What You Need to Know About Buying Leasehold


Leasehold properties have had a lot of negative press lately, as people have ended up buying a home that doesn’t exactly match their expectations. This doesn’t necessarily mean that these houses need to be avoided at all costs, though. Instead, it’s crucial that people understand leasehold properly before buying, as this allows you to make an informed purchasing decision.

What is a leasehold property?

There are two different options when you buy property: freehold and leasehold. A freehold is a property that you own outright. You own the bricks, everything in them, and the land that they stand on.

Leasehold is very different. It means that the property and the land is owned by someone else – a freeholder – and you have actually bought the right to live in the home for a certain number of years. The length of the lease could be anything from 40 years all the way up to 999 years.

Why are there concerns about buying leasehold?

One of the big problems that leasehold buyers have is renewing their lease when the initial term is up. This is a particularly big issue on properties with shorter leases of less than 100 years. When the lease ends, ownership reverts to the freeholder, not the buyer. Then, you may be charged hefty fees to stay in the house – thousands, or even tens of thousands. That being said, a lease expiring doesn’t necessarily mean that you’ll need to pay up (or leave the property). In many cases, it will simply continue on the same terms. However you need to be aware that it is at the landlord’s discretion. If they feel that the property value has risen since you have lived there, then they will charge you to make up the difference.

Another issue is fees. All leasehold properties charge ground rent, and many will also have maintenance or service fees. This can be frustrating, and also make it difficult to sell the property on as many buyers are wary. The freeholder can also set rules about what improvements you can make, stopping you from adding those essential home touches. All of this has proven to be a particular problem in the new build market, where first time buyers are being hit by charges and restrictions.

Who can benefit from buying leasehold?

Based on the issues above, you may wonder why anyone would opt for leasehold. Well, it’s not quite as simple as that. For starters, leasehold may be essential if you’re looking at certain types of property. Many flats are leasehold rather than freehold, and many new builds are too. If you understand what you’re getting into, then the fact that you don’t own the land doesn’t necessarily need to be a deterrent.

Leasehold properties are often cheaper, too, so it may help you to find a home within your budget. Generally speaking, houses with a long lease period of 100 years or more are far less risky than those with a short lease. The longer that’s left on the lease when you eventually try to sell, the less trouble you’re likely to have.

The recent media attention given to leasehold problems should also count in buyers’ favour. Regulators are starting to look at ways of rebalancing the market, and are already talking about limiting the amount you can be charged to renew your lease.

If you do decide to go ahead, ask the right questions. You need to know how long your lease is – this should be clear – but also the total of additional fees, including maintenance fees and service charges as well as ground rent.

Comments are closed.