The two primary types of home ownership in the UK are freehold and leasehold. Before you move forward with how to sell a house or how to buy a home, it’s crucial to understand the differences between the two because they have pretty distinct expenses and obligations.
When you own a home on a freehold basis, you also own the ground that the building is built. You are in charge of maintaining the entire property, including the building’s exterior walls and roof as well as your personal belongings within. So long as you get all required planning clearance from the local council, you are free to make any structural improvements to the house, such as adding an addition.
Could I purchase the freehold?
If you are a leaseholder, you might want to consider purchasing the property’s freehold. In the case of a flat, for instance, you could be able to purchase a portion of the freehold, which you would jointly own with the other flat owners. You might be able to purchase the entire freehold if the property is a dwelling. It is highly recommended to get professional legal counsel because this can be a drawn-out and expensive process.
What is the price of purchasing a freehold?
The cost of purchasing a freehold varies widely for a variety of factors, much like home pricing. However, in general, the freehold will cost more the shorter your lease.
In addition to the freehold’s sale price, you will also be responsible for the following expenses:
- legal fees
- appraisal fees
- stamp duty
- freeholder’s legal
- assessment costs & valuations fees
It might be a very difficult procedure to purchase the freehold, especially if there are numerous renters. Therefore, it’s crucial to have independent legal and financial counsel before beginning the project to prevent any costly errors.
A building that is constructed over land but is not a part of it is known as a flying freehold. Suppose, for instance, that one freehold property is hung over another. The following circumstances are more likely to result in flying freeholds:
- homes situated atop steep hills
- rooms spanning hallways
Before submitting an application for a mortgage, it’s crucial to confirm whether a property has a flying freehold. For this kind of property, some lenders won’t lend, while others might have limitations.
What exactly is a leasehold home?
Freehold and leasehold have several key differences. For a predetermined time, you essentially lease ownership of a property. This often lasts for a very long time, but it might be anywhere from 40 to 999 years. But as a general rule, this is typically 90 or 120 years. Generally, you must obtain the freeholder’s approval before making any significant improvements to the land, and there may be restrictions on things like keeping pets. The freeholder will again become the sole owner of the property once the lease expires.
Although apartments and flats typically fall within the leasehold category, this has not always been the case. In recent years, a number of newly constructed homes have been sold on leaseholds, which is a common arrangement for older buildings in England, Wales, and Northern Ireland. The UK government outlawed this practice in 2019 and mandated that all newly constructed properties be sold as freehold.
Can a lease be extended?
A lease extension request can be made to your landlord at any time. If you meet the requirements, you might be eligible to extend your lease on a flat by up to 90 years or on a leasehold property by 50 years.
The price to extend a lease varies and often consists of two components:
The agreed-upon cost of extending the lease is called the premium.
Fees and taxes, his covers the price of hiring experts as well as any applicable taxes.
You can get an idea of the cost of extending your lease using the Leasehold Advisory Service’s (LAS) lease extension calculator.
Buy a leasehold home?
The availability of properties and your financial situation will largely determine whether you choose to purchase a leasehold or freehold property. It’s crucial to be aware of extra costs, such as ground rent and service charges if you’re thinking about purchasing a leasehold property. The freeholder may increase these payments every few years in accordance with the conditions of your lease, making them much more expensive over time. If you can’t pay your ground rent, your house could be repossessed, just like with mortgage payments.
Ensure that you know how much time is left on the lease. Mortgage approval for a building with a lease of fewer than 80 years could be challenging. Additionally, a lease that is shorter than 70 years might negatively impact the property’s value. Before purchasing a leasehold property, consider the cost of extending the lease because it can be high. In some circumstances, you might be able to utilise a brief lease to negotiate a lower asking price for the house or to persuade the seller to foot the bill for the lease renewal at the going rate.
To avoid any unpleasant surprises, you should also review the conditions of your lease to see whether there are any limitations on home upgrades or a ban on having pets.