What is the difference between leasehold and freehold

What is the difference between leasehold and freehold?

When buying a new home, you can either purchase the land it’s built on as a leasehold or as a freehold.

In this article, we’ll help you determine what’s best for you. 

We’ll cover:

- What is a freehold property?

- Why are new builds freehold?

- What does freehold mean for homeowners?

- Why would anyone buy a leasehold property?

What is a freehold property?

Someone looking to own their home outright will usually opt for a freehold, meaning that you own the house itself and the land it’s built on. 

Buying a leasehold property, on the other hand, limits the length of time a piece of land can be owned for. 

Whilst the length of a leasehold will almost always extend beyond the life of the original homeowner, one of their descendants will eventually have to give the land back to the true owner once the leasehold is up. 

Essentially, there is an expiry date although it can take anything from 99-999 years for the leasehold to expire.  

However, it is worth looking at the length of leasehold like a car’s mileage. The more mileage left on your home, the easier it is to sell. 

Are new builds freehold?

In June 2019, the UK government put into place new leasehold laws guaranteeing that every new build going forward would be sold as freehold. 

But what impact has this had on homeowners and are there circumstances where simply buying a leasehold would be better? 

What does freehold mean for homeowners?

When you buy a home freehold, you own the land your home is built on outright. 

Once you’ve paid for it, it’s yours. You won’t have anyone you need to pay a service fee or ground rent to. No middlemen to worry about. 

A freehold is perfectly suited to anyone who knows exactly what they want their ‘forever home’ to look like and is ready to settle down. 

Why would anyone buy a leasehold property?

Whilst a leasehold doesn’t last forever, some homeowners are okay with that. If you only plan to live somewhere for five to 10 or even 20 years, you really don’t need a freehold home. 

You might not be looking for somewhere that can be passed onto your children and your children’s children, or you might be searching for a new home but with the intention of upgrading in the future. 

Whilst it makes sense to buy a house as a freehold, it’s not as straightforward if you want to live in say a flat – where there are multiple homes built on a single plot of land. This is why flats or apartments are usually leasehold, and means you and other flat owners in the block are likely to have to pay ground rent or a monthly service charge. 

It’s also worth noting that once you’ve lived in a place for over two years, you can extend the length of your leasehold and some leaseholds last up to 999 years – making them essentially freehold properties in everything but name. 

Leasehold vs. freehold: Which should you choose?

There’s something nice about knowing you fully own your own home, no strings attached. When you choose to buy new, you are guaranteed a freehold home for life. 

The Government has also made it so that if you have ever bought a new build leasehold, you can apply for it to be changed to a freehold at no extra cost.