freehold vs leasehold

TCPPC

Hi all

there is 2 property im looking at, one is freehold the other is leasehold with 100 year
whats the cost and main drawbacks with leasehold, i saw a rule after 2 years the occupied have the rights to extend or purchase the freehold?

the sales advisor said ground rent is £115.00 is this reasonable?

cattie

The ground rent is pretty reasonable if a flat, but you need to know what the service charge is before working out if it's a viable option for you & also say whether it is a house or a flat. It sounds as if they are new properties with you mentioning a sales advisor? If it's a house it may not have a service charge, but a flat will.

Although I now prefer living in a leasehold flat rather than a freehold house as I'm getting older & just don't want the hassle of the maintenance etc. that goes with owning houses, most people would tend to choose freehold unless it's a flat that they particularly want to live in.

TCPPC

its a house, thats why im slightly confused on it

cattie

As it's leasehold, if it's on an estate or development, there well may be service charges too, to pay towards any maintenance of communal grounds or electricity etc.

In this instance it would be better to choose the freehold property unless the leasehold one is much more spacious.

princeofpounds

To do a monetary comparison, one thing you can do it take the £115 ground rent and 'capitalise' it by a long-term mortgage rate.

Assuming a 10 yr mortgage might be available for 5%, then the ground rent is 'worth' £115/0.05 = £2300 as a lump sum.

It's a crude measure (I don't want to get into details about all the consideration you can make) but it helps you get in the right ballpark.

What may be more important is understanding what the service charge covers, and how you might be billed on that.

For example, the lease might stipulate that the freeholder gets to choose the building insurance policy, inventivising them to pick the one with the highest commission to them rather than a competitive type. That's more common with flats than houses, but it's just an example of the level of detail you need to go into. Read the lease.

Confusingly, some freeholds, particularly newbuilds, can come with covenants to pay something that is similar to a service charge for the communal upkeep of an estate. So the basic advice is always to actually understand the individual circumstances of your property, there isn't one template for each type.

If all is equal, go for freehold. If the difference in price (or space equivalent) is modest (~5k) then I'd still go freehold to save on ground rent and inconvenience. But there is nothing formulaic here, all about personal prefernece. For 20k, I'd probably buy the leasehold and a new car instead.

Danni-R

You only have the right of first refusal if the freehold on the property comes up. And there is no guarantee you know what the charge will be.

Lease hold means you own the inside as it were and not the outside so if you were looking at doing a loft conversion you'd need to get permission.

Personally I'd go for the freehold.

TCPPC

Danni-R
thanks but i thought if you live there for two year in the property, you can purchase the freehold of them for market value.

i just find it hard to believe paying 160K+ for a new home but dont actually own the land.

the only difference is the area, both area is being developed into its later stage of the development.

supposedly nowadays 160k wont get you much? in decent area

but the good thing is no service charge

Running_Horse

If I had to buy a flat I would put up with the hassle and expense of leasehold.

If I wanted to buy a house, under no circumstances would I even consider leasehold, and nor would many potential buyers when you come to move on.

FOREVER21

If as you say it is a house and you have the choice of freehold v leasehold I would go for freehold.

Someone has mentioned difficulty in selling a leasehold house and I have lived in one, in my opinion the only difficulty is if you have less than 30 years left on the lease, a buyer might find it difficult to find a building society willing to give a mortgage.

You are correct in that a new occupier can buy the freehold but I think you have to have occupied the house for longer than 2 years.Also the cost of buying the freehold is governed by quite a complicated formula, the main point being the the remaining number of years the lease has to run, with those with only a few years left costing more.

Also part of the process involves the person buying the lease, to have to pay surveyors fees along with their legal fees and legal fees of the person or company that holds the lease.

TCPPC

the lease is 250 years, so theres no issue of it being running out.

just the annual fees plus its not fixed so it may go up in future.

does anyone know how they value the freehold land?

i.e 160k property 250 year lease

polarization

Maybe I miss this in the previous post. Is there any service charges? If so, it is important to read the terms of the lease as they may have a terms to be they can raise the service charge / ground rent for certain % each year or after certain yesra after the lease was set up.

For a house, like what other said, I will go for freehold. I think it is the purpose of getting a house, which you own everything. But it depends on personal preference.