What’s the Difference Between Freehold and Leasehold?

July 31, 2018

The question every confused house is asking: “what is the difference between freehold and leasehold?” We’ve got some answers.

Maybe you’re about to purchase your first home. You might be trying to help a friend out with the best option for their next move. Or perhaps, you’re just wondering what the hell this freehold/leasehold stuff is all about! Don’t worry, you’ll be clued up in no time.

The difference between freehold and leasehold

You’ve probably seen the word ‘leasehold’ get a bit of bad press lately. It’s definitely important to be cautious about it, but it’s nothing to be scared of if you know all the facts. And that’s what’s key: knowing what’s what. We’re going to start right at the beginning, taking things back to basics. We’ll explain the difference between freehold and leasehold, as well as offering pros and cons to either.

Explaining freehold

Essentially, freehold is the complete free rights to the ownership of a property. Aside from planning permission, if you own a home under freehold you are entitled to do what you want with it. Decorating, selling it on, living in it forever… whatever you want, it’s yours. In terms of money, after typical moving fees and costs, you’ll literally only be paying for your house. Yes, this may mean a mortgage. However, it all goes towards the cost of your house and nothing else. It’s worth knowing that pretty much all older houses are freehold.

Explaining leasehold

Leasehold is different from freehold in that you are not entirely free to do what you want with the property. Yes, it is your home whilst you’re living in it (so, different from renting) but it inevitably belongs to whoever holds the freehold over it. Your lease does not last forever unlike freehold. Usually, you’re looking at a term of around 70 years. During this time, you will also have to pay ground rent which is determined at the discretion of the freeholder. Bear in mind, most flats are leasehold as they are part of a larger, shared building. Often, you’ll find that many new-build houses are also leasehold.

Top tip: If you’re unsure of a property’s status, ask the question. You’re entitled to know whether a house is freehold or leasehold before you buy it.

What are the pros and cons?

Well, as we mentioned earlier, leasehold has got a bad rep, especially in recent years. Publications like The Guardian and The Financial Times have spoken on the topic in the past couple of weeks, focusing particularly on the public getting ‘caught in the trap’. And that’s one of the massive downsides to leasehold, it can often catch homeowners out. This is why it’s so important to do your homework and ask questions when buying any property. Flats and apartments are usually always leasehold, so make sure you are aware of the ground rent and any additional charges before you sign on the dotted line. You should also check how long the lease is as when you come to sell your property on, it can be almost impossible to sell a home with less than 70 years left. Don’t be tempted by a nice property and get caught out!

Freehold is definitely easier to navigate and has virtually no hidden costs. Essentially, if you’re buying a freehold place, you aren’t going to get caught out. The only exception to this is if your survey hasn’t brought up any structural issues or potential damage that could cost you later down the line. However, if you’re set on buying a flat, freehold is of no use to you! Currently, there are discussions about changing leasehold and reforming it. A lot of people have been swallowed up in unfortunate circumstances because of it. Ultimately, we recommend asking as many questions as possible and being certain when you make an offer on a property.

Happy house hunting!

But don’t get bogged down by this truckload of information we’ve parked onto you. Think of it as a basic guide to the difference between freehold and leasehold, which will hopefully make you a little bit more mindful when you’re next in the market. In the meantime, why not check out our properties to see if anything takes your fancy? Alternatively, for more information on selling your home, take a peek at our seller’s guide.

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