11 Jan 11.01.2018 Leasehold and Freehold: how to avoid surprise costs when buying a leasehold property?
11.01.2018 Leasehold and Freehold: how to avoid surprise costs when buying a leasehold property?
If you own the freehold, it means that you own the property outright, including the land on which it stands, in perpetuity.
Leasehold means that you lease a property from a freeholder (landlord). You own the property for the length of the lease agreement with the freeholder. When the lease ends, ownership of the property reverts to the freeholder.
The term of the lease
The leases are usually long term – new-built leases start at about 90 years or 120 years with some as high as 999 years – but can be short, such as 40 years.
However, the problem may arise when you are trying to get a loan, as most banks and building societies will not lend on a property with a lease of less than 70 years, making it difficult to re-mortgage the property or for a prospective buyer to obtain the finance to buy the property. This also makes extending the lease, once it has less than 80 years left, very expensive. Thus, it is not long before the owner of newly-built properties with 90-year leases have to deal with the above problems.
Leasehold costs If you own a leasehold property, you do not own the land. This means that, while you will not be responsible for maintaining and running the building, you will have to pay maintenance fees, annual service charges and your share of the building insurance. Leaseholders also normally pay annual fee, called ground rent. Neither of the above fees are fixed and both may rise substantially over time. Also, despite the fortune you have paid for your new property, you are restricted in terms of what you can do with it, requiring the freeholder’s permission to make significant changes to the property.
Most of the new London properties are leasehold, meaning that the owners pay ground rent and service charges, while their lease gets shorter every year. According to the Land Registry, over 95% of new-build homes sold in London this summer were registered as leasehold and 98% of homes sold in 2010 were leasehold.
Fortunately, a lot of new builds in London have long-term leases, normally 250 or 999-year long. However, this is not always the case. Therefore, you should always check the length of the lease when buying a property, as should you want to extend the term of the lease in the future, you may need to pay a fee exceeding your percentage holding.