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.

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.

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. 

Best Area to Live in London

Best Area to Live in London?

BEST AREA TO LIVE IN LONDON?

Best Area to Live in London

We’re often asked where are the best areas to rent or buy in London. Of course this depends on the individual but here are five of our personal favourites that we’re always delighted to be showing clients around. 

 

BERMONDSEY 

Voted by The Sunday Times as the best London area in 2018. Bermondsey is an eclectic area with picturesque hidden walkways, industrial buildings and beautiful riverside apartments. There is a large variety of independent businesses and the world famous Borough Market is on its doorstep. 
 
Situated by London Bridge station, the area has fantastic transport links and the City of London is just a short walk across the Thames. 

Property Notes: The Shad Thames neighbourhood has hundreds of fantastic converted apartments which benefit from heigh ceilings and are larger than average. 

Also Consider: Nearby Southwark also sits by the River Thames and has undergone similar regeneration over the past decade.  

Best Area to Live in London
Shad Thames

HAMPSTEAD

One of the capital’s most exclusive areas, Hampstead Village is a long-standing favourite with celebrities and American expats living in the capital. The area is well connected but its cobbled streets, leafy avenues and cosy pubs make it seem a world away from central London. Hampstead Heath is one of London’s largest ancient parks to lose yourself in and offers stunning views across the city. 

Property Notes: Hampstead is home to some of the most expensive real estate in the world, not just London. This is partly due to the larger number of detached houses which have remained as family homes and command a much higher price per square foot. Expect to pay a further premium for property in the middle of Hampstead Village or facing the Heath. 

Also Consider: Highgate Village to the North of Hampstead Heath has a similar feel – the two areas even share a local newspaper. 

London Property Consultancy
Hampstead Heath
Best Area to Live in London

THE CITY OF LONDON

The City of London is London’s historic financial district and home to many of the world’s largest finance and law firms. Its ever-rising skyline gives the area a unique feel compared to its more traditional neighbours. The City has managed to keep its charm with centuries old pubs and churches rubbing shoulder to shoulder alongside some of Europe’s tallest skyscrapers. 

The Square Mile stretches from Chancery Lane in the West to Aldgate East and is served by several tube stations. 

Property Notes: The City of London does not have the largest amount of housing stock and what there is comes at a premium. The area has around 10,000 residents but 300,000 commuters! There are several residential towers such as The Heron which are aimed at the luxury end of the market and those wanting as short a commute as possible from the office.  The iconic Brutalist housing development and arts centre The Barbican is definitely worth a visit even if you don’t want to live there.

Also Consider: For those wanting a similarly modern neighbourhood with a greater selection of new builds, try London’s second financial district – Canary Wharf.

CLERKENWELL

For our money, one of the capital’s most underrated areas. Clerkenwell boasts a fantastic range of architecture from medieval chapels to cutting edge modernist builds. Clerkenwell is home to a thriving creative sector with hundreds of design and furniture firms echoing the area’s manufacturing history.

The area is also home to the fantastic Exmouth Market which has a great range of dining options. 

Nearby Farringdon station is on the Crossrail route and will give residents even quicker access to the rest of London.  St Paul’s Cathedral and the River Thames are just a short walk away. 

Property Notes: Many former warehouses and schools in the area have been converted into tasteful apartments which have retained a lot of their original features. Local planning officers been more lenient towards experimental architecture and there are a lot of unique new builds in the area. 

Also Consider:  Whitechapel has a similar mix of heritage and modernity and also attracts young professionals in the creative sectors. 

Best Area to Live in London
Best Area to Live in London

Islington

One of our favourite North London areas. From the picturesque Regent’s Canal, elegant Georgian Squares to the bustling Angel – Islington offers something for everyone. 

The area is home to several arts centres and theatres such as The Almeida. Camden Passage is popular with locals and has a fantastic selection of independent shops and cafes.

Property Notes: Islington has a mix of period property and new builds offering something for everyone. The area surrounding Regents Canal provides a nice contrast to the bustling Upper Street and has fantastic Georgian terraces and garden squares. 

Also consider: Camden and the area around Mornington Crescent station has a similar vibe. 

Interested in buying or renting in London? Contact us today for a free consultation and no-obligation quote.

For our guide on How To Rent in London, click here.