Leasehold and Freehold, what’s the difference?

The upstairs flat next to us has just been put on the market.  I opened our door the other morning and there it was, the real estate agent’s sign standing tall on the fence.  I let myself get a little excited as I googled the agent’s name and our street but the glimmer of hope was quickly extinguished once I saw the price.  In a previous post I reflected on where we might like to live ultimately but London house prices are starting to make that decision for us.

(update: the flat sold less than two weeks later from when I posted this!)

I brushed off my disappointment at the local cafe where I take our son for my regular dose of caffeine and started checking the houses for sale on Rightmove.

Two of the terms I had to learn the meaning of in the UK when I started looking at houses and flats for sale were freehold and leasehold and I’d like to talk a little more about the difference between the two today.

Freehold means you own the property and the land it stands on and are responsible for all associated costs. Leasehold means you only own the property but not the land, which you ‘lease’ from the freeholder. The lease is usually for quite a long time, about 99 years although 125, 500 and even 999 year leases are common).  If the lease runs out, the property goes back to the freeholder although you can pay to extend the lease.

You have to pay a ground rent to the freeholder and banks tend to not lend to borrowers on properties with less than 75 years of lease left.  Older leases usually refer to a ‘peppercorn ground rent’.

peppercorns

In order to enforce the terms of a lease a ground rent must be set, but in the past many leases had tiny ground rents so in some cases freeholders stipulated that the rent should, instead of money, be a peppercorn (as used in pepper grinders) to save them the trouble of collecting the money.

This is Money

More recently it has become possible for groups of owners of leasehold flats to work together to purchase a share of the freehold.

Most London flats are leasehold however there has been controversy lately with new build homes being sold as leasehold.  The owners have been charged huge amounts of money to renovate or improve their homes or have been set service charges that double every ten years which reduces the resale value of the property.

Taking all things into consideration, we are trying to avoid purchasing a leasehold property as we want to own our home fully, even if it means paying for the upkeep of the place wholly.

There is an excellent article exploring the differences between leasehold and freehold properties on the Moneysaving Expert website.

Is your home leasehold or freehold? Has it affected you in any way?