The different types of property
Single asset (house, flat) – let to a single person or family on one tenancy agreement.
House of Multiple Occupation (HMO) – a property where each room is let separately.
Multi-unit block – you purchase the freehold of a building, which contains multiple self-contained flats.
What is the difference between freehold and leasehold?
Freehold – means you own the property and land beneath. Freehold ownership is into perpetuity. Most houses are freehold title.
Leasehold – Leasehold properties are predominantly associated with flats. In this arrangement, you possess the leasehold title for a specified duration, such as 999 or 99 years. As time progresses, the remaining length of the lease diminishes. As a general guideline, once a lease falls below 70 years, it is advisable to investigate the costs associated with extending the lease. A short lease can adversely impact the property’s value, as properties with shorter leases tend to command lower purchase prices to account for the expenses related to lease extensions. If you are contemplating a property with a short lease, our solicitor partners can provide you with comprehensive advice and a detailed report.
Share of Freehold with Underlying Lease – This arrangement is common for flats situated in converted properties. For instance, a large house converted into four flats may have its freehold owned by a UK company. Each flat owner would hold a 25% share in this company, thereby owning a corresponding 25% share of the freehold. Each flat will still possess a leasehold title, ensuring that each unit is recognised as a separate legal property.
Building insurance, service charge and ground rent
When you purchase a freehold house, you assume the responsibility for insuring the property, which entails paying the annual insurance premium.
For flats, a service charge is applicable. Each flat owner within the block contributes to an annual service charge, which covers their share of expenses related to:
- Insurance for the block or building
- Maintenance of communal areas
- Additional services, such as concierge or gym facilities
Additionally, ground rent is an annual premium payable to the freeholder for flats. However, in April 2022, the UK government announced legislation aimed at banning ground rent on all new properties.
New build
A new build property is defined as one that has been constructed within the last 24 months or is being occupied for the first time. Important factors when considering new build properties include:
- Reputation and Quality of the Developer: Assessing the track record and credibility of the developer is essential to ensure the property meets high standards.
- New Build Warranty Provider: All new build properties are accompanied by a 10-year warranty, which provides peace of mind regarding structural integrity and defects.
- Market Dynamics: Understanding the supply and demand in the local market can significantly influence the property’s value and investment potential.