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What’s the Difference Between Freehold vs Leasehold?

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    Learn More About Freehold & Leasehold

    If you’re in the process of buying a property, whether for investment purposes or to live in, you will have most likely come across the terms leasehold and freehold.

    For those who aren’t familiar with these terms, freehold vs leasehold refers to the type of ownership you have of a property.

    Understanding the difference between freehold and leasehold properties is essential, as this may affect the type of property you purchase.

    In this detailed guide to leasehold vs freehold, we discuss the difference between the two, and the different costs and levels of responsibility that come with each.

    If you’re unsure whether freehold or leasehold is your best option, keep reading our guide for some helpful information.

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      What’s the Difference Between Leasehold and Freehold?

      The difference between leasehold and freehold is quite simple. With leasehold, you own the property itself for a certain period of time agreed with the freeholder, but not the land it stands on. Whereas, with freehold, you have outright ownership of both the property and its land.

      Whether you’re more likely to encounter a leasehold vs freehold ownership often depends on the type of property you purchase. Flats, for example, are normally leasehold as you will only own one property in a building of many. Houses, on the other hand, especially detached or semi-detached, are more likely to come with freehold ownership.

      Freehold vs Leasehold: What Is a Freehold Property?

      So what is a freehold? As mentioned above, the meaning of freehold is complete outright ownership of a property and its grounds. Those who buy a freehold property will have the responsibility of maintaining the property and its land.

      So what are the benefits of freehold compared to leasehold?

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      Benefits of Freehold Tenure

      You Don’t Have to Worry About Your Lease Running Out

      The main benefit of freehold property when comparing freehold vs leasehold is the fact that you won’t need to worry about the length of your lease.

      With leasehold properties, a shorter lease can be problematic as it causes issues when it comes to selling the property.

      Because the definition of a freehold property is that you own the property entirely, you won’t encounter any problems selling the property and can do so whenever you like.

      For many homeowners or investors, this peace of mind and level of security that comes with a freehold tenure is important.

      You Don’t Need to Pay Ground Rent

      Unlike leasehold tenure, you don’t need to pay ground rent for the land your property is built on since you own it yourself.

      This means you’re also responsible for the upkeep of the grounds and have the freedom to do with it as you please.

      If you wanted to redesign the garden of the property by adding some artificial grass, for example, you would be free to do so without having to check with someone else.

      Disadvantages of Freehold Tenure

      Higher Purchase Prices

      One of the biggest cons of freehold properties is that they’re usually more expensive to purchase than leaseholds.

      For investors who want to benefit from the highest yields possible, the cost of buying the property is essential.

      This is why a lot of buy-to-let investors tend to focus on purchasing leasehold apartments with long lease lengths in order to get the most out of their investment.

      More Responsibilities

      While some people may favour having more responsibility, for many, such as those who want a hands-off buy to let investment, this is a huge downside of freehold tenure.

      If work needed doing on the outside of the property or its communal areas, it would be down to the freeholder to pay for and arrange any repairs or maintenance.

      While leaseholders will still have to pay for certain things, many works will be subsidised by the freeholder of the property.

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        FAQs About Freehold Ownership

        What Does Share of Freehold Mean?

        Share of freehold is when a buyer acquires a shared ownership of a property’s freehold title. Unlike having complete freehold ownership, you would only have freehold tenure for a portion of the property.

        Many buyers find this beneficial, as it allows them to have more of a direct say on the property and help make any major decisions, particularly if buying a share of freehold on a block of flats.

        What Does Freehold Land Mean?

        Freehold land is the grounds that a property is built on, and owned by the freeholder of the property.

        If you have freehold ownership, you’ll be responsible for maintaining the land of the property, whether this is for a leaseholder, a tenant, or yourself.

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        Freehold vs Leasehold: What Is a Leasehold Property?

        If you’re unsure what leasehold means, it’s a property which is only partly owned by those who purchase it.

        A leaseholder owns the property for the period of time their leasehold lasts up until, but doesn’t own the ground or land that the property is built on.

        Leasehold properties are normally flats/apartments, but can also be houses, especially if purchased under a shared ownership scheme.

        Here are the pros and cons of leasehold ownership.

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          Benefits of Leasehold Tenure

          Reduced Initial Costs

          When you purchase a property with leasehold ownership, the initial purchase costs are normally lower.

          This is partly due to the fact that apartments are more commonly leasehold, and these are typically priced lower than other property types.

          If you’re an investor buying an apartment with leasehold tenure, you can benefit from the chance to make a larger return on your investment.

