What Are the Differences Between Leasehold and Freehold Properties?
If you own a freehold, you own the building and land the building sits on until you decide to sell the property. If you own a leasehold, you own only the building itself for a set number of years, and then it reverts to the landowner. Here, you can find out the differences between freehold and leasehold properties.
The Features of Leasehold Property
The most common type of property in the UK, leasehold, is under tenure. Property ownership is split between the building or flat and the land, with the flat owner buying a long leasehold that gives them possession of the flat and associated land. Once the lease is up, ownership reverts to the landowner. The flat owner can continue to live in the property without further payments to the landowner.
However, costs for common areas such as the structure and landscaping will still be the responsibility of the flat owner. Leasehold terms vary but generally include a fixed term and an option that can be exercised at the end of the fixed term. This second part is the freehold and allows the flat owner to buy back the freehold and ultimately control the building.
The Benefits of Leasehold Property
Leasehold property is a much more flexible tenure option, particularly for those looking to move to a new flat in a decade. For example, if you move into a small two-bedroom flat while you are young and then start a family, it is easy to buy out the freehold and ensure your home will suit you as your family grows.
Leasehold also allows you to move into a property without making a long-term commitment to a particular area, so if you want to make use of this property. It is a much more cost-effective option than buying outright as you start your career.
The Drawbacks of Leasehold Property
Leasehold property is cheaper than outright ownership of the building and land, but it is still relatively expensive. You will also be liable for paying for the upkeep of the building’s common areas, which can become costly if you are not careful.
If you don’t want to remain on the property, it may not be that easy to move on. If you want to buy the freehold, you will often have to pay more than the flat is worth, leaving you with a significant financial commitment that you may regret in the future.
The Features of Freehold Property
Freehold properties are rare in the UK but more common in the US. The freehold means that the property owner is responsible for the entire structure, building and the land it sits on. Most forms of freehold are on a short lease and have a reversion to the freeholder at the end of the lease.
This means that in the UK, someone who owns a freehold property can sell the freehold to someone else, who will then own the land, building, and the property itself. A freehold property owner could also choose to hold on to the freehold and the property, making it more expensive to sell if it were to become a leasehold property.
The Benefits of Freehold Property
Freehold property is the only natural way to own a building in the UK without paying for maintenance or upkeep. While some properties can be bought on a leasehold basis, it is rare to find a freehold property for less than £50,000. This means that the only natural way to own a freehold property for most people is to buy it outright.
Freehold property can be more attractive to buyers because it is a more permanent commitment, but this also means that it is harder to sell if you don’t want to commit to the area.
The Drawbacks of Freehold Property
The biggest draw of freehold property is also the biggest drawback. Freehold property is a permanent commitment to an area, and if you are not willing to commit to a neighbourhood, it can make it more challenging to sell the property.
You also have to pay maintenance fees and ongoing taxes on the property. The property value will only go down with the upkeep costs, potentially making it difficult to sell if there are already maintenance issues.
Leasehold vs. Freehold: Which Is Right for You?
Leasehold and freehold property have their pros and cons, but they can be the best choice for people with different priorities. Ultimately, it comes down to the following questions:
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How long are you planning to stay on the property?
Leasehold property is a good option if you are unsure where you want to be in a decade, while freehold property is better if you are planning to stay in the area.
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Are you willing to commit to the neighbourhood?
Leasehold property is excellent if you are willing to commit to staying in the area, while freehold property is better if you are not sure how long you will remain in the property.
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Are you willing to pay for upkeep?
Leasehold property is cheaper, but if you are not sure you will want to stay in the area, it is better to avoid the commitment of maintenance fees.
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Are you planning to sell the property one day?
Freehold property can be more appealing to buyers, but it is also more expensive to maintain.
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Which are you willing to pay for?
This is one of the easiest ways to decide between leasehold and freehold property. You should be willing to pay more for freehold property if you plan to stay in the area. If you plan to move in a few years, you should be ready to pay more for leasehold property.
Once you have answered these questions, you can decide which is more appealing. If you are hoping to stay in the area for a decade or more, you may want to consider freehold property, but if you are planning on moving in a few years, then leasehold property may be a better option.
If you are unsure, you should consider some more information about the differences between leasehold and freehold.
Conclusion
Apart from any legal advantages, the main argument for buying a leasehold property is that it is generally cheaper than buying a freehold property. On the other hand, there are many reasons why buying a freehold property might be the best way to go.
As with all purchases, it is essential to consider your long-term plans. You should also take into account the costs of upkeep and maintenance. No matter how you decide, it is vital to make sure you know all the costs and benefits of both leasehold and freehold property. It is always better to buy when you are sure of your decision.
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