It is extremely important to appreciate the differences between freehold and leasehold properties when purchasing. This article helps highlight some of the major differences between them before you make your decision.
Freehold properties
If you choose to be a freeholder, you won't need to worry about leasehold extension. You own the exclusive rights to both the building and the land on which it sits on. Freehold is the norm for houses but freehold flats remain relatively unusual [landlords usually retain the rights to the freehold of a block of flats, however long the lease].
By owning the freehold to a property you are normally free to make whatever alterations you wish to the building the only permissions needed are those from the local authority. It's this autonomy that makes freehold so appealing. Once the property is purchased, apart from a mortgage, council tax and usual contents and buildings insurance there are no additional or ongoing costs. You will need to meet utility bills but providing your mortgage does not go into arrears and you are threatened with eviction, you can stay and live there for as many years as you please. No bother about extending a lease.
The downside to this freedom is you have total responsibility for any costs or repairs required for the building. Also, if a leasehold gives you the right to own a flat for as long as a thousand years, then a leasehold extension worry can fade. In this case, there is not such a difference with freehold. The problems that arise out of a leasehold extension, will more than likely not appear in your lifetime or might be shared between others.
Leasehold property
If you have decided on a house or flat with leasehold, you only own the right to live in that property rather than the land itself. Flats are more commonly held on a leasehold basis compared to houses which are usually freehold. In some leasehold agreements there may be clauses which will restrict what you can do with the property. Some leasehold agreements will offer more and will be more flexible than others, so it is worth looking around. Then there is the leasehold extension issue to think about.
A lease will last for a designated period of time, this can be as long as 125 years. This is an important point as you have to make sure your lease has over 80 years before expiry. With a shorter lease, if you do not extend the lease, you will find it difficult to secure a mortgage with most lenders. It's possible to negotiate a lease extension up to 999 years and you have the right to force the freeholder to that leasehold extension.
Leasehold properties have maintenance costs. In this case those will be met by the freeholder with the service charges which each tenant pays monthly.
So, are you looking for your own property where you can plan the changes to be made, with freedom? Or maybe that leasehold flat with shared costs is your ideal and a leasehold extension is no problem especially with a good lawyer who is knowledgeable about leasehold rights.
Whatever decision you make, ensure from the outset you know the facts and it is the right decision. If you are unsure in anyway as to what may be the correct decision for you, you should seek the advice of a specialist solicitor before making your investment.