Should I buy a leasehold property?

Have you found your dream property only to find that it is leasehold? Should you steer clear of it or can it still be a good investment? This article seeks to explain what “leasehold” means and sets out some of the pro’s and cons of buying leasehold property.

 What is “leasehold” property

If you own the freehold to your home, it means that you own the building, the land it sits on and the airspace above it. If your property is leasehold, you only own the building or a part of it such as a flat. Owners of leasehold properties pay ground rent to the freeholder.

When you purchase a lease you acquire the right to live in the property for a set number of years from the freeholder. The leaseholder has the exclusive right to live there during the term of the lease. The freeholder (or landlord) will continue to own the property and the ground it sits on.

Most flats or apartments are leasehold. However, the number of leasehold houses has however grown over the years.

How long is left on the lease?

Leases are granted for an initial term. Newer properties tend to have initial lease terms of 99-125 years. However, it is not unusual to find properties with leases of up to 999 years. The length of the remaining lease can have a significant effect on the value of the leasehold property. A remaining lease term of 80 years or less could affect a buyer’s ability to get a mortgage.

What is ground rent?

Ground rent is a fixed sum of money paid each year to the freeholder. Sometimes the ground rent is fixed at the same rate forever. However, particularly with newer properties, there can be an escalating ground rent which can become very expensive so make sure you understand how any ground rent might increase. If in doubt, consult your solicitor.

Maintenance and service charges

These help pay for the upkeep and maintenance of the fabric of building, communal areas, lifts and gardens. Service charges may also include buildings insurance. Often a monthly fee is paid which will then increase or decrease depending upon the costs of maintenance. It is very important that you understand the likely costs of maintenance. Costs can he high with old, dilapidated properties but Landlords can also appoint managing agents to deal with maintenance issues and the Leaseholders will then also be responsible for their costs of managing which can be high.  Ask about planned future maintenance and what fees have been payable historically. By way of contrast, if you own the freehold there are no mandatory maintenance and service charges payable to other people but you will have to bear all maintenance and service costs.

Restrictions in leases

Check the terms of your lease for any restrictions about what you can do in the property. For example, in a flat, you may not be allowed to have pets, sublet the property or play musical instruments. You may also need to ask the freeholder for permission to make any alterations to the property and you may have to pay the landlords fees.

If I lease a property can I buy the freehold?

Before you buy a leasehold property, find out who owns the freehold. You may have a statutory right to purchase the freehold. Equally, the freehold may be owned by a management company in which each leaseholder owns a share. The arrangement between leaseholder and freeholder can affect the value and saleability of the leasehold so it is important that your solicitor explains the implications to you.

And in conclusion?

If you want to but a flat or apartment it will nearly always be leasehold. In fact you should usually avoid freehold flats as these are usually unmortgageable. Leasehold houses are typically cheaper to purchase than freehold houses but you must be aware of the current and future costs of ground rent and service charges. The costs of extending short leases can be considerable.

If you have found your dream home then you should not be put of because it is leasehold per se. Just make sure you are fully aware of the likely current and future costs and factor this into your budget. If in doubt about the terms and effect of a lease then seek legal advice before committing yourself to purchasing.

You can also complete an online enquiry form. One of the Wollens team will contact you as soon as they are available.