Are you wondering if getting a lease is a bad idea? Well, this article will help you to understand the pros and cons of a leasehold vs. a freehold property.
Getting on the property ladder is no easy feat. One of the big decisions you may have to make is whether to purchase a freehold or a leasehold property. However, leaseholds have a bad reputation, so what are you in for if you buy one?
One of the biggest issues with leasehold properties is the length of time the lease is valid for, alongside other cons. Of course, lease extension solicitors can help you to get around this situation, but there are also a number of other negatives you may need to contend with.
So, before jumping in and buying your leasehold property, it’s important you understand what you’re buying. To do this, we’ll discuss the pros and cons of purchasing a leasehold over a freehold, in this article. Take a look…
What is the Difference Between a Leasehold and Freehold Property?
Before we delve into whether buying a leasehold or freehold property is better for you, let’s go through some definitions. Starting with a leasehold property, this is when you own a property but not the land it sits on. In situations like this, there will be a landlord who you are essentially renting the land off of.
Alternatively, a freehold property is when the property owner owns both the property and the land it sits on. It may seem as though owning a freehold is the obvious choice so you have complete control over the situation.
However, it’s not as simple as this, as 19 percent of UK’s housing is leasehold, meaning it’s a huge chunk of the available properties. Many of these will be smaller properties, that will be more appealing to first-time buyers especially, so some people have no choice.
The Pros of Leasehold Properties
It may seem as though there can only be negatives to owning a leasehold property, but you may be surprised to learn that there are some positives. These include:
May be Cheaper
Due to the nature of leasehold properties, they tend to be cheaper at the outset than freeholds. This is because most leasehold properties are flats, which are usually cheaper than houses. Any houses that are leasehold properties tend to be shared ownership homes which, again, makes for a cheaper option.
What’s more, the potential risks involved with buying a leasehold property also reduce costs. In general, the market value of these properties is lower than freeholds.
Maintenance is Taken Care Of
When it comes to maintenance in the communal areas of a building, this is the responsibility of the freeholder. So, when it comes to areas like hallways and bin areas, as well as plumbing, electricity and building structure, these are all part and parcel of the package you pay for in ground rent. Even services like window cleaning may be available to you through this.
Building Insurance is Covered
Building insurance is also usually covered by the freeholder, which means any potential future problems with the property should be covered.
The Cons of Leasehold Properties
There are clearly a few positives, but there may be far more negatives about leasing a property. Take a look…
Paying Ground Rent and Service Charges
Yes, the maintenance and services on communal property are done for you, but this usually comes at an extra charge, alongside any mortgage fees. This could be a monthly or annual fee, which could come to extra thousands of pounds.
There is also an issue in that the freeholder may not even maintain the property, even if it is their duty. Essentially, you are renting the land, and at the mercy of the landowner.
On top of this, conveyancing fees for getting a property of this type may be more expensive. So, although the property itself may be cheaper, the extra costs could start racking up.
You Need Permission to Change the Property
Much like a rental property, where you can barely hang a photo without being financially reprimanded, you may face similar problems on a lease. Of course, it isn’t to the same degree as a rental property, and you are more able to hang a picture on a wall or paint a section here or there.
However, when it comes to physical and structural changes, you can’t do this without written permission from the freeholder. There may also be large fees involved with doing so.
Not Able to Sub-Let
With the cost-of-living crisis hot on everyone’s radar, people are not only looking for cheaper places to live, but they’re also looking to make a bit of extra cash. For some, renting their property out may have been a potential option but, in leasing situations, this may not be the case.
No Pets Allowed
One of the greatest joys of owning a property is being allowed to get as many furry friends as your heart desires. However, a leasehold property doesn’t always have these same benefits, and you may find there are restrictions on pets.
Short Leases Can be Problematic
When you buy a leasehold property, you only own it for a set length of time. This is the term of the lease. New leases usually begin from 99 to 125 years, and 99-year lease is as good as a freehold property. Once this term runs out, however, the property then transfers to the ownership of the freeholder.
If a lease is shorter, it can become problematic, especially when it comes to selling it later down the line. There are options in this case, including lease extensions or buying out the freeholder with the other tenants. However, there’s plenty more to contend with than if you were to simply own the property outright.
Is a Leasehold Better Than a Freehold?
As you can see, there are various negatives and positives to buying a leasehold property over a freehold. Whilst you may not necessarily have such a choice, it’s important you make an informed decision before investing your money in the property. This way, you know what you’re paying for, and can plan ahead for short lease times.
There’s no right or wrong way to buy a property – whatever your situation is, do what’s best for you. What do you think about buying a leasehold over a freehold?