According to government statistics, over 35% of London properties are leasehold – the UK’s highest proportion. But what does that mean for you, the buyer? If you’re currently buying a property in east London, you must know the difference between freehold and leasehold.
To help you make an informed decision when you buy a new home in Redbridge, Ilford, Barking or Dagenham, we’ve set out the essential facts on freehold vs leasehold in our guide.
These are the main differences between freehold and leasehold properties:
With a freehold property, you own the land and the home built on it. You can make more decisions for yourself unless you need to apply to the council (e.g. for planning permission) or your neighbourhood has particular regulations.
When you buy a leasehold property in England and Wales, the difference is you don’t own the property outright or the land it sits on. You only purchase permission to use it for the lease term, to a maximum of 999 years. Ownership will revert to the freeholder when the lease runs out.
Buying and selling at the same time?
Here are 10 things that could go wrong, and often do go wrong, and what, if anything, you can do to avoid them.
Buying and selling at the same time?
Here are 10 things that could go wrong, and often do go wrong, and what, if anything, you can do to avoid them.
The length of the lease is critical to your house’s value and your ability to get a mortgage on it. It’s harder to resell a house with a short lease because they’re seen as risky. Lenders are less likely to provide a mortgage for properties with less than 80 years left on the lease – even one you already own and are looking to remortgage. If there are just 60 years left on the lease, you may not find a mortgage at all.
Houses with shorter leases are usually cheaper because of these pitfalls, so take a closer look at the years remaining if a leasehold house price seems too good to be true.
If you’ve owned the property for two years, you have the right to extend it. This can be costly, but ownership reverts to the freeholder if your lease expires.
Extending your lease gets more expensive and complex as the number of years falls – so don’t put it off. Under the Leasehold Reform Act 1993, you can extend a lease by 50 or 90 years, depending on the property type. You may have to pay 50% of the ‘marriage value’ of the property (the extra value the property would gain from a longer lease) and fees of around £4,000.
However, the rules on marriage value and standard extension periods may change.
Like any homebuying decision, there are pros and cons to buying a leasehold property – here are some of the considerations:
The law on leasehold properties in England and Wales Homes is changing with the Leasehold Reform (Ground Rent) Act 2022 and the proposed Leasehold and Freehold Reform Bill. Under the proposed changes, leasehold new build sales will be banned, and the standard lease extension period will increase substantially.
If you buy a leasehold property in east London, the 2022 law changes mean the freeholder can no longer charge more than a peppercorn ground rent. In essence, it must be a nominal fee only. At present, this reform only applies to new leases.
The King’s Speech in November 2023 raised the government’s plans to reform leaseholds. Under the proposed changes, leaseholds will be banned for new houses in almost all situations. It will become less expensive to buy additional years, marriage value could be abolished, and leaseholders would be allowed to extend by up to 990 years.
With a share of the freehold, you own the property you live in and the building jointly with all the other unit owners. Decisions are made collectively between all the freeholders, either as private individuals or as part of a specially created company.
A share of the freehold versus leasehold means that your right to use the property doesn’t expire, and you will have some input into the building’s management. But you will share the responsibility and expense of any building repairs. Typically, a share of the freehold could add around 1% in value and increase your flat’s appeal when you sell.
If you have owned your leasehold property for two years or more, you can buy the freehold – but only if all flat owners in the building agree. It’s advisable to use a solicitor and go through the First-Tier Tribunal, which will help to determine agreeable terms.
Commonhold ownership is an alternative to leaseholds on flats, meaning that each flat owner possesses the freehold of their property indefinitely. All unit owners share joint responsibility for their building’s exterior and communal spaces, such as stairwells.
It was introduced in England in 2002, and from 2004 onwards, property developers were free to decide if units within their apartment buildings would be sold as leasehold or commonhold. However, in Scotland, leaseholds were abolished in favour of commonhold under the Tenements (Scotland) Act 2004.
Speak to the team at Sandra Davidson to discuss the differences between freehold and leasehold before you buy in east London. We can advise you on the options available in your local area.
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