Freehold versus Leasehold

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Freehold Versus Leasehold

We’re often asked about the difference between freehold and leasehold property and which makes the better investment. International clients are often unfamiliar with the freehold/leasehold system but it can be equally confusing for domestic buyers!

Firstly, let’s look at the main features of freehold and leasehold properties.

FREEHOLD

You own the property and the underlying land outright.
This means you are responsible for the upkeep of the entire building.

You do not need to seek permission from the freeholder (which is you!) or other leaseholders before carrying out an extension or structural work. However you will still need planning permission for some works.

LEASEHOLD

You own the property (typically your flat) for the time stated in the lease – if the lease is not extended and expires the property returns to the freehold owner – also known as the landlord.
The lease will set out rules both the leaseholder and freeholder must follow.  Some are more restrictive than others.
Ground rent is payable to the landlord on an annual basis. As of 30th June 2022, this only applies to existing leases and not new ones.
Leaseholders typically have to pay a service charge to the freeholder.
The freehold owner is responsible for maintenance of communal areas, the overall condition of the building and insurance. These are usually covered by the service charge.

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SHARE OF FREEHOLD

Finally, some flats are sold with a ‘Share of Freehold’. This has elements of both tenures as the buyer becomes both a freeholder and leaseholder. The freehold is split between all owners in a building. You own your flat and a share of the land and building. Unlike an outright freehold, there is still a lease in place which must be followed. Owning a Share Freehold can have its advantages. All freeholders usually have a personal stake in the upkeep of the building and little incentive to levy unreasonably high service charges. Extending a lease is generally more straight-forward. It is typically in everyone’s interests to grant long lease extensions on all properties for a nominal amount. With that said, we have seen many Shares of Freehold with communal areas in far worse condition than the average leasehold.

Is Freehold or Leasehold a better investment? 

All things being equal, a freehold property’s simpler legal status makes it more desirable. In reality though, all things are never equal and each property has to be judged on its own merits. 

Location, not the form of tenure, is usually the main determiner of value. For instance, a leasehold flat purchased 30 years ago in central London would have comfortably outperformed most freeholds in the UK, even after factoring in service charge and ground rent payments. 

When carrying out our Buying Service, a property’s tenure is just one of many factors we look at to determine whether it represents value.

The condition of the property, sold price comparables, the local planning environment, investment potential of the wider area etc. all influence our recommended offer level. 

When viewing leasehold properties, at the very least try to establish the following details.

 

  • the number of years remaining on the lease – this can range from 1 to 999. Leases with 90 years or fewer remaining require particular attention. 

  • the annual service charge – it’s often a cause of concern if it’s too low or high. Does the seller know of any other significant one off costs about to be levied against the leaseholders? 

  • the annual ground rent – ground rent above £250 a year in the UK or £1,000 in London can lead to other issues.

  • any restrictive covenants the vendor is aware of. For example, not being allowed to keep pets or having to pay the landlord a subletting fee if you wish to rent out the property. Of course, a vendor may not willingly disclose this information but this will only waste everyone’s time.

  • the identity of the freehold owner – estate agent’s may not always know this but should be able to find out from the vendor. In London, the freeholder is sometimes the local council.  

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As a buying agent, we always try to establish the basic facts of the lease.  Unfortunately due to the buying process in England, some issues are only discoverable during conveyancing.  Information sometimes has to be taken in good faith before the sale is in a solicitor’s hands. It is paramount that you hire a competent solicitor to fully review the lease during the conveyancing process and identify any issues. We recommend clients choose their own solicitor or one we work with on a non-commission basis and avoid any recommended by a developer or estate agent. Recently a client bought a high value new build property. Before exchange, our recommended solicitor successfully removed a doubling ground rent clause which could have negatively impacted capital growth prospects. 

If you are considering buying a central London property, either leasehold or freehold, contact us today for a free consultation.

London Property Finder

Summer Market Update

London Property Finder

Summer 2021 Market UpdatE

Landmark Month for Perrygate 

Perrygate recently had its best month since opening in 2018. In the space of 30 days, we transacted on just shy of £6m of prime London property with significant savings achieved on all purchases. While these are no doubt modest numbers compared to larger buying agents,  it felt like a milestone for our small family business. We are delighted with how clients are responding to our approach and the results we are achieving for them in a complex marketplace.  

