You’ve seen ‘freehold’ or ‘leasehold’ – possibly even ‘freehold and free’ – on property adverts. Here, we get to the bottom of what these terms mean for you as a buyer.
There are benefits and disadvantages to both freehold and leasehold properties, so it’s important you choose a house that suits your personal circumstances.
Knowing whether you want a freehold or leasehold property is a great way to start narrowing down your house search, too. Most property listing websites will show whether a house is freehold or leasehold, so you’ll instantly know whether a property is in your criteria before you book a viewing.
What does freehold mean?
A freehold property means you own everything up to and including your boundaries (or shared boundaries) listed on the Land Registry and Title Deeds.
You don’t owe rent or charges to anybody for the entire time you own the house.
The only costs that you may incur will be on shared boundary repairs, such as a fence repair between your garden and your neighbour.
However, freehold doesn’t always mean you can restrict access to your property.
Many properties, particularly older terraced houses, have a shared access road or pathway. You may own the section of the pathway by your house but must continue to allow people to walk or drive across it. Details of these access requirements will always be on your Title Deeds.
What does leasehold mean?
Leasehold properties are most commonly found in flats or apartment buildings but can be applied to any type of property including detached houses.
It means that you own the right to live in your property but also have to pay an annual charge to the leaseholder. This charge often covers maintenance costs of communal areas, such as landscaping gardens and the upkeep of private roads.
A leasehold fee can increase over time and there is no limit to the maximum price.
A lease also expires after a period of time, often set at 99 or 125 years. Buying a property doesn’t reset the time on the lease: if 30 years of a 99-year lease has expired, you’ll have 69 years left on the lease. You do, however, have the right to renew your lease on expiry.
Leasehold properties benefit those who do not wish to have the responsibility of maintenance for building exteriors or outside areas.
Tenant associations for leasehold properties
Some leasehold properties are slightly more complex. In a block of flats, for example, owners can create a tenant association to buy the property freehold. Each owner then holds an equal share of the building freehold, but each flat is still a leasehold property.
This association acts as a buildings management company. Owners must still pay annual charges to the leaseholder – the association-owned company – but have greater power over how and where money is spent.
Regular meetings between an agreed and elected board give all shareholders – owners of the flats – a say in building repairs and maintenance.
The little-known rentcharge
Some freehold properties still have something called a rentcharge, or chief rent, held over the property. This is a historical charge that acts like a leasehold rent to the freehold property owner.
It occurs only in certain areas of the country, particularly Bristol, Somerset, Bath, Sunderland and Manchester. If a property listing in one of these areas describes the house as “freehold and free” it means no chief rent or rentcharge applies.
A rentcharge is minimal, usually no more than £12 per year and sometimes as little as £2 a year. Many rentcharge freeholders no longer collect the charges due to them.
You can buy out the rest of your rentcharge, known as ‘redeeming a rentcharge’, or simply pay the annual sum.
Rentcharges cannot be increased and will expire on all properties by 2037 due to the Rentcharges Act 1977. This is because the Act meant no new rentcharges could be implemented after 1977, and the maximum lifespan of a rentcharge is 60 years.
If you’re buying a property with a chief rent held over it, be sure to ask for at least six years of rentcharge receipts from the vendor. If this cannot be provided, ask your solicitor to hold the equivalent of six years of the rentcharge costs as indemnity against arrears.
How do freehold and leasehold affect mortgages?
Mortgage lenders look at whether a property is freehold or leasehold as part of their lending criteria.
Generally, a leasehold property will have more lender requirements to satisfy than a freehold. Most mortgage lenders won’t let you borrow for a mortgage on a leasehold with less than 50 years left on the lease.
Your mortgage adviser in Newcastle can also help you to understand the implications of a freehold or leasehold property on your mortgage terms. Get in touch for further details.
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