leases and making informed decisions

First-Time Home Buying Guide – Understanding Leases and Making Informed Decisions

Want to learn about property leases and making more informed decisions?

If you’re seeking a new place to move into, you have two ways or two options: freehold or leasehold. Each type has its advantages, but if you’re entering the property market for the first time, a leasehold dwelling might be more convenient for you.

Decoding Leasehold Properties

In the case of a leasehold property, you acquire the rights to use and enjoy a property for a set period under a legal agreement called a lease. You become a temporary owner and you’ll be called the lessee or leaseholder. The original owner of the property is the freeholder/lessor/landlord. When the lease ends, the property ownership returns to the freeholder. At any point during the lease, you can sell the leasehold property just as you would a freehold property, but there are some more nuances.

You’ll find that flats are more likely to be leasehold than houses. According to the official statistics by the UK Government (published in May 2023), leasehold properties constitute 20% of the English housing stock.

Why Should You Consider a Lease When Buying a House for the First Time?

These benefits of leasehold properties may make them a better option for you as a first-time home buyer:

  • Affordable Housing Option: Property costs tend to be lower in the case of leasehold dwellings. Even the associated costs such as land registry fees are typically lower. Moreover, by opting for a leasehold dwelling as a first-time home buyer, you might be able to avoid SDLT (Stamp Duty Land Tax) completely.

housing leases

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  • Lower Maintenance Burden: The freeholder is responsible for maintaining the communal areas of the property. You will be required to contribute in the form of a service charge, however, other leaseholders will also be doing their part, so the burden is shared.
  • Better Living Experience: As mentioned in your lease agreement, you might have access to amenities that will enhance your living experience. Additionally, since the leaseholders contribute funds, and come together to resolve problems, there’s a strong sense of community among the people, which also contributes to a better overall experience.
  • Convenient Entry into the Property Market: Get a taste of property ownership and the workings of the market with a leasehold home. You can move into your new home and enjoy living in it without having to commit to the land. You can even make improvements (depending on lease terms).

Make an Informed Decision After Considering These Factors

The benefits may have convinced you to jump on to the leaseholder bandwagon, but make sure that you pause to consider these points before you arrive at a concrete decision:

  • The Lease Length: A lease can be short or long. It can even be for 999 years. When counting the number of years left on the lease, check the time the lease was first sold. This is especially important if you’re buying from another leaseholder. If there are less than 80 years left, the property value suffers, and getting a lease extension may become more expensive. For a fair price, you can get a lease extension of 90 years on a flat and 50 years on a house. Lease extensions are subject to qualifying factors.

home lease agreement

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  • Ground Rent: Unlike freehold properties, in leasehold dwellings, you do not own the land on which the building stands. Therefore, you may be required to pay ground rent. If you’re getting a new lease after 30th June 2022, you do not have to pay anything as ground rent, because of the Leasehold Reform (Ground Rent) Act 2022. But if you’re buying from another leaseholder, you might have to abide by the ground rent conditions in your lease.
  • Restrictions: Thoroughly scrutinise the terms and conditions of the lease before you sign on the dotted line. You shouldn’t inadvertently become bound by unwanted restrictions. Some lease agreements include a no pets on the property clause, while others may place prohibitions on subletting. Your ability to sell the property will be affected by these restrictions.

property leases first time buyer

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Take Legal Guidance

To make informed decisions, consult specialist leasehold solicitors. You want your first experience with the property market and owning a home to be positive, and specialists can help you with that. Draw from the expertise and experience of the solicitors to make the best choice and avoid costly mistakes.

Wrapping Up

Check the condition of the property and thoroughly examine every aspect of the lease before you say yes to the house. The recent reforms made it easier to get a home on lease, and the proposed reforms may iron out the wrinkles further. Enjoy a new home with fewer costs and burdens by getting it through a lease.