Guide to the difference between freehold and leasehold property

A freehold is a property owned by you, including the land on which it’s located. Whereas, a leasehold is a residence that you have taken on mutual agreement for a set number of years. A lease agreement doesn’t make you the landowner of the house you are staying in. 

Making an informed choice before purchasing a house in the UK requires knowing the difference between freehold and leasehold property. In the following article, we will discuss the fundamental difference between freehold and leasehold property. Their characteristics and some helpful advice for buying a house in the UK. 

Difference between freehold property and leasehold property

What is meant by freehold property?

A freehold property is one in which you are the sole owner of both the land and the property. You can sell, renovate, or extend the property without taking permission from someone else. You don’t need to pay for staying in your house. It is not agreement-based, where you stay for a limited time only. Freehold property and the land it sits on, with surrounding areas like the garden and basement—everything belongs to you only. 

Key benefits of a Freehold Property

To better understand what a freehold property comes with, read the points given below. Freehold meaning is fulfilled with these aspects:

Full Ownership

Your freehold property is solely yours, including its land. There’s no shared ownership over property; it’s different floors and surroundings. You have the actual registry documents titled with your name.

No time restriction

When you own a freehold property, you can stay there as long as you want. There’s no set time period after which you’ll be asked to leave the property. You can stay in the property permanently, as it is yours forever.

Flexibility To Change

While staying in a freehold property, you have complete freedom to change, decorate, or extend your house. You can install anything at your home, rebuild a section, or even sell a portion to someone else. Freehold property owners can make changes to the property anytime as per their needs.

No Ground Rent

As a landowner, you don’t need to pay the annual ground rent. Owners only have to pay for the house and land at the time of purchase. They no longer have to worry about ground rent every year.

Transferable to children

A freehold house becomes a valuable asset that can be passed on to your next generation. This is a future-proof plan that will serve as a symbol of your family’s legacy.

What is a leasehold property?

It refers to the case where you can only use a particular property for a fixed time. You don’t own the land or the nearby areas of the house. It’s like staying as a tenant in some flats or rental houses. You can stay in the house only if you pay the rent at the end of every month. Leasehold properties demand a lease agreement for up to 99-125 years, or in some cases, it can be 999 years. 

How does a leasehold work?

You can get a leasehold by signing a lease agreement. In it, you specify the duration, whether it’s 99-125 or 999 years, under some mutually decided cost. Leasehold meaning says that you can only use the portion of the property for which you have paid because you are not the first buyer of this house. 

You also need to pay ground rent on this mortgage (rental) property every year. When the duration of tenancy ends and the lease agreement expires, the property goes back to the freeholder. If the tenant wants to extend the agreement, they can ask for it before the lease expiration.

Key benefits of a Leasehold Property

A leasehold property provides you with a roof without even purchasing a whole house and land. Here are its key features:

Lower Initial cost

It specifies that you don’t have to buy the freehold to become a homeowner. Leasehold allows you to stay in a rental house where you can pay less initial cost. It’s important to know the difference between freehold and leasehold property in order to protect your finances against unexpected losses.

Shared Responsibilities

As a tenant, you don’t have to worry about fixing the house issues all alone. Your homeowner will also be responsible for this. The garden and surrounding areas are managed by the freeholder.  This leads to a shared yet cost-effective approach towards home management.

Best for apartments

Lease agreements are a perfect solution for flats or apartments. You only have to pay the initial cost and can move into the apartment. Pay the rental cost after each month and leave the flat or apartment at the end of the tenancy. 

Freehold Vs Leasehold UK

Understanding the difference between freehold and leasehold property with the help of a table:

Read More: Grants for UK Homes

How to choose between a freehold and leasehold house?

Choosing between freehold and leasehold is directly dependent on your needs and budget. Here are some factors that can make the picture clear before paying for the property:

Budget Flexibility

Evaluate your budget and future financial plans before finalizing a house agreement.

• Freehold properties ask you to pay a heavy amount, but for one time only. It can prevent you from renewal or ground rents. 
• Whereas the leasehold demands a total of 0.8 to 1.1% of the property’s value. But it comes with additional costs like ground rent and service charges.

Property Location Type

This is also an important factor to consider while buying a property. 

Urban areas are a better choice for leaseholds as they have limited space.

Rural areas attract freeholders who want to invest in a lifetime property. These are adored by people who want spacious houses.

Future Plans

If you want to modify, renovate, or decorate your property in the future, then a freehold property is a better choice. For people looking for a short-stay apartment, a leasehold property may be sufficient.

Home Buying Tips

• Hire a conveyancing solicitor: he will arrange all the documents, especially the lease if you are looking for a leasehold.
• Research the Property’s History: Look for the past ownership, dispute management, and property value. This will strongly impact your decision to choose a property.
• Understand Resale Implications: Lease properties may become a task to sell if the market value of your house is less, but comes with high service charges. Similarly, freeholds may generate good revenue, but they can’t operate without maintenance costs. 

Before going to buy a property, keep the above tips in mind to reduce the risk connected to investing in a property. 

Wrap Up: Difference between freehold and leasehold property

After having such a deep analysis of leasehold vs freehold UK, we can say that both house choices come with their own pros and cons. It is now people’s choice and need that decides the best option for them. Freehold is a perfect option for real estate contractors, landlords, and people looking forward to making a lifetime investment. On the other hand, a leasehold is a better option for people struggling in new cities for jobs or studies. These are best for those who desire a short-term but comfortable living environment. Whatever you’re looking for, always seek professional consultation, such as from S6energy, to avoid making the wrong choice.

FAQs: Difference between freehold and leasehold property

In the UK, what happens when a 99-year lease ends?

The ownership returns to the freeholder. The one living as a tenant can also ask to extend the lease agreement.

Can a freeholder refuse to extend a lease?

Yes, under informal conditions and based on his personal choices, he has the right to reduce the extension of the lease.

How much does it cost to extend a leasehold in the UK?

It normally costs around £7,022.

What is the normal rent price in the UK?

Usually, it depends upon the time, size, and location of the leasehold, but on average, it can cost you around £1,284.