Freehold flat vs. Leasehold with no service charge

Mortgage_Moog

After viewing a few flats/maisonettes I am confused over the difference between a freehold maisonette and a leasehold maisonette with no service charge.

I thought that ALL leasehold properties had a monthly service charge which goes towards repairs. If anything bigger needs doing then the bill is split equally between the number of properties in that block. I get that and I thought all leasehold properties were the same.

I have now found several maisonettes with no service charge at all and some maisonettes that are freehold. My preferred mortgage lender says they would lend on a leasehold with no service charge but they won't touch freehold flats/maisonettes. This is what I can't really see the difference between and why they will lend on one but not the other.

Either way, leasehold or freehold, you're still going to have to pay out for repairs so why will they lend on one but not the other?

PS - I really am talking just about maisonettes here. I often say flat because it's just easier to say and spell ;-)

eddddy

Presumably you are defining a maisonette as a two storey property with another property above or below.

Assuming you're in England or Wales, it's unlikely that they are freehold.

More likely, you would be buying a leasehold plus a share of the freehold (which is fine with mortgage lenders).

Or some EAs refer to a 999 year leasehold as a 'virtual freehold' - but mortgage lenders still regard it as leasehold.


Edit to add...

Or can you post a rightmove link to a maisonette that appears to be freehold?

Mortgage_Moog

I think of a maisonette as a set of rooms with a private entrance and no communal areas.

The one I'm looking is definitely freehold and sits above one that is rented out. In that case, wouldn't you always want a ground floor maisonette so you'd never have to worry about the roof? I thought the whole block would be leasehold or freehold. I really don't see how it would work when it comes to repairs and all the estate agents have said is "you just fix what needs fixing".

eddddy

Can you provide a link to one of the freehold maisonettes?

It needn't be the one you are thinking of buying.

Hoploz

Yes that's exactly it. The whole building needs to be under some sort of control for the mortgage co to lend. Otherwise the upstairs flat could fall down because the downstairs flat never bothered to do a necessary repair underneath it. It's not going to happen but that's the idea.

Likewise normally the freeholder organises buildings insurance for the whole building as it would make things very awkward if each flat or maisonette had separate or no insurance. If the lot burnt down you'd need a common policy to enable a rebuild.

It's unlikely the maisonette is freehold. It's possible the person who owns the maisonette also happens to be the freeholder of the whole building with the other flat under one lease and the maisonette under another.

It's more likely that it is share of freehold, which is where the leaseholders collectively own the freehold too. In small developments this works fine, eg a block of 2 converted from a house, or 4 flats on 2 floors. No common parts so no monthly service charges and if anything major comes up then the cost is shared.

Mortgage_Moog

It says in the description that it's freehold and it even lists that as a bonus, saying you don't have to worry about a lease because it's freehold. It seems odd to me but the agent got quite agitated when I asked a question very similar to the one on here about what would happen if someone didn't do repairs and that caused damage to one of the other maisonettes. All I could get from them was "you just fix what needs fixing".

Mortgage_Moog

eddddy wrote: »

Can you provide a link to one of the freehold maisonettes?

It needn't be the one you are thinking of buying.

This is not the one I am looking at but it's very similar except that it costs several times more!

http://www.rightmove.co.uk/property-for-sale/property-49563103.html

Richard_Webster

there seem to be two different definitions of a maisonette - one as mentioned in a previous post - is a flat with more than one storey in a larger building.

The other definition - which I think is more commonly used - is a flat with a separate entrance to the outside - so there are no interior common areas. Typically these are in blocks of 4 which when looked at quickly, look like two semis. The leases of such flats generally do not have service charges and very often all the freeholder does is collect the ground rent - even the insurance of the separate flats is dealt with by each individual flat owner.

Flats which each have their own separate freehold title are not generally mortgageable (except in Scarborough with some lenders). This is because positive covenants (e.g. to maintain and insure your part of the building) are not enforceable against someone just because he happens to own a property - he has to have entered into a specific deed with all the others concerned - which is quite impractical every time anyone, in a building made up of a number of flats, moves.

However, there are a number of situations where the freehold is involved where a mortgage can be obtained. These are:

1. Shared freehold - where each flat has its own lease but the lessees collectively own the freehold of the building and the land on which it is built.
2. Freehold subject to lease of the other flat. So if there are two flats in a classic maisonette situation, the owner of one flat can own the freehold of the whole building and the owner of the other flat has a lease. As long as there are appropriate covenants by the freeholder to maintain the part of the building he occupies this is usually OK.
3. The Tyneside flat scheme. Here you have a lease of the flat(maisonette) you occupy and own the freehold of the other maisonette - above or below you. that way each has the other owner as his landlord. As the name implies most of these are on Tyneside but Laings the builders did use the scheme in the 1970s/80s in the South of England.

In reality, mortgage lender staff (particularly at branch level) don't understand these fine distinctions so the moment you say you are buying a freehold flat they tell you they won't mortgage it. it is usually better not to go into that level of detail - you are buying a flat - period. Your solicitor (or switched on broker) can, if necessary, quote the relevant paragraphs of the Council of Mortgage Lenders' Handbook at the lender. I say "switched on broker" because again most brokers will just get confused about shared freeholds, freehold subject to lease and Tyneside/criss-cross schemes.

eddddy

Mortgage_Moog wrote: »

This is not the one I am looking at but it's very similar except that it costs several times more!

http://www.rightmove.co.uk/property-for-sale/property-49563103.html

I think that's just a sloppy description by the EA.... I think they mean leasehold plus a share of freehold (or maybe even leasehold plus the whole freehold).

There's a clue the description, it says 'also'...

The FREEHOLD is also being sold with this striking maisonette

For more evidence go to the land registry property search page, and enter the postcode "E10 7PB" which is part of Perth Road.

For each address, you will see 2 (or 3) leasehold titles, and one freehold title.

https://eservices.landregistry.gov.uk/wps/portal/Property_Search

Mortgage_Moog

I think I'll just do everything I can to get a freehold house and avoid all this!

G_M

An estate agent's description cannot be relied on.

As Richard says, few EAs really understand the legal niceties, but if the seller mentions 'freehold', then they'll just market it sloppily as a 'freehold flat/maisonette'.

But in this case as Edddy says

The freehold is also being sold with this striking maisonette

so you'd be buying two things:

* a lease and
* either the entire freehold, or a share of it

Either way it would fit Richard's explanation of what's acceptable to a mortgage lender.