Freehold vs Leasehold: What's the Difference?

Written by Martha Lott

27th Oct 2020 (Last updated on 8th Apr 2024) 8 minute read

What Does Freehold Mean?

Purchasing a freehold property means that you own both the property and the land it stands on. Freehold ownership is “in perpetuity” meaning forever. Most houses are freehold, but it’s always worth double-checking before buying.

Pros of purchasing a freehold property:

• You own the property and the land it stands on
• You can reside on the property for as long as you want
• You don’t have to pay any ground rent or service charges

Cons of purchasing a freehold property:

• You are responsible for covering any maintenance carried out on the property

Can You Buy the Freehold?

You may ask the landlord if you can buy the freehold at any time. However, there are different legal steps and rules depending on whether your property is a flat or a house.

If it’s a flat, you will have to buy a share of the freehold in a process known as a collective enfranchisement. However, if it’s a house, you have the right to buy the freehold.

What Does Leasehold Mean?

Purchasing a leasehold property means that you do not own the building outright and will have a fixed amount of time to reside in the property. Leases typically last between 99 to 125 years, but some can extend to as high as 999 years. It’s important to read through your lease thoroughly before committing to the move as some leases can be much shorter - sometimes just a few years.

Pros of purchasing a leasehold property:

• Your service charge will go towards any repairs or general upkeep of the building
• The building insurance is organised by the freeholder
• If the lease is under 100 years, the property will often be sold for a lower price

Cons of purchasing a leasehold property:

• A lease is like a long-term rental agreement. Once it expires, you must ask the freeholder to extend the lease which can be expensive
• It is not guaranteed that the freeholder will agree to extend the lease

What Types of Properties are Usually Leasehold?

When you are looking to purchase a property, you should look into whether it is freehold or leasehold. A general rule of thumb is that most houses will be sold as freehold, while most flats will be leasehold.

According to the UK government, there were an estimated 4.86 million leasehold properties in England between 2020 and 2021. 71% (3.44 million) of these properties are flats and 29% (1.42 million) of them are houses.

Difference Between Freehold and Leasehold

The main difference is that a freeholder owns the property in perpetuity, whereas a leaseholder owns it for a period of time before ownership reverts back to the freeholder. Freeholders own the property and the land it sits on and may lease the property for a set period of time to the tenant or leaseholder.

The most common property type for a leasehold is flat, with separate apartments leased from the overall building freeholder. Leaseholders will pay ground rent to the freeholder, and will also pay for ongoing maintenance fees. Freeholders are responsible for the condition and maintenance of the external walls, communal areas, and roof.

A leaseholder will generally have to get permission from the freeholder to change or extend the property. If you purchase a freehold home, you can change or renovate your property as you please. The biggest concern with renovating a freehold home is if you'll require planning permission or a party wall agreement for more extensive work.

Solicitor Fees For Buying A Leasehold Property

Because of their complexity, you’ll have to pay more in conveyancing fees when you buy a leasehold property, compared to buying a freehold property. Below we’ve listed the average solicitor fees for buying a leasehold property with a range of property values.

It's important to note that when purchasing a leasehold property, you may be charged an engrossment fee. Engrossment fees are less common nowadays as advancement in technology has meant most documents are now handled online. However, they can still be encountered when buying a new-build, flat or other leasehold home. The average cost for an engrossment fee is currently £150 - £250.

Leasehold Extensions

You can put a request to extend your lease after owning the property for 2 years. If you own a house, you can request for your lease to be extended for up to 50 years, while flat leases can be extended by 90 years.

Extending a lease can be expensive, costing you thousands of pounds. The final price will depend on a variety of factors, including the value of the property, the ground rent, and the original length of the lease. You can find out the exact cost of your leasehold extension by using our Leasehold Extension Calculator.

If you can’t agree on a deal with your landlord, you’ll have to go to a tribunal which is often a slow and costly process.

If the lease on the property you want to buy needs to be extended, then it is up to the seller and current owner to claim the right to extend. This must be started before the property is passed on to you as you will then have to complete it yourself. If the seller doesn’t make the claim before the transaction is completed, you will have to wait until you’ve owned the property for 2 years.

Can I Get A Mortgage On A Leasehold Property?

Many mortgage lenders provide leasehold mortgages, but the key factor in the process being simple or extremely difficult will be the length of the lease. It’s significantly harder to be accepted for a leasehold mortgage if your lease is short, with anything under 80 years causing difficulty when applying for a mortgage.

When applying for a mortgage for a short leasehold term, you will face higher interest rates on the mortgage and require a bigger mortgage deposit. Leasehold properties typically have a lease ranging from 90 to 120 years but can last as little as 40 years and as long as 999 years. Many mortgage lenders will prefer a lease extended to a minimum of 40 years after your mortgage has ended.

Before you commit to buying a leasehold property, you should check how long is left on the lease. Your property surveyor will be able to tell you how long is left, so make sure you compare surveyor quotes to save money on your survey.

Leasehold Mortgage Requirements

You will need to meet certain requirements and criteria to be accepted for a leasehold mortgage, just like you would with a traditional mortgage. The specific details of the requirements will vary depending on the mortgage lender you choose. You should expect the lender to assess your affordability when applying for a leasehold mortgage, including your income and outgoings.

The main factor lenders will judge is the number of years left on your lease. According to the Council of Mortgage Lenders’ ‘Lenders’ Handbook’, the minimum unexpired lease term required for a leasehold mortgage is around 70 years from the date the mortgage begins. Many lenders also usually require a minimum of around 30 years to be left on the lease after the mortgage term ends.

This is just an average and the handbook shows lenders that require a lease term of as little as 20 years at the end of the mortgage term, all the way to 250 years from the start of the mortgage term. A leasehold solicitor can guide you through this process.

Leaseholder Rights and Responsibilities

Although the freeholder is responsible for the building as a whole, you’ll have responsibilities outlined in your lease to ensure your property is kept in good condition. Your responsibilities and rights include:

1. Paying the service charge

If you pay service charges, you have a right to a summary of how the charges are spent and any receipts. You can also request details on the insurance policy you’re paying towards through the service charges.

2. Right to Manage

If you have issues involving the management of the property such as unexplained service charges, you can use a tribunal to appoint a new manager. There are also avenues for the leaseholders of a flat to take over the management of the building through Right to Manage. Once this is done it can be easier to extend the leasehold.

3. Right of first refusal

If your landlord wants to sell the freehold to your home you’ll get the right to the first refusal as the leaseholder. This means you’ll be offered the chance to purchase the freehold if the landlord is selling it.