Navigating your journey as a first-time buyer or as someone discovering Shared Ownership can be exciting as much as confusing. We’re here to clear your doubts about what the difference between Leasehold and Shared Ownership is.

What is a Leasehold property?

Leasehold is a form of property ownership in which a person owns a property for a fixed period, rather than owning it outright. In a leasehold arrangement, the leaseholder has the right to occupy and use the property for the duration of the lease, which can range from a few years to several centuries.

The key aspects of leasehold ownership include:

• The lease has a fixed term, after which the property reverts to the freeholder.
• Leaseholders often pay an annual fee to the freeholder known as ground rent.
• For maintenance of common areas in buildings with multiple units, service charges apply
• The lease may include restrictions and rules about property use and alterations.
• The freeholder owns the land and building, while the leaseholder owns the right to occupy.
• Leaseholders may have the right to extend their lease, often at a cost.
• As the lease term shortens, the property's value may decrease.

Leasehold is common for flats in England and Wales, but also applies to some houses. It's crucial for buyers to understand the terms of a leasehold agreement, as it affects their rights, responsibilities, and the property's long-term value.

Are Shared Ownership properties the only type to be Leasehold?

Many property buyers, particularly first-time buyers, often harbour a misconception that Shared Ownership is the only type of purchase that involves a leasehold agreement. This misunderstanding can lead to unwarranted hesitation or avoidance of Shared Ownership schemes, despite their potential benefits for those struggling to enter the property market.

In reality, leasehold agreements are common across various types of properties, not just Shared Ownership homes. Many new-build flats, apartments in converted buildings, and even some houses are sold as leaseholds. This arrangement is particularly prevalent in urban areas and for properties with shared facilities or spaces.

The association between Shared Ownership and leasehold is strong because almost all Shared Ownership properties are leasehold. However, it's crucial to understand that this is not unique to Shared Ownership. Buyers who avoid Shared Ownership solely due to its leasehold nature might find themselves facing the same arrangement when purchasing other types of properties, especially in the new-build market.

This misconception can be detrimental, as it may deter potential buyers from exploring Shared Ownership options that could be financially beneficial for them. It's important for buyers to recognize that leasehold is a common form of property ownership and to focus on understanding the specific terms of any lease, rather than dismissing leasehold properties outright.

Don't hesitate to ask questions to our experts when buying your first home

What is the difference between Leasehold and freehold?

The main difference between freehold and leasehold lies in the extent of ownership and control over a property.

With freehold, the owner has complete ownership of both the building and the land it stands on, typically indefinitely. Freehold owners have full rights to modify the property (subject to planning permissions) and don't pay ground rent or service charges.

In contrast, leasehold ownership means the buyer owns the property for a fixed term specified in the lease, but not the land it's built on. Leaseholders often pay ground rent to the freeholder, may need permission for major alterations, and usually pay service charges for maintenance of communal areas. When the lease expires, ownership reverts to the freeholder unless extended.

Freehold generally offers more freedom and long-term security, while leasehold involves more ongoing costs and restrictions but can be more affordable, especially for flats and apartments.

What are the different types of Leasehold purchases?

Leasehold purchases come in several forms, each catering to different property types and buyer needs. The main types include:

• Traditional leasehold flats or apartments
• Leasehold houses
• Shared Ownership schemes
• Retirement properties
• New-build leasehold houses
• Commonhold (a form of freehold for flats)
• Right to manage leases

Traditional leasehold flats or apartments are the most common, where the buyer owns the interior space for a set period. Leasehold houses, though less common, also exist, particularly in some new developments. Shared Ownership schemes offer a hybrid model, allowing buyers to purchase a share of a leasehold property while paying rent on the remainder. Retirement properties often operate on a leasehold basis, designed for older residents with specific amenities and support services. Some new-build houses are sold as leasehold, a practice that has sparked controversy in recent years. Additionally, there are variations like commonhold and right to manage leases, where leaseholders take over management responsibilities from the freeholder. Each type of leasehold purchase has its own set of rules, costs, and considerations, making it crucial for buyers to understand the specific terms of their lease agreement.

What do I need to consider when buying a leasehold property?

When considering a leasehold property, potential buyers should check the remaining years on the lease. Leases with less than 80 years can be problematic for mortgages and resale value which is why you can look into extending the lease if necessary.

It is also important to research the freeholder or management company. A reputable freeholder can make a big difference in your leasehold experience. Check if there's potential to participate in right to manage schemes or to purchase the freehold collectively with other leaseholders.

For apartments, ensure there are no ongoing cladding issues or associated costs. Have a legal professional review the lease terms to flag any unusual or potentially problematic clauses. Check if there have been any recent decisions by property tribunals relating to the building or freeholder. Understand who is responsible for building insurance and what it covers.

By carefully considering these factors, you can make a more informed decision about a leasehold property and avoid unexpected issues or costs in the future. You can chat with our experts for any additional information and advice if you're unsure about any aspect of a leasehold purchase.