If you’re house hunting in Guildford or elsewhere, you’ve probably noticed that property descriptions include either the word “freehold” or “leasehold.” It’s easy to ignore this information in favour of details on price and size, but in fact it’s very important to understand the difference between freehold and leasehold. Above all, it can affect your monthly outgoings and how easily you can sell the property in the future. 

What is freehold?

When you own a freehold property, it is yours completely (other than mortgage repayments). You are responsible for the house, roof, garden, garage and anything else that makes up the property. It is yours to live in, sell or rent out as you wish. 

As a general guide, most houses are freehold, but there are some exceptions. 

What is leasehold?

When you buy a leasehold property, you own the property but not the land on which it is built. Therefore, you are involved are leasing it from the freeholder. This means that owners of leasehold properties usually have to pay service charges and ground rent to the freeholder, in addition to their monthly mortgage repayments to the bank or building society. The advantage of this is that all repairs to the communal building are pre-paid and the freeholder is responsible for finding tradespeople and making sure the repairs happen. Your payments to the freeholder might also cover buildings insurance.  

The lease is measured in the number of years it has left. When the leasehold expires altogether, the property reverts to the freeholder, even if you have paid off your mortgage. For this reason, you should be wary of short leases (less than sixty years) although you can pay to have your lease extended.

Most flats are leasehold but there are exceptions. 

You may also come across a ‘Share of Freehold’. This means that all the owners of the flats in the building own equal shares of the freehold and are equally responsible for the costs and maintenance of the building. These do often come with leaseholds too, so be sure you are aware of what you are purchasing. 

What’s cheaper: freehold or leasehold property?

Freehold property is usually more expensive at the time you purchase it – you’re buying the freedom to do what you like with your home. 

Leasehold properties might have a lower upfront cost but this may be offset by the service charges and ground rent. If you’re considering buying a leasehold property, remember to factor in these additional outgoings when you’re calculating whether you can afford it. 

Another expense you might incur if you own a leasehold property is the cost of extending the lease. You might do this so you can stay in the property, or so you can sell it. This is because properties with short leases can be difficult to sell as most banks will not give a mortgage for a property with less than sixty years leasehold remaining. If your lease has less than eighty years left, it’s worth paying to extend it. It may feel like a large expense, but you’ll get your money back by being able to sell your property for the right price. If you sold your property with a short lease, you may have to accept a lower price than other equivalent properties. 

Does this mean I should avoid buying leasehold?

No. It’s important to be aware of the potential pitfalls so you can avoid them, but you shouldn’t reject a property just because it’s leasehold. The key advantage of leasehold is that you have your own home but you don’t have to shoulder all the responsibility for it. Leaky roofs, blocked exits, noisy neighbours – all you have to do is report any problems to your freeholder and they are legally obliged to deal with them.

Buy and sell property in Guildford

We hope we’ve covered the basics of freehold and leasehold in this blog, but if you still have questions, please do get in touch – we’re here to help. And if you’re planning to sell your Guildford property – freehold or leasehold! – call the Cobbles team today on 01483 457000 to get started.