          This is especially true if you purchase a buy-to-let apartment in an area like Liverpool, where property prices are low and rental demand is high, resulting in some impressive rental yields.

          By purchasing an off-plan apartment, you also benefit from an even more significant discount on your purchase price.

          They’re Easy to Manage

          In many cases, owning a leasehold property can be easier to manage than a property purchased with freehold ownership.

          While you would definitely still have a level of responsibility when owning a leasehold property, you may be able to pass certain costs and maintenance requirements over to the freeholder.

          If some work needed doing to structural elements of the property, for instance, such as building repair for the outside walls, this would be taken care of by the freeholder.

          This is ideal for property investors with leasehold ownership, as it allows for a more hands-off investment while still keeping a good level of responsibility.

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          Disadvantages of Leasehold Tenure

          Short Lease Lengths Can be Tricky

          One of the biggest downsides of leasehold ownership is that you need to avoid a leasehold agreement which permits ownership for a limited number of years.

          The less time you have on your lease, the more problems you can encounter.

          For one thing, short leaseholds may make it difficult to secure a mortgage – for a 25-year mortgage, the lease needs to last for at least 50 to 55 years.

          If a lease is less than 80 years, this can also make it difficult to sell the property, which is a major issue for those purchasing a leasehold property for investment purposes.

          This is why at RWinvest, all of our leasehold properties come with long leases to ensure as smooth an investment as possible.

          You Need to Pay Service Charges

          All owners of a leasehold property are required to pay for certain service charges.

          The main charge is ground rent, which pays for the upkeep of the land the property is based on.

          Some other charges that leasehold ownership may involve include electricity bills for communal areas and administration charges.

          While paying these charges may be a negative for some, you need to assess the bigger picture when it comes to costs as a whole, especially on an investment level.

          Despite charges that come with a leasehold property, the initial cost is likely to be much lower for leasehold vs freehold, while having the potential to generate some fantastic returns, which will more than likely cover the cost of leasehold fees.

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            FAQs About Leasehold Ownership

            A leaseholder is a person who has purchased a property with leasehold ownership. The leaseholder leases a property owned by a freeholder for an agreed period of time and is required to pay ground rent for the upkeep of the property’s land.

            If you have purchased a leasehold property, the freeholder is the person who owns your leasehold. If you’re not sure who this is, you can use sources like the Land Registry Index. This allows you to find out who the registered freeholder is and obtain a copy of the freehold title register if necessary.

            If you’re an investor who has purchased a leasehold property, your freeholder will most likely be the developer behind the development your property is part of.

            When a leasehold ownership runs out, full ownership of the property goes back to the freeholder.

            If you’re not ready to give up your property by the time the lease has ended, you’re able to extend your lease, although getting a lease extension may come with a charge.

            Once you have been a leaseholder on a property for longer than two years, it becomes your right to be able to extend your lease.

            The amount it costs to buy a leasehold property depends on a number of factors such as the property type and the area it’s based in.

            If you want to buy a property with leasehold ownership while spending as little as possible, look for properties in more affordable UK areas such as Liverpool and Manchester.

            Properties in Liverpool are available to purchase for less than £105,000, such as Parliament Square which is available from as little as £104,950, and ELEMENT- The Quarter, which is only £74,950.

            These properties offer an excellent opportunity for buy to let investors seeking a leasehold property as this property also comes with high rental yields of 7% and 8% respectively.

            With a leasehold flat, you’re responsible for all the things inside the property, which is why a survey for a leasehold apartment is recommended.

            If you’re buying a new build property, however, it’s unlikely that there will be a need to check for any structural issues as the flat will be in good condition.

            Selling a leasehold property is relatively simple, especially if you have a long lease. It is when a leasehold tenure has a shorter lease that things get more complicated. If this is the case, the best option is to either extend the lease or buy the freehold yourself.

            It’s always a good idea to have a good solicitor or conveyancer to guide you through the process of selling a leasehold property, as they can advise you on the best steps to take.

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              Ready to Invest in Leasehold Property?

              Now that you’ve read our guide to buying leasehold or freehold and understand what leasehold means, you may be looking to make an investment of your own into this type of property.

              Here at RWinvest, we have a range of leasehold properties in Liverpool and Manchester, all with long leases, affordable prices and high yields.

              If you’re ready to get started with your UK property investment, contact us today to discuss our available opportunities.

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              Reece Pape

              Reece Pape is a property writer at RWinvest. Reece is passionate about keeping property investors updated on must-have information and housing market news, utilising the latest property market statistics and data.