Freehold or Leasehold .. which is best? Well, when buying a
property in the UK there are two main types of ownership – freehold and
leasehold and, when boiled down, they mean the following...
Freehold: The person who owns the freehold of a
property owns the property and the land it stands on.
Leasehold: As a leaseholder you do not own the land the
property is built on. A leaseholder essentially rents the property from the
freeholder for a number of years, decades or in some Victorian terraced houses,
for centuries.
All apartments have to be sold as leasehold properties because of
the very nature that you have a neighbour above or below you (so both of you
can’t own the land) with the length of the lease being over 100 years (even
more sometimes).
However, with some apartments – particularly Victorian and
Edwardian houses converted into numerous apartments – which are sold on the
basis that the leasehold apartment owner also owns part of the freehold (with
other leaseholders in the same building), having what is known as 'share of
freehold'. Similarly, the Government also
brought in legislation a number of years ago for more modern apartment blocks
built in the 20th century where it allowed leaseholders to club together and
have the right to purchase the freehold together.
Whilst houses tend to be sold as freehold as it's a more unambiguous
set-up, given there is only one property on the land. Contentiously however, in
the last 20 to 25 years this has not always been the case with
new-builds as some new homes’ builders have sold the leasehold to the buyer and
retained the freehold. There is nothing wrong with that, it’s just in some
cases (not all) they also added some oppressive clauses to the lease
of the property they were selling, which could be the next PPI scandal - albeit
for property.
Government reports have emerged recently that suggest 12,000
leaseholders in the UK are facing ground rents – which they pay to the
freeholder – that double in cost, usually every 10 years, but occasionally more
frequently.
Builders started to add clauses
into leasehold property sales with ground rent being set at £300 and £400 a
year, yet it doubled
every ten years. Though unwary
first-time buyers were habitually told that their 500 and 999-year leases were
practically freehold, the clauses inescapably meant that the ground rent would
spiral to ridiculous levels meaning the average ground rent would be £23,750 a
year by 2070 and £379,900 a year by 2130, making the properties
practically unsellable today, with owners often left unable to re-mortgage too.
So, how many people are affected by this in our local area?
Well, using Government data, our research suggests that in Southampton
98 householders have bought a detached house, semi-detached house or town house
(which would normally be freehold) as leasehold. Not all
these have onerous lease clauses, yet some do. I know it doesn’t sound a lot,
yet that is potentially 98 lives ruined with houses they can’t sell - making
them prisoners in their own property.
The good news is the Government is on the case and serious about
sorting this issue out as they have
proposed a ban on the future sale of houses as leasehold, as well as cutting
ground rents to zero. Yet stern questions remain about the future of homeowners
in existing leaseholds. Westminster wants the builders to set up compensation plans,
and we will say many (not all) have stepped up to the mark and started to sort
this, although some campaigners have said the schemes are not fit for purpose,
let’s hope they are wrong.
If you would like to pick my brains on the Southampton Property Market – pop in for a coffee or drop me a line on social media or email.
If you are looking for an agent that is well established, professional and communicative, then contact us to find out how we can get the best out of your investment property.
Email me on brian.linehan@belvoir.co.uk or call on 023 8001 8222.
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