When potential buyers scan a website for properties, they tend to look for price, location and number of bedrooms. However, they should also look for the information that tells them whether the property is freehold or leasehold, as this will give them an idea of the true cost of their future home.
According to the Land Registry, 98% of new build property sold in London in 2010 was leasehold, compared to just 43% in the rest of the UK.
Henry Wiltshire’s Director, Kelly Gallagher, explains the difference between freehold and leasehold. “When you purchase a freehold, the property is completely yours, except, of course, for your mortgage repayments. However, when your purchase a leasehold, all you have done is leased the property from the freeholder for a particular number of years.”
There are three consequences of owning leasehold property: ground rent, service charges and the impact on selling the property in the future.
Not all leaseholders are charged ground rent, but it’s important to find out what the annual charge is so you can factor it in to your property purchase. If you’re a freeholder of a multi-occupancy building or you’re a developer, ground rent can provide an additional revenue stream.
Service charges are charged by freeholders, landlords or developers to cover the costs of running the communal areas of the development. Unfortunately, there is minimal regulation surrounding service charges and they are often contested. Check before you commit yourself to the property purchase so you don’t get any nasty surprises.
Selling your Leasehold Property
It is very important to check the length of your lease. While a 99 year lease may seem like it will last forever, it won’t. Most banks and building societies won’t consider mortgaging a property with a lease less than 75 years, meaning that you may have difficulty finding a buyer. It is possible to extend your lease, but the cost of this can be staggering. Fortunately, developers are recognising this problem and many are starting to sell new build with 250 year leases, or even 999 year leases. Again, check before your buy leasehold property in London so you’re not lumbered with a property you can’t sell on later.
Kelly says, “Leaseholders may have additional annual costs, but with careful homework, these can be factored in. Check the length of the lease carefully. If it doesn’t appear on the website, just ask!”