There are two main types of property ownership in the UK: leasehold and freehold.
When you buy a house, you must find out which one applies to your property. It can affect your monthly costs and what you can do.
If you want to learn more about this subject, you’re in the perfect place.
We’ve explained what a leasehold property is and how it works in the blog below.
What is a leasehold property?
Leasehold is one of the UK’s most common types of property ownership. It is when the buyer holds a long-term lease from the freeholder.
The length of this lease determines how long the leaseholder can live there. It is often between 99 and 125 years, although it can be higher or lower.
Over time, the lease gets shorter. Once it falls below 80 years, banks and buyers may be reluctant to lend money on it.
A freeholder tends to be in one of the following groups:
- A landlord
- Housing association
- Local authority
- Property management company.
What are freeholders responsible for?
Since the freeholder owns the land underneath the building, they are responsible for setting ground rent.
They will also maintain any common areas on the property, such as:
- Hallways
- Lifts
- Staircases
- Carparks.
And more.
A leaseholder usually has to pay a service charge for the maintenance of these spaces.
What happens when the leasehold expires?
Most leaseholders try to extend their lease before it expires. You could also buy the freehold outright.
But if the leasehold expires, the property transfers back to the leaseholder.
This is the law at the time of writing.
However, the UK government aims to change this in the coming years. More on this further below in the blog.
How common is leasehold property?
Leasehold is most common on flats and maisonettes. But it sometimes appears on other types of property, too.
According to the UK government figures:
- 24% of house sales were leasehold in a recent calendar year
- Almost 100% of flats were leasehold,
- Only 7% of houses were leasehold.
Leasehold tends to be more common in areas where there are more flats. Urban areas in major cities are the best example.
The proportion of new-build houses sold as leasehold is reportedly less than 1%.
Freehold properties tend to sell for more.
This is helpful for the companies constructing these new builds. It’s also far more attractive for the buyers.
How is leasehold different to freehold?
There are several key differences between a leasehold and a freehold property.
Ownership length
A leaseholder does not own the house indefinitely. They have rights for a set period.
However, once the lease term expires, the freeholder will return the property.
This is different from freehold, where the buyer has total ownership indefinitely.
Control
Freehold owners can make changes to their property without permission from a landlord.
A leaseholder often has a written agreement limiting what they can do. For example, they will usually need to get permission for extensions.
Costs
Leaseholders pay ground rent and service charges in most cases. Freeholders do not have to pay these.
This is because they are responsible for maintaining the area themselves. This latter scenario comes with a different set of costs. It isn’t always less expensive.
Selling limitations
Freehold properties don’t face the same limitations when selling.
Leasehold properties under 80 years can be challenging to sell on the open market.
Is a leasehold less valuable than a freehold?
Yes, leasehold properties are usually less valuable than freehold properties.
Leaseholders have higher costs and less control because they pay the freeholder for ground rent and service charges.
This is factored into the value of the property.
Remember that a freehold may involve more hassle, though, as you need to maintain it yourself. Some people prefer a leasehold for this reason.
Still, transferring a leasehold to a freehold usually increases its value.
Advantages of leasehold property
Less expensive
Leasehold properties tend to be less expensive than freehold ones. This means that it is more affordable to a greater number of people.
For example, many young people buy a flat as their first property. This tends to be leasehold.
Less hassle
A leasehold property should involve less time and less hassle with maintenance. The leaseholder pays a service charge.
The landlord then uses this to maintain the common areas. There shouldn’t be too much maintenance required from the leaseholders themselves.
Shared amenities
In some cases, leasehold properties come with shared amenities. This might include garden areas, a gym, or even a swimming pool.
This will increase your service charge payment. But it also gives you access to resources that freehold owners rarely have.
Disadvantages of leasehold property
Costs
There are plenty of instances where leaseholders think their service charge payments are high.
Risk of low-value services
You cannot always guarantee that the freeholder will properly maintain your building.
This means that you might make service charge payments with minimal results.
Value depreciation
Your leasehold property value will decrease significantly as the lease gets shorter.
Once it drops below 80 years, you may need help to sell it on the open market. Extending the lease can cost several thousands of pounds.
All things being equal, your property is also inherently less valuable than a freehold.
Potential for disputes with freeholder
You may have disputes with your freeholder.
You often need their permission for any significant changes to the house. This adds complexity that freeholders don’t have to deal with.
Is the law about leasehold property going to change?
The previous Conservative government proposed changes to the UK leasehold laws.
These ideas have received support from both major parties. The current Labour government plans to proceed with most of the core suggestions.
As a result, the UK government introduced new legislation in 2024. This aims to reform residential leaseholds in England and Wales. Key changes include:
- Banning the sale of new leasehold houses except for in exceptional circumstances
- Making it easier and cheaper for people to extend their lease or buy their freehold
- Increasing the standard lease extension term to 990 years for houses and flats.
The goal is to combat escalating ground rents and unfair fees.
Freeholders might also be slow when approving changes.
These changes have not come into effect yet. The government should specify when changes will become official in the coming months.
Watch for these announcements, as the details are still subject to change.