Freehold vs. Leasehold: What’s the Difference?

If you’re buying a property, understanding the difference between freehold and leasehold is crucial. Here’s a quick guide to help you understand these terms and recent legal changes.

Freehold vs. Leasehold Explained

• Freehold: You own both the property and the land it sits on, giving you full control with no lease to worry about or ground rent to pay.
• Leasehold: You own the property, but the land belongs to a freeholder—typically a private company, individual, or local council. Leaseholders must pay ground rent, and the property’s value can decrease significantly as the lease shortens, particularly if it falls below 80 years.

New Leasehold Law

Recent legal changes have significantly impacted leaseholders. As of 2021, a new law allows leaseholders to extend their lease by up to 990 years, a substantial increase from the previous 90-year limit. The law also enables leaseholders to reduce ground rent to a nominal amount, addressing concerns over unregulated, escalating ground rents that could hinder selling or remortgaging the property. While the Leasehold and Freehold Reform Act has been passed, the full implementation is still pending. The government has begun rolling out the Act in stages, with more changes expected over the coming months following further consultation and secondary legislation.

Pros and Cons

• Leasehold: The freeholder is responsible for exterior maintenance and communal areas, but you’ll pay a service charge that varies depending on the property type. Always factor in this cost alongside your mortgage and bills.
• Freehold: You own both the property and the land, giving you complete control without service charges. However, you’re responsible for all maintenance and repairs. Freehold properties are often seen as more desirable, which can positively impact resale value.

Regional Variations

Although the legal principles remain the same across England, regional differences exist. For instance, the North-West has a higher percentage of leasehold houses (21.8% of new builds in 2018) compared to just 2.1% in London. This regional variation has raised concerns, especially among investors who prefer freehold properties.

Final Thoughts

Freehold properties offer full ownership and simplicity, while leaseholds require careful consideration of lease length and associated costs. With the new law offering extended lease terms and reduced ground rents, leasehold properties have become more appealing, but it’s still important to weigh all factors before deciding.

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