When you are looking to buy a flat you will need to decide whether you wish to buy leasehold or freehold. These are important and distinct legal terms that obligate you to specific rights and responsibilities that can involve very different advantages and disadvantages.
To ensure you make the right choice for you, check your proposed leasehold or freehold agreement very carefully before you sign and see exactly what you're getting into.
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In essence, the terms "freehold" and "leasehold" refer to two very different legal titles that will apply to the flat you will be buying. Usually, most flats are bought leasehold, usually for around 99 years and then you hand them back. But sometimes this may be as much as 999 years. The key difference with freehold is that your ownership may only expire when you do.
All of your rights to the property will be contained in the contract that must stipulate which of these two types of purchase you are making. Be sure to go through all the following considerations carefully before committing to sign a contract, as mistakes may be both difficult and expensive to rectify.
If you buy your flat leasehold, at minimum you are buying the right to cross the grounds to reach your front door and the right to occupy your flat, without interference, for a fixed period of time. Someone else will take physical responsibility for maintaining the exterior of the building, its access and any grounds attached. This is a service provided to you as a cost that is included in your ground rent. Leaseholding is a popular method of buying flats, so there are many lenders out there willing to help.
A major disadvantage of leasehold is that you will never own the property because you do not own the land on which it stands and you won't be allowed to make any structural changes. Your possession of the property is subject to your continuous payment of an annual ground rent to the landlord (the freehold owner).
This payment covers rent and other duties. These duties are enforceable covenants; you must permit all agreed rights of way and access, make all necessary repairs and maintenance (redecorating, for example). At the end of the lease the property must be handed back to the landlord or a new lease will need to be negotiated. This will cost a lot of money.
More flats are becoming freehold because legislation is making it easier for leaseholders to buy the freehold. There is no time limit on your period of freehold ownership, unlike leasehold. If you purchase your flat as a freehold property, you own both your home and the land it is built on. Also, you may live there as long as you please. You can also modify the property, but within certain restrictions of local planning laws. You will need to check these as local regulations vary.
As of 2010, most mortgage lenders still very rarely grant borrowing applications for freehold flat ownership. So if you require a loan for a freehold flat, you may have difficulty finding a mainstream lender who will help you. Therefore, be prepared to shop around more widely than you would for leasehold lenders.
Avoid short leasehold periods. Mortgage lenders like to see that you will have at least 50 years left at the end of a standard 25-year mortgage term. In other words, look for a lease that runs for a minimum 75 years or more.
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