The difference between leasehold and freehold?

If you buy a freehold property, you own the building you're buying and the land it stands on, forever. This makes you the freeholder. If you buy a leasehold property, you’re essentially leasing the property from the freeholder for a period of time.  

Leaseholds are fairly common. According to the Ministry for Housing, Communities and Local Government there are 4.3 million leasehold homes in England. Just over two-thirds are flats and almost a third houses.

Another way to look at is that 54% of flats are leasehold, while 7% of houses are leasehold.

If you buy freehold:

• You won’t have to pay annual ground rent.
• You’ll be solely responsible for maintaining the structure of the building, including things like wall and roof repairs.

Also, due to the Civil Aviation Act 1982 if you are the freeholder, you also own the airspace above your property - up to 500 foot.

Mortgage applications for freehold properties tend to be a little more straightforward.

If you buy leasehold:

• You’ll have to pay a ground rent to the freeholder each year. This can be anything - from £10 to £1,000s.
• You’ll be solely responsible for maintaining the structure of the building, including things like wall and roof repairs.
• You’ll may have to pay annual service charges to ensure that the freeholder can afford to look after the fabric of the building.
• You probably won’t be responsible for maintaining the shared areas of the building – your service charge will be used to look after these.
• You may face other restrictions, like not owning pets or not subletting your property.

Should I buy a leasehold property then?

Of course, like I said there’s nothing prohibitive or uncommon about leaseholds, so if you really love the house, never let the simple fact that it’s a leasehold stop you.

Leases themselves aren't an issue – it's short or bad leases that are the issue.

How long does a lease need to be?

Generally speaking, the shorter the lease, the more problems you’ll have when it comes to reselling. Some mortgage providers won’t lend on properties with less than 80 years left on the lease.

Extending the lease can be pricey, so sometimes vendors will try and sell before they have to extend. If you’re looking at properties with a relatively short lease (~80 years or less), make sure you factor in the cost of extending the lease in the near future before you make an offer.

Every mortgage lender is different, but in general, you'll struggle to get a deal if the lease has less than 70 years, but even some mainstream lenders, such as Santander, do offer mortgages on such properties.

What happens when my lease runs out?

If you let your lease run out completely the property would cease to be yours, and ownership would revert to the freeholder.  

As you’ll want to avoid this, you can apply to extend your lease once you’ve owned the property for two years. If you own a flat, you can extend your lease by 90 years, and if you own a house, you can extend the lease by 50 years.

The closer you get to the end of the lease, the more expensive it will become to extend and the more difficult it will get to recoup those costs when you sell, so make sure you’re aware of how long is left on the lease before you buy.

How else can a lease be a bad lease, wasn't here a leasehold scandal?

As well as short leases, some leases with high ground rents can make it difficult to sell the property.

The recent leasehold scandal saw about 12,000 leaseholders subject to ground rent that doubled every decade. These terms were often sneakily written into contracts.

Now, however, all leading property developers and freeholders have signed a pledge to eradicate this practice for all existing and future leaseholders.

However, this is not mandatory so be sure to double check with your conveyancer!