It is always a privilege to be entrusted to oversee what is typically one of the most important purchases in someone’s life. To better reflect our ethos to “treat each purchase as if it were our own”, this year we reduced the number of clients we work with at any time from six to four. In the coming years, Perrygate will remain a boutique firm with a first-class network to deliver the best service possible for a small handful of clients. 

The London Market – Contrasting Fortunes 

It’s no secret that the UK property market is experiencing a boom. Nationwide recently reported annual house price growth at 13.4% – the highest level in seventeen years. 

In London, however, the picture is less clear with average house price growth at 5% and significantly lower in Prime Central London – around 0.3%. The lack of international buyers is being felt keenly in central London,  especially for £1m+ one and two bedroom flats. Our searches for smaller central flats have been notably less frantic than for family homes in ‘London Villages’ such as Dulwich and Hampstead.  When international buyers, students, domestic workers and tourists return to London, we expect to see the performance gap between central flats and family homes start to narrow. Several clients are taking the same view and are looking to take advantage of a quiet market to acquire compact but very well located London homes.

Relative Underperformance of London Flats vs Terraced Houses (Source: Land Registry

The Stamp Duty Holiday in Context 

Many have attributed UK house price growth to government stimulus via the Stamp Duty tax break. The SDLT Holiday has clearly boosted sentiment nationwide but we would argue its partial end will not have a huge impact on the market.

Knight Frank reported eleven countries, including the US and Canada, outperformed the UK last year. It is fair to infer that while the Stamp Duty Holiday has clearly had an impact, low interest rates and people reassessing their living situation during Covid are the key driving factors. 

Property – The Ultimate Inflation Hedge?

There is increasing scrutiny of the Bank of England’s assessment that the current inflation spike is “temporary” and a small increase in interest rates may not stem the tide.

Historically, property has been an excellent hedge against inflation. Rents tend to increase in line with inflation and at a time of devaluing currencies, housing remains a tangible and limited commodity. 

This year, we have worked with several clients wary of frothy equity markets and looking for a safe long-term haven for their capital. As a further hedge, some clients able to pay cash are opting to mortgage at low fixed rates. A prolonged inflationary period will erode the real value of the debt but of course figures should be stress-tested against a potential change of course from the BoE’s rate setting committee. 

The Rise of Off Market but Buyer Beware

Hamptons International recently reported more off market transactions in the first quarter of 2021 for any period since 2007. It makes up a significant part of our business, especially at higher budget levels. 

While there are exceptional off market properties, much like the open market, there is also a lot of poor stock. If you peak behind the curtain, you may sometimes be underwhelmed! From our experience the best off market listings come from vendors mindful of privacy and not those testing the market’s reaction to speculative asking prices. 

Going the Extra Mile

Since starting the business, Lara and I have always prided ourselves on building long-term relationships with clients and being on hand well after completion. We frequently work with clients at no extra cost for months after our success fee has been paid.  

In the last few months, Perrygate’s complimentary aftercare services have included:

– a two month process of organising design meetings, sourcing architect quotes and defining the scope for a full renovation of a family home in Hampstead.

– conducting a rental search under time pressure for clients who have successfully used our Buying Service. 

– sourcing an interior designer for a large lateral flat a client purchased in South Kensington. Assisting with numerous other personal affairs for the same client. 

– assisting an overseas client set-up their tax and financial affairs in the UK post-completion. 

We hope our approach will allow us to build long-term relationships with our clients and continue to rely on word-of-mouth referrals for new business. 

If you are looking to buy in London in 2021 or beyond or simply have any questions about the market, don’t hesitate to get in touch on +44 (0)208 0880 522 or [email protected]

Up and coming areas in London

January Market Recap: Market Liftoff?

January Market RECAP: MARKET LIFTOFF?

In our 2020 predictions for the London market last month we wrote:

“On balance, we would be very surprised if the Spring market is not significantly busier than 12 months earlier.” 

