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Freehold Versus Leasehold Properties – What Are The Differences?

So, you are ready to make an investment and get your first home. You are ready to get on the property ladder, whether this is your first home or you are pushing to become a landlord. If you have already dealt with properties, you might be familiar with jargon terms and specifications when it comes to properties. But if you are completely new, you may need to research a few details.

Now, when searching for properties, you will notice that some of them carry the freehold tag, while others bring in a leasehold status. Even your bank or mortgage adviser will ask about these things. But then, what do they really mean? What kind of responsibilities do they come with and how can they affect your property?

Understanding what freehold means

A property freeholder owns everything about it. The freeholder owns the actual building, as well as the land that the house is built on. If you are after a freehold, it means you need to maintain the land as well – so you have to consider these costs as well. Many houses on the market are freehold, but you can also find leasehold alternatives.

Getting a freehold property comes with some advantages. For example, you will never have to worry about extending the lease – what if it runs out? You do not need to deal with the freeholder and you do not have to pay for it – most commonly, the associated costs involve paying rent for the land and charges for different services.

Understanding what leasehold means

A leasehold is different, meaning you only own the property for a specific period of time – the length of the lease agreement. When the lease is over, you can try to extend it – otherwise, ownership returns to the freeholder. To help you understand, many flats are sold as leasehold. You own the property, but there is no stake in the building it belongs to.

When buying a leasehold property, you practically take over from the previous owner. Make sure you know upfront how many years are left on the lease. Think about budgeting for related costs as well, not to mention the reselling value. Now, you should know that leasehold land usually belongs to large developers or local councils, so you should not worry about someone changing their mind overnight.

Is there a middle solution?

Owning a share of freehold is relatively simple. For instance, you can do it by gathering with other leaseholders in a block of flats and buying a share. For this procedure to work, you need to gather at least half of the leaseholders – otherwise, it will not work. This option provides some extra control and allows you to manage costs in an easier manner.

On the same note, owning a share of freehold will also give you the opportunity to extend the lease later on – you can go up to 999 years. You will need to serve a notice to the actual landlord. But then, the price might be expensive. Plus, you will have to establish a company with other leaseholders for the building management – or you can find a property management company to do it for you.

Bottom line, understanding the differences between freehold and leasehold companies is definitely a plus. Most people will clearly try to find a freehold property, as they get to skip the hassle and potential headaches associated with leasehold properties. But on the other hand, leasehold properties tend to cost a bit less, so they make a good choice for those with limited possibilities in terms of their deposits or mortgage deals.