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Six things to check before you purchase a leasehold property

May 31, 2019

Leasehold homes have been in the press a lot recently; and not in a good way. Some homeowners have found themselves trapped in leasehold properties with escalating costs and little opportunity to sell. If you’re considering moving home and a leasehold property has caught your eye, there are some areas to be aware of.

Leasehold vs freehold

Most properties in the UK are sold as freehold. This is where you purchase both the property and the land. Your purchase of a freehold has no time limit.

Leasehold properties, on the other hand, you purchase for a fixed period, for example, 90 years. Once the fixed period is up, the ownership of the property reverts back to the person or organisation that owns the freehold. You only buy the property, rather than the land that it stands on. As a result, you’ll need to pay ground rent and potentially other costs, such as maintenance fees.

If you’re hoping to purchase a flat, you should expect it to be a leasehold. However, while most houses are freehold, a growing number are being sold as leasehold. For housebuilders, it provides an extra stream of income, but as a homeowner, it can mean your outgoings are higher and restrictions are imposed. The government has recently imposed restrictions on charges for newly built leasehold sales, including capping ground rents. But you should still take the time to fully understand your leasehold.

After buying a leasehold property, it may be possible to purchase the freehold, allowing you to take ownership of the property and land it’s built on. If this is how you want to proceed, ensure you factor these additional costs into your budget and be aware that the freehold can go up in price and change hands.

Leasehold property checklist

Purchasing any property is a big decision. You should always take the time to carefully look through contracts, surveys, and potential restrictions. With a leasehold property, there are a couple of additional things to keep an eye out for:

1. Length of the lease: When they begin, leases are usually long term, often 90 or 120 years. However, it’s a key figure to check especially if you’re not the first homeowner. Typically, you’ll struggle to get a mortgage for or sell a property that has less than 70 years remaining on the lease. It’s often possible to extend a lease on a property, though this will come at a cost.

2. Ground rent: The affordability of a leasehold property will depend on ground rent. This may be a monthly or annual bill you pay as you don’t own the home your land is on. Some ground rents will be capped, while others may escalate quickly. Make sure you check how much the ground rent is now as well as when and how it will increase in the future. Some homeowners have found their ground rent doubles every decade, turning a relatively small fee into a significant bill in the long term.

3. Service and maintenance fees: In addition to the ground rent, you are also likely to have to pay service and maintenance fees. Again, if you fail to factor this into your calculations when testing affordability, you may find you struggle to afford payments. You may also be asked to contribute additional sums to the maintenance of the building depending on the terms of your lease.

4. Alterations: When purchasing a home, you may have an idea of changes you’d like to make, perhaps updating the bathroom or simply giving it a fresh lick of paint. However, with a leasehold, you may have to seek permission from the freeholder before you make any changes. Some families living in leasehold properties even have to pay to make alternations, which may mean plans end up stretching budgets.

5. Restrictions: As the freeholder still retains ownership of the house to some degree and the land, they may also name other restrictions within the leasehold. Some of these could impact your lifestyle, such as pets not being allowed within the property. In other cases, they will have little to no impact on your decisions. However, it’s important to be aware of what the restrictions are and think about how they will affect your ability to sell the leasehold.

6. Ability to purchase freehold: If you hope to buy the freehold in the future, start making enquiries about it as soon as possible. This will help give you an idea of whether the property is right for you in the long term. Keep in mind, though, that the terms of sale set out now may not be the same in a few years’ time.

If you have any questions about purchasing a property, including a leasehold home, please get in touch, we’d be happy to help.

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