Leasehold is Bad
The concept of leasing land for homes has been around for ages. Some of the earliest examples were the ‘landed gentry’ who owned vast estates and offered long-term leases to people who wanted to farm, live on, or build houses on their land.
As a result, many new-build properties have been built on Leasehold Services terms, a practice which has become controversial in recent years. This is often done as a way for developers to earn extra cash, by selling on the freehold of new homes or entire estates, allowing them to sell the land on to investors who can then make money from it.
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This can be a problem when it comes to ground rent and services charges. These can increase in line with the local market rate and you may have no control over how they do.
Why Leasehold is Bad
In the long run, this can be costly. For example, if you are on a fixed income and can no longer afford to cover your ground rent and services charges, you could find your home repossessed by your mortgage provider.
It can also affect the resale value of your property, as lenders will not want to risk granting you a loan for a property with a short lease term. You can still get a mortgage on a leasehold property, but you will be likely to face higher borrowing costs and interest rates than you would on a freehold property.
There is also the issue of ground rents, which can be escalating every few years. These aren’t just expensive to pay, but can also be frustrating to deal with.
If you’re not sure what to look out for, you can speak to a lawyer about your options. They can help you find out if the property is freehold or leasehold and what the ground rent and service charge will be.
You can also check if the lease is 999 years or less. A 999-year lease is more favourable to buyers then an 80-year one.
Some flat owners will group together to buy the freehold of their building, which is called ‘collective enfranchisement’. This can be an expensive option, but it is worth considering if you’re looking to secure more long-term security in your home.
In some cases, landlords have abused the leasehold system to squeeze out more profit for themselves. These problems are now being tackled, and the government has put in place strict rules to stop this happening again.
There are also many advantages to owning a freehold property rather than a leasehold one. A freehold property allows you to re-sell it if you no longer need it, whereas a leasehold home can be difficult to do.