Free Hold vs Lease Hold Property: What’s The Difference?
The terms ‘freehold’ and ‘leasehold’ are thrown around a lot in the world of real estate, but if you’re a first-time buyer, you might not know what actually sets the two apart – or more importantly, which is the right option for you.
Confused about which route to take? Keep reading for our simplified guide to understanding the difference between freehold and leasehold property.
Defining Freehold & Leasehold
Freehold and leasehold are terms used to describe types of property purchases. They might sound complicated, but they’re actually very simple – each can be broken down like this:
- Freehold: The buyer owns the property and the land it’s built on. This is an ongoing ownership, stretching on for as long as the buyer wants.
- Leasehold: The buyer owns the property, but not the land it’s built. This is a finite ownership, continuing only for a set period.
So, we can see that there are two main differences here – the ownership of land, and the length of ownership. Now, we can explore each term a little deeper to find out which one would be best for you as a buyer.
Rights & Responsibilities
When it comes to property ownership, there are several rights and responsibilities to consider as a homeowner. These will differ depending on whether you opt for a freehold or a leasehold property.
Freehold
With a freehold purchase, the buyer has complete and total ownership of the property. This means they also have the right to make any modifications they might like to the property (as long as they’re in line with local planning laws).
The responsibility of this, however, is paramount – the buyer must maintain not only the building, but the land, the structure, and any subsequent modifications they decide to make.
Local regulations will also come into play here – the buyer must make sure they keep on top of things like property tax payments, and any other fees they might face in the area.
Leasehold
In contrast, a leasehold purchase means the buyer’s rights will be restricted to the terms of the leasehold agreement. These are property purchase contracts that can differ slightly between buyers and homes, but it might mean that the buyer has less freedom in making alterations to their home, for example.
If the leaseholder wishes to do any work on the property or anything else that sits outside the terms of the leasehold agreement, they can always put in a request with the freeholder, who still owns the land the property sits on.
The leaseholder will still have to keep up with the various responsibilities that come with owning a leasehold property, such as paying ground rent, service charges, and upholding maintenance work on the property.
Pros & Cons
Understanding the pros and cons of freeholds and leaseholds will largely come down to what it is you’re looking for as a buyer. Here’s a breakdown of key considerations to take into account if you’re on the hunt for a new home.
Advantages of Freehold Properties
Freehold ownership offers significant benefits for buyers seeking full control and long-term value:
- Simplicity: The property is solely owned by the buyer, leaving little room for confusion or complications.
- Total Control: Buyers have complete freedom to make alterations or changes to the property or land as they wish, allowing for full creative and practical autonomy.
- Cost-Effectiveness: There are no additional ongoing charges, such as ground rent or service fees, making it a more economical choice in the long run.
Disadvantages of Freehold Properties
However, freehold ownership comes with its own set of challenges:
- Higher Upfront Costs: Freehold properties are usually far more expensive to purchase initially, which can be a financial hurdle.
- Full Responsibility: Greater rights come with greater responsibilities—buyers are responsible for all repairs, maintenance, and legal or administrative obligations for both the property and the land.
- Potential Disputes: If co-freehold agreements are in place, disputes or tensions may arise among multiple freeholders.
Advantages of Leasehold Properties
Leasehold ownership provides a more accessible option for buyers due to its lower cost and added convenience:
- Affordability: Leasehold properties generally have lower purchase prices, making them more accessible to a wider range of buyers.
- Lower Maintenance Costs: Major repairs and maintenance expenses are typically covered by the freeholder, saving money for the leaseholder.
- Lower Overall Value: The lower value of leasehold properties compared to freeholds often makes them a cheaper option—sometimes even more affordable than renting.
Disadvantages of Leasehold Properties
Despite their affordability, leasehold properties come with notable limitations:
- Limited Ownership: The buyer only owns the property for the duration of the lease, which can range anywhere from 99 to 999 years.
- Restrictions: Leaseholders face limitations on what they can do to the property, including restrictions on alterations or modifications.
- Ongoing Costs: Leasehold ownership comes with additional expenses, such as ground rent, service charges, and costs for potential lease extensions, which can add up over time.
Financial Considerations
Ultimately, a lot of the pros and cons of buying a freehold or a leasehold will come down to the short and long-term financial considerations of each real estate route.
Objectively, freehold offers better value. Buyers can avoid ongoing costs that come with a leasehold, meaning a freehold house may offer greater financial stability over time. Freehold properties will also typically appreciate more consistently, which has the potential for a better investment in the long run.
On the other hand, there are several continuous expenses involved with buying a leasehold. Not only that, but as the lease term shortens, the property’s value actually has the potential to decrease, which could require some work (and costs) in order to maintain its market value.
For long-term financial planning, a freehold is generally more favourable. However, in the short term, a leasehold offers a lower purchase price, greater accessibility, and more flexibility in terms of ownership.
Which Is Right For You?
Ask yourself: what is it I want out of my property purchase? As a homeowner, will I want to take the reins with maintenance and alterations, or would I rather leave that in someone else’s hands (and wallet)?
Consider your long-term goals, and whether you’d rather take on the financial obligations of one versus the other. Whichever you choose, buying a house is a significant step in any property owner’s journey, and requires a considerable amount of planning, so take your time – the right home is out there!
Are you a buyer on the hunt for your dream home? We’re here to help. At Zest, we have an experienced team of professional lettings and estate agents ready to guide you along each and every step of your buying journey, with the local expertise and real estate know-how needed to get the results you want. Reach out today to find out more about how we can help you.
