Once the lease comes to an end, the property will return to the landlord.
According to the government, most flats are under a leasehold agreement but houses can also be leasehold too, especially if they’re bought through a shared ownership scheme.
Most houses are bought under freehold, which means that the buyer owns the land the property is built on and is responsible for its maintenance.
However, new analysis has revealed that freehold prices have shot up, meaning that some people looking to get a mortgage may be forced to adapt, especially as coronavirus continues to negatively impact people’s finances.
The lettings and estate agent Benham and Reeves have produced research which examined the current difference paid between lease and freehold homes, as well as where is home to the highest number of transactions for each.
In examining figures from a Land Registry Price Paid Dataset, the company revealed the following insights:
- Across England, the average sold price of freehold homes in the last year is £327,276; 73 percent more than a leasehold
- In Wales, freehold premiums are 46 percent higher than leasehold house prices.
- In London, the average price paid for a freehold in the last year is currently £851,918, a considerable premium of 93 percent when compared to the average leasehold sold price of £441,992
- The South East (79 percent), East of England (75 percent), East Midlands (72 percent) and South West (71 percent) are also home to some of the highest freehold price premiums
- The most significant freehold premiums in England and Wales are found in Kensington and Chelsea (233 percent), Camden (165 percent) Westminster (164 percent) and Islington (141 percent)
- However, these huge freehold price tags aren’t refined to the capital with Newcastle-Under-Lyme (140 percent), Forest of Dean (138 percent), South Holland (138 percent), Powys (135 percent), Selby (133 percent) and Mid Suffolk (128 percent) also ranking in the top 10
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Marc von Grundherr, a Director at the firm, commented on the findings, noting both the positives and negatives for mortgage holders: “It’s clear that homebuyers place a far higher value on freehold homes and this comes to the detriment of leasehold homeowners who, through no fault of their own, will largely see the price of their bricks and mortar slip well below that of their freehold counterparts.
“Unfortunately, the leasehold system is deeply embedded within the fabrics of the property market, with any changes likely to take years, maybe decades, to implement.
“In the meantime, leaseholds do come with some advantages.
“As our research shows, the prices are more affordable, so those struggling to get on the ladder may jump at the chance to have a leasehold roof over their heads.
“They can also carry less responsibility where repairs and any required maintenance are concerned, which can be preferable to some.
As highlighted by Marc, the length of a lease can dramatically impact a person’s ability to get a mortgage.
The Money Advice Service warn that if a lease is for less than 70 years, applicants may struggle to get a mortgage at all.
Lenders will normally need a lease to run for 25-30 years beyond the end of a mortgage.
This means that if a buyer wants to get a 25-year mortgage, the lease needs to have at least 50-55 years before it ends.