

So freehold and leasehold both have their place in property but be careful and be sure you know what type you are considering and establish under what terms each exist.

Lawrie Mortgages will guide you through the mortgage selection process when considering a leasehold against a freehold.

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