This is already proving to be the case and the market is springing back to life again with vendors and buyers returning in numbers. Since Lara and I founded Perrygate in late 2018, December and January have been our two busiest months. The election result has released significant pent up demand which has been gradually building over the last three years.  Domestic and international buyers we are working with feel London now represents real value compared to other global cities and that the ongoing uncertainty surrounding Brexit negotiations is ‘priced in’.   As a boutique family buying agency who only works with a select number of clients, we even took the decision to close our lettings service to meet growing demand from buying clients and make the business offering even more focused. 

Whilst we are bullish on market activity, we are still taking a wait and see approach regarding the direction of achieved sold prices. According to Rightmove’s London Index, asking prices in greater London increased by 2.1% in January – the largest ever recorded increase for this time of the year. There is a danger that the gap between buyer and vendor expectations may widen in some cases.  Based on our recent observations and negotiations in the market, sales are being agreed at sensible prices and there is room for negotiation. For those looking to move before the Spring, there has been a welcomed 19% increase in sales compared to a year ago. 

We are certainly not offering more for properties compared to in 2019 but our clients now have greater choice – albeit with increasing competition! 

If you would like to discuss your property search with Perrygate, email us at [email protected] or call 0208 0880 522.

Is now a good time to buy in London

2020 Property Predictions

London Property PREDICTIONS 2020

2019 was as a year of political and economic uncertainty causing low transactions and limited housing stock. Are we in for more of the same in 2020? 

Perrygate is not expecting dramatic changes this year but we are looking forward to a busier market than 2019 with more buyers and sellers taking action. 

Here are some of our key predictions for buying property in central London in 2020.

Less political uncertainty means a modest increase in housing stock. 

Throughout 2019, many of our clients feared a Corbyn government even more than a potential hard Brexit. Proposed hard-left policies including seizing 10% of publicly listed companies and forcing private landlords to sell to tenants understandably caused concern. The Conservative’s overwhelming December election victory has prevented this worst case scenario and provides the certainty that they are set to govern until at least 2025. For many international buyers already benefiting from favourable exchange rates, this election result was enough to complete on purchases or start searches this year with an eye to quickly exchange contracts. 

Of course the election result is just one factor to unlocking the slow market. Brexit is a far more complex process which will continue to cause uncertainty throughout 2020 – but hopefully to a lesser extent than last year.  Although the UK is set to leave the EU by the end of this month, we expect many domestic buyers and vendors to remain on the sidelines whilst the post-Brexit economy takes shape. 

On balance, we would be very surprised if the Spring market is not significantly busier than 12 months earlier. Stable low-interest rates combined combined with current wage growth will see more buyers come out of hiding. 

Best-in-class properties to continue to sell quickly. Organisation is key. 

The top 10% of any property type (whether that be a Kensington mews or a 1 bed flat in Notting Hill) are not staying on the market for long – if they are reasonably priced inline with recent sold prices (not asking prices!). Competing bids at this end of the market are still common and giving the estate agent/vendor the security of working with a serious buyer can make all the difference. On several occasions in 2019,  our retained clients secured a property partly because they were well-organised and financing/surveyor/solicitor were in place before an offer was made. 

In a quieter market, off market has a key role. 

Whilst we expect the market to pick-up this year we are still expecting lower than average transaction figures. This means off market listings will remain important for buyers – particularly for purchases above £2m in prime central London. Prime vendors do not want the time their property is taking to sell and every price reduction detailed on Rightmove. There will be more vendors leaving details behind estate agent desks looking to be matched with discreet, organised buyers.

Off plan and new builds present opportunities.

We have previously covered issues with London’s off plan market but feel there are now opportunities. Towards the end of 2019, we negotiated discounts on off plan property in central areas up to 15% – delivering a very competitive price per square foot. Many developers have quarterly financial targets and cashflow pressures so there are opportunities to secure a fair price. Due diligence in off plan is vitally important, especially where there are limited direct comparables and high service charges have to be factored into the overall value.  Many off plan listings are still wildly overpriced however. We were recently quoted £5m for a fairly uninspiring 3 bedroom flat in one development which we would have struggled to value at half that amount. Some developers are still trying to market such schemes to overseas buyers and take advantage of a lack of local knowledge. 

Looming tax changes for international buyers.

