Are you a landlord looking for a new property for your rental portfolio? Then you might have come across a range of lease types. In this blog, we’re letting you know more about landlords purchasing a leasehold property and what to be aware of.
What is a leasehold property?
Leases are common in flats and other large buildings. It means that a person can own part of the building, such as an apartment, but not the building itself or the land it is built upon. The Land Registry holds records for both the freeholder and the leaseholder.
Leasehold buildings are ones that you own for a fixed period of time, rather than forever. Some homes have existing lease agreements that you will need to be aware of.
People who own houses labelled as leaseholds will need to pay ground rent while they live there. In most cases, the lease lasts for between 90 and 999 years. When the lease drops, it’s likely that the property will go back to the freeholder.
What is a freehold ownership property?
If a property is not listed as a leasehold, then it is likely a freehold, however you should always complete research into this so that you know for certain. A freehold property is one where the owner of the house owns the land in which it is built upon. There are no time limits to this ownership and you are not required to pay ground rent to anyone. The freeholder owns the land, and this is reflected in the property’s value.
Buying a leasehold property
When you buy a leasehold property, you need to check certain elements with the solicitor, estate agent and mortgage companies. They can find out the following elements from the existing leaseholders.
- How long is left on the lease
- How much you will be required to pay for ground rent and other charges with the leasehold purchase
- If there are any planned cost increases outlined in the contract, such as ground rent increases
- Any restrictive covenants outlined in the leasehold transactions
What to consider when buying a leasehold property
Leasehold house value
Leases reduce each year, meaning they can make the property appear less appealing and therefore cause it to lose value. It’s also worth noting that you may require specialist mortgage support, as many lenders will not offer a mortgage if the lease has fewer than 80 years left on it.
Additional fees for the leasehold home
Landlords who purchase leasehold properties need to be aware of the additional costs you will be legally required to pay. Some of these costs include ground rent and leasehold service charges. Service charges are more common in apartment blocks as you will need to contribute to the general maintenance and cleaning of any communal areas. Leasehold flats may have additional security features.
What are the benefits of a leasehold house?
Lower initial costs for leasehold ownership
Many landlords favour leasehold properties as they are often more affordable homes. This is because you do not own the land that the property is located on. As a result of the house price being lower, the stamp duty fees, deposit and other fees are likely to be lower.
Reduced maintenance
If you own a property that is part of a block, you are less responsible for the upkeep of the area, as the freeholder should sort this. It’s also worth noting that you may not be required to pay for buildings insurance as the freeholder may purchase this for the entire block. However, you should always take the time to check this before you purchase the property or begin renting it out.
Lease length & extensions
As the leaseholder, you can apply for the lease to be extended. This can provide security and reduces the risk of the property losing value.
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