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Freehold Property - how to buy the freehold

Freehold versus leasehold

In general, the majority of flats in the UK are leasehold, whereas most houses in the UK are freehold.

Freehold usually trumps leasehold for one major reason: control. As the owner, you can mostly do what you wish with your home provided you keep within local planning rules.

It is important to understand the difference between a freehold and leasehold property, and what rights and responsibilities owning a freehold property gives the buyer.

The freeholder owns the building and land outright, and has control over its maintenance and day-to-day running.

Freehold property means that the owner has complete and absolute ownership of the land, and all buildings that stand on the land.

A leaseholder on the other hand only purchases the right to live in the property for a set time –typically between 90 and 125 years. Leaseholders usually have to pay ground rent annually which is normally quite cheap and yearly service charges that can add up to thousands of pounds a year.

Freehold property is therefore generally more expensive than leasehold property – but if you buy leasehold, you have the right to buy the freehold further down the line.

Buying your freehold

The law gives a leaseholder two separate rights.

The first is the right to buy the freehold of a building, either individually if you own a leasehold house, or collectively in the case of a block of flats.

A group of leaseholders will need to meet certain requirements to purchase the freehold together.

The process is generally known as collective enfranchisement. Using this route, the group of leaseholders may form a company to purchase the property as a nominee.

Rules regarding the purchase of a leasehold property are subject to the terms of a law called The Leasehold Reform Housing and Urban Development Act, 1993.

This act stipulates that a minimum of half of qualifying leaseholders have to participate in the scheme. Leaseholders usually qualify if they have owned their lease for two years and above.

Therefore, if you live in a building with two leasehold flats, both leaseholders need to participate in purchasing the freehold in order to apply.

If a leaseholder wants to buy the freehold of his house or simply to extend the lease, they need to have owned the property for at least two years at the date of making the claim. However, in an interesting quirk to the legislation, there is no such ownership requirement in the case of a collective enfranchisement claim.

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Your mortgage

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Purpose of Mortgage

A first time buyer is a buyer who has never purchased a property before and generally has previously lived with relatives or friends or occupied rented property

House purchase is when an applicant, who has been a previous purchaser/occupier, is intending to purchase a different property for owner-occupation

A remortgage occurs when an applicant wishes to switch a mortgage loan from one lender to another without moving properties. The existing loan is repaid by a loan from the new lender. Depending on the amount of equity, this could also be a means of raising additional funds.

A buy to let mortgage is for when a property is bought as an investment and rented out to a tenant who pays a rental income.

A right to buy mortgage is only available to council tenants or certain types of tenants where the landlord has received a subsidy from the Local Authority. The tenant must also fit certain eligibility criteria related to the type of property and the length of time they have lived there. The amount of discount depends on how long the tenant has lived in the property and is also calculated taking into account any improvements carried out at the tenants own expense.

A self build mortgage is taken out on a property that is either still to be built or still under construction. Typically, the lender will only pay out the loan in stages, corresponding to the completion of various stages in the construction. There are generally six stages to a build where your mortgage company will release funds to allow the project to continue. They are:

Stage 1 - purchase of the land or property;

Stage 2 - preliminary costs and foundations or preliminary costs and structural overhaul;

Stage 3 - main structure erected;

Stage 4 - making the property wind and watertight;

Stage 5 - first fix and plastering;

Stage 6 - second fix through to completion

This is a specialised mortgage product designed for people over the age of 55 , which allows them to release the some of the equity they have built up in the home; this could be through owning the property outright, or from the value of the home increasing over time.

The householder retains ownership of the house whilst being able to use the equity to boost their income. There are several products on the market, some of which you only pay the interest back during your lifetime, and others where you pay nothing back during your lifetime and the repayment is taken out of the estate on death. For this reason, it should be noted that the applicant should be aware that they will be asked if they have discussed with their family members the reasons for applying for equity release.

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