The different forms of home ownership

There are two different forms of legal ownership: freehold and leasehold. This is one of the most important things to know before purchasing your home. Making the wrong decision can be very costly, so it is important to understand what these terms mean and what the key differences between them are.

Freehold 

Freehold means you own everything, the bricks, mortar and the land – meaning that as long as you comply with the government legislations, you’re entitled to do whatever you want with the property and garden. However, it also means that you are solely responsible for the maintenance of the building and the grounds.  

ProsCons
You own the property, the land it sits on and the space above itFreeholds are often more expensive, due to you owning the land as well as the property
No ground rent, service charge or admin feesMaintenance of the building is your responsibility
More attractive to buyers
Easier to gain a mortgage and better capital appreciation long term

Leasehold

Leasehold means you are purchasing a lease from the freeholder, giving you the right to live in the property for a set number of years.  

Leasehold tend to be more common when purchasing a flat/apartment, but in recent years, the number of leasehold houses has grown dramatically, especially with the new builds that have been sold directly through the developer.  

The length of leaseholds can vary but typically a new lease will start off at around 99 or 125 years, but you do have some that run as long as 999 years. Finding out the amount of years left on your lease is important. As a buyer, a short lease is anything below 85 years; this can have an effect on your ability to attain a mortgage, depending on your lender’s criteria.  

For many leasehold properties, you will have to pay maintenance/service charges. This is a payment that funds the upkeep and maintenance of communal areas. Using a block of flats/apartments as an example, these fees would pay for the internal and external maintenance, decoration, garden areas, hallway and building insurance.

ProsCons
Cost of purchase is usually cheaperCan be difficult to get a loan due to how many years may be left on the lease of the building
Freeholder is usually responsible for building maintenance and communal areasWill be required to pay ground rent, service charges and maintenance fees on top of mortgage
More attractive to buyersThe fewer years are left on the lease, the harder it will be to sell the property
You need written permission from the freeholder to change the property, and there may be charges involved

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