It’s essential to be well-informed about the different types of home ownership.
They can significantly affect the costs and value of properties.
One of the most common types of property ownership is freehold.
Read on to find out what it is, what types of property it usually applies to, and what its advantages and disadvantages are.
What is a freehold property?
A freehold property means that you own the land underneath the building.
It is the most common type of property ownership in the UK, especially with detached houses.
There is no ground rent or service charge due for freehold properties. This is because the owner is responsible for all maintenance of the surrounding land.
You also don’t have to worry about a lease with a freehold house. You can live there indefinitely.
Freehold vs leasehold
Freehold and leasehold are different models of property ownership.
Leasehold ownership is when you are ‘leasing’ a property for a set period from the freeholder. It is common with flats.
By contrast, freehold is more common with all other property types.
All things being equal, freehold properties are also more valuable than leasehold ones because the owner has more control.
They also tend to be larger and more secluded. You often won’t share common areas with others, such as hallways or entrances, as you do with a leasehold.
How common is freehold property?
In a recent calendar year, approximately 80% of properties in the UK were freehold or commonhold.
Most experts suggest that freehold houses are far more common in rural areas. This is because flats are rare here.
Meanwhile, the percentage of freeholds is far lower in major cities where flats comprise many properties.
What is a share of freehold property?
A share of freehold property is another type of house ownership. It is when a group of leaseholders come together to collectively buy the freehold to their building.
Through this method of co-ownership, the leaseholders have far more control than they would with a leasehold property. (But less than if they were the sole freehold owner.)
They can set their own ground rent and service charge. They can also grant lease extensions to each other.
In other words, some consider share of freehold as a ‘step up’ on leasehold, but a ‘step down’ from freehold.
You are no longer answerable to a freeholder, but you must collaborate with your other co-owners.
Can you get a freehold flat?
Freehold flats are rare to find.
Lenders do not offer mortgages on freehold flats. This is usually because:
- The owner of a freehold flat has no legal obligation to maintain the building
- Disagreements involving freehold flat owners are common
- If the flat is ever sold, then future freeholders may not agree to existing arrangements in place
- There is concern over your ability to resell the house in the future.
This means that you usually need to buy it in cash. The very few that do exist are often listed at property auctions, rather than the open market.
Advantages of freehold property
Reduced long-term costs
You can avoid some of the costs that often come with leasehold properties. Common examples are ground rent and service charges.
You also don’t have to spend money on a lease extension, which typically costs several thousands of pounds.
Increased control
You have greater control over a freehold house, too. You don’t need to ask someone for permission to renovate a room or add a conservatory.
Any property extensions are entirely up to you, too, even though you might need planning permission from the council.
Higher property value
Lastly, you tend to receive a higher price for freehold property because of the reasons above.
This means that you’ll make more money when you sell it on the open market.
Disadvantages of freehold properties
Higher upfront cost
When you first buy a freehold house, you will typically pay more than would be needed for a leasehold equivalent.
This is because freehold properties are more expensive.
Increased responsibilities
There is also more responsibility when you own a freehold property.
You’re responsible for maintenance and building management, including legal and regulatory matters.
The issues you face are, therefore, potentially time-consuming and unpredictable. By contrast, leaseholders are relatively less impacted by most of the same issues.