When buying a house there are many things to consider. From the area you’d like to live in to the amount of space you need, the list is endless. Once a budget has been set the search can begin and will most probably take a few weeks to find the perfect place.
When viewing a property, it can be easy to forget to look at the details about a house including what tenure it holds. At Fisher Wrathall our blog this week looks into the differences between Leasehold and Freehold properties and what you should consider.
Local Market
According to data from the Land Registry, so far in 2019 there have been 404 completed house sales. Of these, 15.1% have been leasehold and the rest freehold. Compared to the same period the year before (January 1 to 22 July 2018) the number of houses sold was 813. To add to this, 20% were leasehold which is a huge difference from those sold this year.
Looking even further back to 2009 shows just how much leasehold properties have grown in the Lancaster area. During the same period, only 25 were sold and these were all new build flats or maisonettes. The power of new builds is clear also, as of the 162 leaseholds sold last year over 26% were new builds.
Furthermore, the way people are buying is different as less people are spending on expensive and large properties. In 2019 the most expensive house sold has been a 6 bed on High Street for £635,000. Last year a 5 bed on The Grove sold for £810,000 and in 2017 a property on Haverbreaks Road exchanged hands for £875,000.
What is the Difference?
Understanding the tenure of a property is important as it can help you to understand which ownership option is best for you. Generally speaking, in the UK a house or flat will be leasehold or freehold. The language behind what these are can get confusing, which is why it helps to have a simple explanation.
Freehold
When something is listed as freehold, it means you own the land and building on it. You will be listed on the Land Registry as a ‘freeholder’ and have the title absolute. Most people tend to opt for this as they are the outright owner and have no ground rent to pay.
Leasehold
With this option you lease a property from the freeholder for a certain number of years. Periods can range anywhere between 40 to 999 years – it’s up to the owner of the ground. However, a lease is normally longer term and you have to follow any responsibilities and legal rights outlined. In some cases, leaseholders are unable to sublet, own pets or carry out major work without permission.
Despite leasing, you will be responsible for the upkeep and repair of the building. You will also be paying maintenance fees and services charges as well as a ground rent.
Pros and Cons
When it comes to Freehold properties, there are some huge benefits. As you own the land and building, you won’t ever need to worry about a lease running out or paying ground rent. On top of this, there will be no service charges and you don’t have to deal with a third party (i.e. a landlord/freeholder).
However, you are responsible for the maintenance and repair of the entire plot you own. If anything breaks and needs replacing or there’s an accident, it is up to you to fix this.
However with leaseholds, there are normally a few more things to consider. If a property you want to buy has a lease you should check:
- Service charges, ground rent and other costs
- Years of the lease
- Whether this impacts the resale value and obtaining a mortgage
In most cases leasehold will only apply to flats. However, in more recent years new build houses have been sold under this tenure. The freeholder reserves the right to increase rent and maintenance charges over time, so this is worth considering. There are sometimes opportunities to buy back the freehold, although this can be expensive and requires research.
It is important to remember that not paying fees which are a term of a lease can forfeit the agreement.
Extending Leases and Buying Land
As a legal document, the lease will outline how long you are able to live in the property. It will also give you information on any fees or legal responsibilities that you have. These can range over a huge time scale, giving people rights from a few years to nearly a thousand. However, a property with a shorter agreement is usually difficult to resell.
According to Which?, the value of a house under a lease tenure drops once there are less than 80 years left. In some cases, you are able to extend this period with the freeholder but it is at their discretion. To do this you need to have been in the property for a minimum of 2 years, so it is worth looking into this prior to buying.
It is also common for the ownership of ground to be passed or sold on, which adds another element to consider. This could make it difficult to buy land back and also leave you facing a potential rise in fees.
What Does the Future Hold?
Despite both tenures having their own pros and cons, it seems that Freehold remains a popular choice in both Lancaster and the UK. Having said this, the number of leasehold properties on the market are still selling and people see a worth in them.
At Fisher Wrathall we have a range of properties for sale across the Lancaster area. For any further details, please feel free to contact our team.
