After the government introduced the Help-to-Buy Scheme, a large number of home builders opted to start selling their newly built houses on a leasehold basis, as opposed to a freehold one. You may be wondering though, what exactly is a leasehold house?
In simple terms, you own the property, but the land on which your property is on, is owned by the freeholder. These leases tend to span hundreds of years, usually beyond the lifetime of the original holder of the lease.
The catch with Leaseholds, is that you only own the property, and not the land it is built on. This means you may have to pay ground rent, various service fees and at the end of your term, if the lease has not been extended, the freeholder can choose to back control of the property, if left unchallenged.
Regarding the end of the lease and the service charges, you should always have the right to extend your lease if that’s what you would like to do and challenge any fee changes, though for more clarity it’s always recommend that you speak to a Conveyancing Solicitor, as it’s their job to cover the legalities of properties.
Some of the fees can fluctuate too, as and when the leasehold management company wants to change it, so it’s always worth making sure a Conveyancing Solicitor reads over your agreement carefully and precisely, to ensure it is fair and not too much.
You own the property for the length of your lease term. As explained before, the freeholder may be able to take their property back at the end of a term if you don’t renew, but if your term is taken out over the course of a few hundred years, that property is pretty much yours for the rest of your life, unless of course you sell it.
One area that may require some consideration ahead of time, is if you were planning to make any home extensions or improvements. Whilst this may not always be the case with every freeholder, the majority will want you to seek permission for any changes that take place on the land that they own.
The process of obtaining a mortgage on a leasehold is an interesting one. You will find that not all lenders will accept this kind of deal, however those who do usually will only accept it if your term is at least 60 years. The reason for this is down to their ability to resale in the event of repossession.
If your term is shorter than 60 years, you most likely will have to discuss the possibilities of renewing the lease on the property with the freeholder, along with a legal representative.
There has been a particular issue with freeholding for some time and still ongoing, a practice known in the industry as “land-banking”. This refers to some freeholders who are holding onto land, whether they have a finished property or not and despite the need for more homes in the UK, purely because the market has changed and they’re waiting for a chance to make more money on it.
As you would expect, this kind of practice is not exactly well received across the nation, many seeing it as unfair and leading for people to request that the government abolish leasehold altogether, as a means of future proofing against such a thing.
Along with the service fees involved, the need for renovation permissions and ground rent, it’s no surprise that leasehold housing can often seem like a bad deal, however if handled correctly, it could still be an option that works out for you and your circumstances.
If you are looking at leasehold houses and debating whether to buy one, you should prioritise speaking to your Conveyancing Solicitor in regards to the lease and other legalities involved.
It’s very easy to get carried away with the joys you may feel when buying a home but you need to also realise that this is a major investment decision that you need to put a lot of time into thinking about.
If you would like to get started on a leasehold house mortgage, please Get in Touch.