Freehold relates to the ownership of both the land and the buildings on that land. If you do not own the freehold, you are in a leasehold property, which can mean unfair service charges and £1,000s spent in extending leases. To tackle these difficulties, a ‘collective enfranchisement’ law has been passed in England and Wales. This law gives neighbouring leaseholders the opportunity to buy the freehold at a fair market value.
Purchasing the freehold means that:
- You no longer have to pay service charges or ground rent.
- You can extend the lease for 999 years free of charge (although there will be legal fees to action this).
- You have the freedom to choose a more competitively priced maintenance and insurance deal.
- You may benefit from a 1% increase to your property, as well as making your home more desirable to potential buyers.
However, you must also consider:
- The large initial cost to purchase the freehold, for which you may need a loan.
- The lengthy freehold purchase process, which usually lasts a year but could be longer if the current freeholder is uncooperative.
- That the lease will remain the same, so ask a solicitor to check this over.
- That a freehold company must be set up between the freeholders and as a result the insurance, maintenance and account’s responsibilities must be shared and agreed upon, with your neighbours.
How much does it cost to purchase a freehold?
Usually, the cost of purchasing a freehold equates to the cost of extending the lease for 90 years. This cost can increase if the lease term drops to 80 years or less. In addition to the cost of the freehold, the following fees will also need to be paid:
- Stamp duty
- Valuation fees
- The freeholder’s fees
- Legal fees
Finance options to purchase freehold
Some lenders will agree to extend your mortgage for the purpose of purchasing the freehold, as long as the equity available will cover the purchase. An advantage of this is that the interest rates may be more favourable than a loan, although more would need to be paid overall.
Another option is to apply for a second charge mortgage attached to your home. This type of lending lowers the risk to a lender, so a borrower can benefit from large amounts, potentially low interest rates and lengthy repayment terms.
How to buy a freehold:
- Discuss the freehold with your neighbours – at least 50% of the flats within the building must agree to take part, and all leasehold costs must continue until the freehold has been purchased.
- Appoint a solicitor – a specialist in leasehold law can be found via The Leasehold Advisory Service. These solicitors can serve the initial notice, negotiate the price on your behalf and amend the lease if necessary, as well as offering legal advice.
- Hire a chartered surveyor – chartered surveyors can also be found via The Leasehold Advisory Service, and are hired to value the freehold based on experience within the area.
- Set up a company – advice on setting up your company can be sought from Companies House as well as from your solicitor.
- Agree on a price – if a fair price cannot be agreed upon, you can ask the Leasehold Valuation Tribunal to arbitrarily decide the cost for you. This application to the LVT must be made within 6 months of when the freeholder’s counter notice was due.
Time is of the essence when deciding to purchase a freehold, and as a result it is imperative to use only quality applications for credit. This is why the footprint-free search tool from Freedom Finance can be so useful, because you are presented with individually tailored accurate quotes matching your circumstances before making the loan application. The search itself is footprint-free, with a mark being left only when a formal application has been made, thus protecting your credit score for the future.