HOUSE THAT
What is a leasehold property and should I avoid buying one? Experts explain all you need to know
We reveal why a leasehold home might end up more expensive
WHEN you get around to buying your first home, there is a minefield of jargon to get through.
But one of the biggest areas of confusion is around the difference between a "freehold" and a "leasehold" property, known as the property's "tenure".
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Buying a home with a "freehold" tenure means you own the building and the land it occupies.
Whereas a "leasehold" tenure means you buy the right to live in a home for a set period of time, but you don't own the land it's on.
This tends to be more common for flats, although some new-build housing developments are leasehold too.
Leaseholders usually have to pay ground rent to the landlord, often on top of other maintenance fees for the upkeep of communal areas.
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Ground rents have now been banned for most new leasehold homes, but many existing properties are still affected and paying the associated fees.
These combined bills can be pretty hefty, leaving some homeowners with shock extra costs every year compared to those with a freehold property.
As a result, this type of home is seen as unattractive to many potential buyers.
But is the negativity around leasehold homes justified, or are they still worth buying?
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What are the benefits of a leasehold home?
One of the key things that makes some leasehold homes attractive is that they are often built in desirable locations, such as in city centres.
Myron Jobson, senior personal finance analyst at Interactive Investor, added that they tend to have cheaper price tags than freehold homes in the same areas.
"Leasehold flats are generally cheaper than freehold equivalents in similar location – which can be a significant draw for first-time buyers or those working within a tighter budget."
A typical flat - which are usually leasehold - in the UK costs £229,813 while a detached home - normally freehold - costs an average of £440,085, according to Land Registry data.
Marc von Grundherr, director of Benham and Reeves, added: “Leasehold properties come with a range of other benefits such as modern living, shared amenities and prime city centre locations."
Should the ongoing costs put me off buying one?
Flats - typically leasehold properties - may be cheaper up front, but there are a range of factors and extra costs can make leasehold homes less desirable.
We recently revealed how one pensioner's maintenance charges spiralled to £3,000 a year after she moved into her parents' old leasehold flat, making it hard to sell.
"Ground rents can be a particular deterrent and while they have been largely banned for most new long residential leasehold homes, they still apply to a large number of existing leasehold properties," Mr von Grundherr said.
"There’s also the additional costs of management and service charges to consider."
Mr Jobson warned that these fees can suddenly increase too, which catches out a lot of people who buy leasehold properties.
“One of the main sticking points when it comes to leaseholds is the recurring costs - such as ground rent and maintenance fees - on top of the mortgage," he said.
"These fees can increase over time and sometimes unexpectedly, potentially creating a financial headache.
"The prospect of paying service charge and ground rent can also make the property less financially attractive in the long run."
In some instances, the ground rent and maintenance fees on homes will be proportionately small and you might decide it's worth it for your dream flat.
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Will I have trouble getting a mortgage on a leasehold home?
The high fees can put some potential buyers off leasehold properties, which can be a sticking point for some lenders if they're hard to sell.
David Hollingworth, director at L&C Mortgages, said leasehold buyers should be able to get a mortgage and find a lender that will offer the same rates as they would offer to the buyer of a freehold.
"However, the specifics of the leasehold terms could have a bearing on which lenders will be able to lend," he said.
"The unexpired term of the lease is one element to look out for, as lenders will have a minimum expectation for the number of years still on them which can vary.
"But, if the remaining lease is short - under 85 years - it will make it harder to find a lender happy to lend without it being extended."
Mr Hollingworth added that leasehold purchases can take longer as solicitors will have to make extra enquiries on the terms of the lease.
"That could take a little more time and will incur some additional cost too," he explained.
And he said lenders may be put off by particularly high charges.
"If either of the ground rent or maintenance charges are deemed too high or the terms are such that it could rapidly escalate and put buyers off, it could affect the lender’s decision," he said.
Are new rules coming in to protect leasehold homeowners?
Under the new government, homeowners can expect a raft of policy changes that should give leaseholders more rights and protections - although many of those changes were pushed through under the previous government.
Mr von Grundherr explained: "The intended changes aim to make it easier and cheaper to extend leases for both houses and flats, particularly those close to expiring.
"They also plan to tackle unregulated and unaffordable ground rents, as well as unfair maintenance costs, whilst making it easier for leasehold homeowners to buy their freehold.
He said that Labour wants to go a step further and ban all new leasehold flats, making "commonhold" the default tenure.
Commonhold is where all the different residents in a development partially own the land and are jointly responsible for managing it.
"In theory, the proposed changes should make what are now leasehold homes a more attractive proposition, if they do come to fruition" he said.
However, Mr Jobson added that while the reforms go some way to addressing the concerns with owning a leasehold, they "crucially don't eradicate them".
"While leasehold properties can be a viable route to home ownership, they come caveats that require consideration. It's important to conduct thorough due diligence and seek professional advice."
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What if I want to buy a leasehold home?
If you are considering a leasehold property, make sure you have read all the paperwork carefully and have discussed it all with your solicitor or conveyancer before signing anything.
Look for words in your paperwork such as "deed of covenant", as this may include clauses that you will be bound to if you sign.
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Make sure you could afford any increases to the fees in future before locking into ground rent or maintenance fee agreements.
If there is not a cap on the amount these fees could be increased by, carefully consider whether you could afford a sizeable hike at short notice.
How to check if your home is leasehold
WHEN you buy a property, you should be advised about its tenure.
Make sure to ask the estate agent when you view the home as they should know or be able to find out.
However, if you've already bought a property and aren't sure if it's leasehold, it should say in the legal documents you got when you bought it.
If you can't find these, you can look your property up on the Land Registry, where all homes are recorded.
Look yours up on: gov.uk/search-property-information-land-registry
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