Are leaseholds an unattractive purchase?
There was an article this last week from the BBC, regarding leasehold and the government possibly stepping in to help regulate leasehold dealings.
One of the quotes of the article mentions that people do not quite understand the difference between a leasehold and a freehold.
So very simply – A freehold:
This is when you buy a house and the land it sits upon, you get a mortgage (or buy it outright if you are Mr moneybags) and bid for the house, buy it and it’s yours! Very simple. Beyond planning permissions you can do what you want to that property.
A leasehold is you lease the building or property as such and the owner of the land that the building is on and sometimes the building itself is someone different. A true landlord and tenant relationship.
Leases can be 99 – 999 years, so we are not talking 6 month rentals. In some parts of Italy there are these old piazzas where the surrounding buildings are all built up on top of each other, going up a mountain, and the state owns the building and families lease the building for 1000 years. It’s a strange concept but has been around for a long time. It is often found for commercial properties, so a large commercial company may lease a building, say a Marks and Spencers and they may have a long lease and keep their shop there for 99 years.
The issue with leaseholds is often it can not just be houses but flats aswell. A company will own the building and the land, then leasehold the flats inside the building. What can come with any leasehold is often additional fees. So there can be ground fees, upkeep fees, and then when selling you may have to pay the company for the paperwork needed to sell the property. The problem with this is these fees can be large and therefore make the property an unattractive offer for potential buyers. The leasehold company is also free to increase the fees as they see fit.
There are some advantages, the company is responsible for the upkeep of the land and the building itself, but in terms of what they have to do is very much up to the company.
In government there is a Housing, Communities and Local Government committee and in the article linked below said, regarding leaseholds, the following.
“Elements of the current system, which the committee highlighted as needing attention, include claims of onerous ground rents, high and unclear service charges and one-off bills, unfair permission charges, imbalanced dispute mechanisms, inadequate advisory services, and unreasonable costs to extend leases.”
See full article here
(you are now departing from the regulatory website, Coleshill Mortgage Services or Quilter Group are responsible for the accuracy for the linked site).
If you have a leasehold or looking to purchase a leasehold make sure you understand all the terms and conditions of what you may have to pay and how you are able to extend the lease. Remember a house, building or flat, you may want to pass onto a loved one when you are gone and this may be difficult, or extending the lease may be costly. Just make sure you understand!
Your home may be repossessed if you do not keep up repayments on your mortgage.