The upcoming Conservative budget may bring a further stamp duty tax for non-UK tax resident buyers. The policy was announced in November but there is only limited detail at this stage. If this policy comes into effect later this year it is unclear what impact it will have on London’s prime housing market where international buyers are very active. We are working with some buyers looking to achieve quick exchanges before this potential tax change plays out.

At a time where buyer ands seller expectations are often very different, a buying agent can play a key role representing their client and helping them achieve a fair price for the right property and crucially, getting a sale over the line. 

If you are planning to buy a property in London in 2020 and would like to discuss your search with us? Please get in touch. 

Perrygate is not a financial advisor and anyone considering purchasing UK property must undertake their own due diligence. The opinions expressed in this and other articles are the personal opinions of staff at Perrygate and are not investment advice. The value of an investment may go up or down. Please see our Terms of Use  for more information.

Up and coming areas in London

Up and Coming Areas in London

Whilst many of our clients favour more traditional prime central London areas, others always have an eye out for the next ‘Clerkenwell’ or ‘Whitechapel’.

Predicting the next ‘hot’ area is not an exact science but here are five places we expect to perform strongly over the next decade. Some of these neighbourhoods don’t have the best of reputations whilst others are well established but we see them all going from strength to strength.

For more London areas with investment potential, take a look at our article on Place to Invest in London.

Acton

Compared to its more expensive West London neighbour Chiswick, Acton offers excellent value to first-time buyers even if it’s a little rough around the edges. The area is already well connected on The Central Line and Acton Main Line will be next to Paddington and Bond Street on the Crossrail route. 

Ealing Council are knocking down the huge post-war South Acton Estate and replacing it with the £600m South Acton Gardens scheme – one of the biggest regeneration projects in the capital which will deliver over 1500 homes and other amenities.

Buying Tip: There are still good value properties in easy walking distance of Acton Mainline’s Crossrail station – buyers focusing on refurbishing old housing stock could see a significant uplift over the next few years.

Battersea 

Home to the landmark billion pound Battersea Power Station and Nine Elms  developments which will not only bring luxury homes to the area but a strong mix of retail and leisure space. The Northern Line extension will finally connect SW11 to the tube with two new stations opening in 2020. Battersea is just a short walk across The Thames from upmarket Chelsea and we wouldn’t be surprised if the pricing gap between the two narrows in the coming years. 

Buying Tip: Focus on existing period property – especially sizeable mansion block flats in the areas bordering Battersea and central Wandsworth. Some of these properties are trading at significantly lower prices than 12 months ago whilst the new builds grab all the headlines. 

Poplar

Situated just north of Canary Wharf , regeneration schemes are in place to make the two areas better connected. With Canary Wharf’s working population exceeding even The City of London, the area will appeal to staff looking for an easy commute. 

Buying Tip: Roads like Woodstock Terrace have flats in well maintained Georgian terraces within 15 minutes walking distance of Canary Wharf at around the £500,000 mark.

Ealing 

Probably the most established neighbourhood on our list. Ealing has been a long-standing favourite amongst families due to its large suburban homes, excellent schools and parks. Although it is quite a distance from central London, the arrival of two Crossrail stations will actually make the area better connected to many key commuting areas than many more central neighbourhoods . A journey from Ealing Broadway to Tottenham Court Road will only take 12 minutes and residents will even be able to go from (far) West London to Whitechapel in the East in just 20 minutes. 

ffffThe council and major developers like British Land are partnering on major new schemes and regenerating the high street. 

Buying Tip:  Treelined roads such as Woodville Road have fantastic period properties and are relatively peaceful despite being less than 10 minutes from Ealing Broadway Station. Prices per square foot are very competitive compared to more central areas. 

South Kilburn 

Situated near Maida Vale and within walking distance of Hampstead- South Kilburn is an area primed for further growth. A 15 year masterplan is underway for the area which will include improvements to public realm, new schools, a large urban park and 2,400 new homes. 

Buying Tip: The South Kilburn Masterplan is available online. Buyers looking to benefit from the uplift in the area without waiting for the developments to complete can focus on properties on the periphery of the masterplan.

Perrygate is not a financial advisor and anyone considering purchasing UK property must undertake their own due diligence. The opinions expressed in this and other articles are the personal opinions of staff at Perrygate and are not investment advice. The value of an investment may go up or down. Please see our Terms of Use  for more information.