What is the Difference Between Freehold and Leasehold Properties?

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When searching for your next property investment it is important to understand all the different ownership and investment options as well as the terms and conditions they might come with.

One of the major differences in ownership is whether the property is available as a freehold or leasehold investment.

Owning a property freehold means you are the sole owner of the property and the land it stands on until you decide to sell or pass on the property to your family. This means, subject to planning permission and laws, you can do whatever you want to both the property and the land.

On the other hand, if you invest in a leasehold property, you only own the property for a certain amount of time, meaning that you can, of course, occupy the property for the length of the lease, but during this time there are terms and conditions you must abide by.

Often, a leaseholder must pay a ground rent on their property to the freeholder as well as a service fee to cover the costs of maintenance of communal areas such as hallways and stairwells. This is more likely if the property is an apartment. [r]

Owning a leasehold property can cause a number of issues for an investor.

Leasehold Property Investment Overview

Leasehold properties are usually flats or apartments which have been developed by a large-scale property development company, but it can also be from a single individual.

The individual units or flats are then sold separately on a fixed term lease.

The lease can depend entirely on the property and can vary from 99 years to 999. [r]

When the lease expires the ownership of the property reverts back to the sole freeholder. Leasehold properties can be rented out only if the freeholder agrees, but you should always consider the terms and conditions of the lease before you buy, as your rental yield could be restricted. [r]

If you have invested in a leasehold property with less than 50 years remaining on the lease, you could find it difficult to secure a mortgage. This is because most mortgage lenders prefer a leasehold property to have a minimum of 50 years left before it expires to ensure they could get their money back if you are unable to meet the monthly mortgage repayments.[r]


Owning a short lease property can mean you will find it difficult to sell and may even be forced to sell the property at half the valuation.

1 Million Pound Properties, a new Channel 4 series, recently highlighted the financial issues with leasehold properties in

devaluation of properties the effect ofThe series interviewed a leaseholder of an ex-council flat in central London, who was planning on selling his £1Million property in order to relocate to a warmer country. However when the estate agents came round to value the home, due to the short length remaining on the lease, he could not value the property at more than £600,000. Of course, the leaseholder was very disappointed.

Lease Coming to an End

If a lease is coming to an end, you can either sell the property which can be quite difficult, contact the freeholder to renew the lease or come to an agreement with the freeholder to continue to occupy the property on a new rental agreement. [r]

Even if you have invested in a leasehold property there is an option to buy the property outright from the freehold owner. In order to do this, you would need to contact a solicitor as the process can be very tricky legally.

There are many terms and conditions when investing in a leasehold property that you should research and enquire about before you make an offer.

Leasehold & Right to Buy

Leaseholds have been used to help first-time buyers get their foot on the property ladder in the UK/ The Government’s Right to Buy schemes allow first-time buyers to purchase a modern family home, something they may not have been able to do on their own.

scroll lease invest properties propertyThe scheme works by asking the first time buyer to purchase a stake in the property, rather than attempt to secure a mortgage on the overall price. This means that you are a leaseholder rather than the freeholder. In theory, you should have the right to buy the property once you have saved up enough money and paid off the initial stake in the property. However, the scheme has been criticised by Shadow Minister for Housing John Healey.

Mr. Healey questioned the scheme in the House of Commons, ‘What do tenants do when the landlord says no? How can this be a “right” to buy, with no legislation behind it? In truth, this is not a right-to-buy, but a beg-to-buy policy and many housing association tenants will find next year that they have been badly let down by the Prime Minister’s promises.’ [r]

Unless a freeholder agrees to sell you the property, you will not be able to legally buy it as a freeholder.

Freehold Investment

Investing in freehold properties are preferred by most property investors, as the process allows you to benefit 100% from the investment with no need to worry about the terms and conditions set out by anyone else.

As a freehold property owner, you can make any changes to the property and the land, subject to planning permission and you can pass down the property to your family. In addition maximising your rental yield would not be restricted and so you can capitalise on your investment.

If you would like to know more about The Heaton Group’s freehold property investment opportunities please contact info@heatongroup.co.uk or call 01942 251949

[s]Guide To Buying A House [Which.co.uk][/s]
[s] What's the difference between freehold-leasehold [Ludlowthompson.com][/s]
[s]Can I Rent My Leased Property Out [Telegraph.co.uk][/s]
[s]Lease Advice[Lease Advice.org][/s]
[s]John Healey's Urgent Question to House of Commons[24dash,.com][/s]



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