There are two main types of property ownership in the United Kingdom: freehold and leasehold.
(A third type is ‘commonhold’, although this is far less common).
If you want to buy a property soon, you should learn the difference between these two types of ownership.
This blog provides a clear summary so you know which one might be best for you.
Differences between freehold and leasehold
Differences in principle
In short, freehold means somebody owns the land underneath their property, whereas leasehold means they don’t.
In the latter case, the land is owned by a freeholder whom the resident is ‘leasing’ from.
(A share of freehold is also something different. It means a group collectively owns the land underneath a property).
Freeholders don’t need a lease, they have the right to live in a property indefinitely.
By contrast, leaseholders have terms allowing them to live in a property. This is often – but not always – upwards of 80 years.
If the lease expires, the property transfers back to the freeholder. So, they need to get a lease extension before this happens.
Difference in practice
In practical terms, leasehold property comes with service charges and ground rent. This is paid to the freeholder for maintaining the land and common areas.
This may be a couple of thousand pounds per year but could also be higher or lower. It’s usually paid annually.
Leaseholders need to follow certain rules.
For example, many freeholders forbid their leaseholders from keeping pets, hosting loud parties or making permanent changes to the property.
When is freehold most common?
Freehold is most common with detached properties. The majority of semi-detached and terraced houses are leasehold, too.
When is leasehold most common?
Leasehold is most common with flats. Most maisonettes are leasehold, too.
Advantages and disadvantages of freehold
Advantages
No service charges or ground rent
You don’t pay service charge or ground rent to someone else when you own a freehold. This money stays in your pocket.
Control over property changes or conditions
Freehold also allows you to change the house however you wish without needing permission from someone else.
Typical examples are an extension or a loft conversion. You might still need permission from the council, but not from another freeholder.
You can also avoid restrictive clauses sometimes involved with a leasehold, such as no pets or parties.
More privacy
You usually have more privacy in a freehold property. You are unlikely to share hallways or entrances with others, although you occasionally do.
Property value
Freeholds tend to be more valuable than leaseholds. But this means that your initial up-front cost is usually higher to buy the house compared to a leasehold equivalent.
Disadvantages
More responsibilities & energy
You are responsible for maintaining the area, though, which may incur its own fees.
A drawback of freehold is the time, effort and costs involved with maintaining your land.
This might include legal issues surrounding your land, or compliance with regulations.
And if something needs repairing, it is entirely your responsibility.
Advantages and disadvantages of leasehold
Advantages
More affordable
A leasehold often has a lower value than a freehold property. This makes it more affordable when you buy the house. It’s thus ideal for first time buyers.
Potential for community spirit
Leasehold properties often offer a great way to socialise and build a sense of community. There are other people in the building who you can befriend.
Less responsibilities and efforts
Less of the maintenance for your property is your responsibility.
Communal areas should be looked after by the freeholder. You can thus avoid any time or effort that this would involve.
Shared amenities
Leasehold properties will sometimes come with shared amenities, such as:
- A garden area
- A gym
- A kitchen.
This gives you access to some great features that a freehold property owner might not have.
Disadvantages
Lack of control
A drawback of leasehold is your freeholder can stop you from carrying out extensions or doing other major renovations.
Costs
You’ll also have outgoings for service charges and ground rent. This is often a couple of thousand pounds per year.
Extending your lease is costly, too. Your freeholder will want to recoup half the value it adds to your property. This usually amounts to several thousands of pounds.
Property value
Leasehold properties are also less valuable than freehold. This means that you will not get as much money as a freehold equal when you sell.
Should I look for a freehold or a leasehold?
The answer to this depends on your circumstances.
Time
For example, maintaining the land around your property might be difficult if you are very short on time.
In other words, you are busy with work and family, so don’t have the free time to put into property management.
In this case, a leasehold might be better.
Plans
Freehold is often better if you want to make major changes to your property.
This might be an extension, loft conversion, or turning your garage into another room.
You can make these changes without needing permission from someone else.
Budget
Leasehold is ideal if you are on a smaller budget. These properties tend to be less expensive up-front than a freehold equal.
You’re also better off looking for a leasehold if you want to live in a major town or city.
There will be more leaseholds on offer because of the limited space. This means you might have more options, and thus get a better deal.
Where you want to live
Most rural properties are freehold. It might be more suitable for you to look for this house type, since you’ll have more options.
Other factors
Besides the ones listed above, there are plenty more factors impacting which type of house is better.
Review the pros and cons listed above, and consider which ones are dealbreakers. Speak to an independent property expert for more guidance.