If you’ve ever looked into buying a New Build property, you might have come across the terms leasehold and freehold. Yes we’re sorry, it’s yet more mortgage jargon to learn but this one is pretty important.
You’ll need to be aware of the differences between a leasehold and freehold because either one can affect your mortgage and the terms you’re offered by a lender.
Leasehold vs Freehold
So let’s get started. In the UK, properties are sold either as leaseholds or as freeholds.
A freehold agreement gives the buyer ownership of the property and the land that sits underneath it.
A leasehold agreement gives the buyer ‘ownership’ of the property but not the land that sits beneath it.
Usually, the housing developer who purchased the land and built the properties, keeps ownership of the land. As a buyer, you have the right to occupy the property on top of that land for as long as your lease is valid.
How long is leasehold agreement for?
Many leases last as long as 999 years although the majority of housing developers offer leases between 90 – 125 years.
Generally speaking, the longer your lease the better as shorter leases can make some lenders reluctant to loan to you.
What are the benefits of a leasehold versus a freehold?
Buying a leasehold property can mean less responsibility for repairs and maintenance because some leasehold agreements include service charges or management fees which can pay for:
- Major work to the exterior of the building such as roof repairs or guttering
- Maintenance and repairs for any shared areas including lifts or communal stairways (if buying a flat)
- Property management of the building as a whole. (This can make it easier to report issues or deal with noisy neighbours!)
As well as this, some leasehold agreements also include insurance for the exterior of the building. That being said, this might not be the case with every developer so always check before signing a contract.
It can be helpful to have a mortgage broker do this for you as they’ll already be aware of which developers offer the best New Build leasehold agreements.
Can I still decorate my New Build if I have a leasehold?
Many New Build properties that are sold with a leasehold are presented in immaculate condition, though that’s not to say you can’t put your stamp on them.
Your property is yours to decorate although some leaseholds can have restrictions that prevent any major structural alterations.
A benefit of having a leasehold New Build property is that often the housing developer or “landlord” will maintain and repair the building structure and any common areas, meaning you don’t have to tackle the big exterior jobs.
Can a New Build homeowner buy the rights to the freehold?
You must have owned the property for two years and there are eligibility checks, but yes, leaseholders have a legal right under the Leasehold Reform Act 1967 to buy the freehold of their house.
Alternatively, some buyers choose to extend their lease agreements as this can increase the value and saleability of their property.
What are the interest rates like for a leasehold New Build mortgage?
Leasehold mortgage rates differ depending on a multitude of factors such as the length of the lease or the amount of deposit you have.
Usually, the larger your deposit, the lower your interest rate but that’s not to say that you can’t buy a property with a smaller deposit.
Lenders will also look at the following to decide whether you meet their criteria for products with lower interest rates:
- Income
- Affordability
- Credit history
- Job
- Age
To pre-empt the rate that you might be offered, you can ask a broker that specialises in New Build mortgages for advice.
They know the factors that lenders focus on when assessing mortgage applications and can recommend which ones have the best rates and are more likely to accept you as a borrower.
Ask an adviser
As a first time buyer, it can be reassuring to know that your New Build property is ready to move in, with any unexpected damage to the exterior managed on your behalf by the freeholder of the land.
To find out more about buying a leasehold New Build property, send us a quick message.
Don’t forget to ask about our fee free service when buying from one of our developer partners.
Your home may be repossessed if you do not keep up repayments on your mortgage.