Leasehold vs freehold - The differences

If you opt for a leasehold, you’ll be the owner of your new home for a specific period of time, known as the lease. After this, your home will belong to the freeholder again.

Leaseholds are most commonly found on apartments, and last around 99 years or more. They work in a similar way to lettings, only for a longer period of time, and usually require a one-off payment up-front.

During your leasehold, you will be able to extend it by speaking to a solicitor who will provide the service for a fee.

If you don’t extend, ownership of the property and land will be transferred back to the landlord. 

One of the biggest perks of a leasehold is the fact that you won’t be responsible for every problem in your home.

Depending on your contract, your landlord will likely be responsible for structural problems, so you don’t have the worry of finding and paying for someone to come and sort major issues.

But there are some drawbacks, depending on the type of leasehold agreement you have. As ownership may eventually transfer back to the freeholder, you won’t be able to make major changes to your home, such as adding an extension or changing the kitchen suite.

At the very least, you’ll need permission from your landlord to make any upgrades. It can also be more complicated to get a mortgage for a leasehold property. 

If you have a freehold agreement, you are the sole owner of the building and its plot of land.

The property is yours until you sell it again, and will be part of your estate and included in your will, so it can be passed on to your beneficiaries when you die.

The only way a freehold property can be reclaimed is as part of your mortgage agreement, if you don’t keep up with the agreed payments.

Freehold properties are ideal if you want complete ownership and say-so over your home, whether that’s changing the layout or building an extension. 

The only limitations come from your local authority, as you’ll need to seek planning permission for any changes such as extensions. 

If you’re weighing up the pros and cons of a leasehold or a freehold, here are your top considerations:

1. The length of ownership. If you opt for a freehold, your property will be yours until you sell it, while leasehold properties are yours until the lease period expires and then it belongs to the landlord. If you want to eventually turn your leasehold home into a freehold home, you’ll need to get advice from a solicitor on a ‘Section 13 Notice’, which can be a complex process.


2. Responsibility for major problems. If you own your home outright as a freehold, you’ll be responsible for fixing any big problems such as subsidence or storm damage. For leasehold, many major problems will be the responsibility of your landlord, but it’s worth checking the term of your contract to make sure.  
    
3. Ease of getting a mortgage. It’s often easier to get a freehold mortgage, as it’s a standard mortgage type. Leasehold mortgages are more specialist, and can be trickier to find. 

This guide to negative equity was produced in collaboration with MHMC.