Price difference Freehold vs. Leasehold House

elwappo

I currently own a mid-link two bedroom property in Wales located within a very popular private estate with good links to the motorway and local schools/amenities. The property is only 12 years old, but the lease started in 1995.

I purchased the freehold last year due to it getting very close to the 80 year line and the "marriage value" coming into play.

I recently spoke to an estate agent about selling it and what I'm likely to achieve from the sale. Now here's the part that grated me...

When I explained it was freehold (when most properties on the estate are still leasehold and below the 80 year threshold), the agent said: "oh, it doesn't make much difference to be honest".

Firstly, I know Estate Agents are the lowest of the low in terms of people to trust in business. But she did say, you "could try adding the lease value to the property if you like". Hinting it could go up at the same value as exactly the same properties as leasehold if it was up to them.

Personally, I don't buy this. I think the property being freehold is an advantage - most properties on this estate when advertised on Zoopla for example, never disclose whether they are freehold or leasehold because it's a very popular estate. And no doubt catch the buyer at the last minute.

Am I right in being vigilant in saying the property is advantageous as a freehold and expecting a better return than an identical leasehold mid-terraced house? What should I expect in terms of return of an identical property that is freehold vs. leasehold?

Your advice would be greatly appreciated everyone.

googlejuice

I'm no expert but I ow when we were looking to buy, banks were more reluctant in giving a mortgage for leasehold. So it will be easier for prospective purchasers to buy your property.
It also logically makes sense that freehold would give you better returns as it's you're property, while leasehold is only yours for the duration of the term.
Is there not another estate agent in your area you can ask?

UpToMyNeckInIt

It will start to make a massive difference when your neighbour's leases get shorter and progressively more expensive to renew or to buy the freehold.

Most savvy buyers wolf go for the freehold, and I would suggest that it is worth paying a premium for.

AlexMac

Amazing, eh? A less than well-informed EA!

After all the book-learnin', courses, exams, regulation and Continuous Professional Development they have to go through for their job?

Oh- hang on a minute... Maybe they don't.

Look at the leasehold calculator here on the MSE website and see how costs to extend rocket after 80 years; Freehold every time!

Kynthia

I fully agree that freehold is worth more than leasehold. What the problem may be is that buyers looking on rightmove won't know why your property is priced more than others in the same estate and be put off viewing. That might be something you need to address in the advertising.

kingstreet

UpToMyNeckInIt wrote: »

It will start to make a massive difference when your neighbour's leases get shorter and progressively more expensive to renew or to buy the freehold.

I'd go with this theory.

80 years or more, very little difference.

When theirs are under 70 years, your "premium" will become more pronounced.

robatwork

Yes - when you walk into an EA put on your "bul1sh1t filter".

Don't take it off until you walk out.

If 10% of what was said has got through the filter then you're doing pretty well.

You own your house & land (with the bank). The leaseholders don't. Makes a difference both financially and emotionally when you come to sell.

ACG

The estate will/should know the market better than most.

With an 80 year lease its getting to the point it will start to make a difference. How much of a difference is difficult to say but at 80 years it probably will make little difference, in 5 years time that will be a different story.

However, assuming the agents are useless they should be promoting the sale of your property as freehold where as most of the local market is leasehold - this will be a big selling point for yours.

elwappo

Thanks for the advice everyone. I'm definitely going to make sure the EA specifies it benefits from being freehold compared to other properties on the street/estate. I've noticed they never specify the holding status of properties for sale because I think nearly all of them are leasehold. If they were freehold, they'd probably be quite forthcoming in specifying it. It's very sneaky.

I can't believe how blas! most people are on my street are when it comes to the lease. Everybody will now be on the 80 year threshold like me and I would say 99% haven't done anything about purchasing the lease. More fool them.

I will definitely being having input into the advert. They've been so lazy in the past as they copy/paste the same advert text for houses of the same size/design. And they wonder why EA's are bottom of the list of professions people least trust?!

ethank

Agree with the EA - it won't add value but it will prevent value erosion as the lease gets below 80 years.

That said - marketed right - if there are other comparable properties - you may get a premium price for yours!

princeofpounds

Actually often the purchase of a freehold adds less value than you would think. There are a variety of reasons for this.

There are, generally-speaking, two major costs to not having the freehold.

The first is the cost of avoiding reversion - i.e. extending the lease before it expires (or most commonly when it gets to 80 years before expiry, so it can be mortgaged). This is a significant cost, but it is very far away (often 999 years away!) and so in present value terms it can be relatively small.

The second is the cost of ground rent. Sometimes this can be large, but often is is small, particularly for houses.

There may also be costs around insurance and certain types of maintenance being arranged by a third party, but unless they are particularly onerous (again more of a risk with flats typically) they tend to be largely disregarded.

The slightly perverse thing is that because leaseholds tend to be a little bit cheaper, and because the value of the ground rent is a relatively easy cashflow stream to bear, then people actually 'appreciate' the fact that they require less money upfront to buy. It's basically a way of leveraging up further, buying a bit more house for your money at the cost of paying more in the long term.

I think this is major reason why the full value of freeholds is often not appreciated. You can tell this is the case because in many new developments builders are exploting this fact. They are upping ground rents and making them escalate more with inflation. Incoming buyers think something like 'well, it's only £1k a year, I can live with that', not realising that under current interest rates, that £1k/yr + RPI cashflow is worth almost £20k to a freehold management company that will buy them off the builder.

Buying the freehold certainly doesn't add any material value above the value of the freehold itself, unless it is below the 75/80 year mark where it would enable people to acquire the property with a mortgage. That is because anyone buying it with a long leasehold can just wait 2 years and do the paperwork themselves.

I'm not saying the way your average punter tends to value freeholds is logical - it's not, it's a classic case of people worrying about the money they have to pay now and ignoring future costs (behaviour we see all the time with variable rate mortgages too!).

Having said all of that, I would make sure I marketed it as freehold, and I would expect a little extra. But I also suspect you are not going to get as much extra as you think you are.