Freehold & Leasehold
When considering a property purchase, it is important that you know whether the property is freehold or leasehold.
A freehold property means you own the property and land outright.
A leasehold property means you only own the property for a fixed number of years. You have the right to live in that property, but you will need to follow any rules laid down in the terms of the lease. Flats are often leasehold, but houses can be too.
The length of the lease will be specified in the contract, but you should ask the estate agent up front how long is left on the lease and should wait until you have this information before making an offer.
Estate agents must be upfront about lease length, any costs or fees, and how these might change over time. As the lease length gets smaller, the property value may be affected, especially once it falls under 80 years.
Many lenders are reluctant to lend on properties with less than 80 years left on the lease. More information is available from the Leasehold Advisory Service.
If you buy a leasehold property, you may have to pay regular ground rent and service charges to your freeholder.
- The ground rent is a sum you have to pay to your managing agent/landlord if it is a condition of the lease.
- The service charge is paid to the managing agent or landlord towards the costs they incur for the services they provide, like repairs, gardening or cleaning of common areas. It can also include building insurance.
Both ground rents and service charges vary from one property to another and details about both should be written in the lease.
If you are thinking of buying a leasehold property, make sure that you have carefully considered the terms of the lease. It is important you ask your legal representative to find out:
- what the cost of the ground rent is; when it is likely to increase; and what the scale of these increases will be as these costs may impact the future value and saleability of the property. They should also check that your mortgage lender is happy to provide your mortgage based on the proposed level of ground rent and the length of the remaining lease.
- whether the previous owners of the property have paid all outstanding service charges and if the landlord is planning any major building works you will have to contribute to. The seller’s legal representative should provide an LPE1 form and supporting documents which will help clarify these issues.
- whether the lease contains any restrictive terms and conditions; for example it may not allow you to keep pets in the property.
A leasehold property can often take a few weeks longer to purchase than a freehold property due to a number of additional steps in the process. More information on leasehold properties can be found in the government’s How to lease guide and from the Leasehold Advisory Service.
Shared ownership
Shared ownership was introduced by the government to help people who can’t afford to buy a home outright.
Shared ownership lets you buy a share of a property (initial shares are available from 25% to 75%) and you pay a rent on the remaining share that you do not own. If you wish, over time you can buy more shares. This is called ‘staircasing’, so that eventually you own your home in full if the scheme allows, or allows you to own more of the property.
The ability to fully own the property may be limited if it is in a rural area or a leasehold scheme for older persons. Please check the individual scheme for details.
The scheme allows you to buy a share of a property. The share you buy is usually funded by a mortgage which you will need to arrange with a bank or building society. The remaining share, namely the part you do not own, will be rented to you by the organisation who owns the property, such as a Housing Association.
If you already own a home without a mortgage, you could consider shared ownership as a way to afford a different type of property (such as a bungalow which can be more expensive than houses), that is likely to be newer (reducing maintenance costs) and to release equity for other purposes.
If you decide to buy a house or flat using the shared ownership scheme, you will usually get a lease for 99 or 125 years. This will give you the right to live in your home as an owner-occupier. It will also allow you to buy more shares of your property later on if you would like to and you can afford to do so. The lease also gives you the right to sell your property.
The lease will set out the responsibilities you have for repairing the property and paying your rent and any service charges.
Even though you have not completely bought the property, you will still have the normal rights and responsibilities of a full homeowner occupier.
There are three main things that you need to consider carefully with shared ownership:
- Whether you can own the property fully
- You will be responsible for all repairs to the property despite not fully owning it. If it is a new property, there will likely be a warranty period covering any defects
- Selling a shared ownership property can be more complicated than one you fully own. The organisation you bought it from may have included clauses in the lease that requires any sale to be managed through them, including what price to sell it at and selecting a buyer
Find out more about Affordable home ownership schemes and shared ownership homes at www.gov.uk
Right to Buy
Right to Buy allows most council tenants to buy their council home at a discount. Use the eligibility checker to find out if you can apply.
You can apply to buy your council home if:
- it’s your only or main home
- it’s self-contained
- you’re a secure tenant
- you’ve had a public sector landlord (for example, a council, housing association or NHS trust) for 3 years - it does not have to be 3 years in a row
For more information, you can look at gov.uk but for specific information about your home, you should contact you Social Landlord directly.
You can find out more about the other government affordable home ownership schemes available to make buying a home for affordable at gov.uk.
