Leasehold properties have made headlines over the last few months due to the skyrocketing extra costs people who own them face – here we highlight all of those charges you need to be aware of if you own a leasehold
If you are looking to buy a leasehold property then you need to be aware of the extra costs you may face.
When buying a home, you can either buy a freehold or a leasehold property. If you own the freehold to your home, it means that you own the building and the land it sits on. If your property is leasehold, you own the property but not the building or land that it’s on.
The number of leasehold houses has however grown in recent years, especially with new builds that are sold directly through the developer. According to the Ministry for Housing, Communities and Local Government, there are around 4.98 million leasehold homes in England – 70% of these are flats and 30% are houses.
Leasehold properties have made headlines over the last few months due to the skyrocketing charges people who own them face. Here we highlight all of the extra costs you need to be aware of if you do not own the building or land your home is built on.
Service charges
Freeholders will require a service charge for the upkeep of common areas like gardens and car parks. This charge also includes structural features like guttering, brickwork or roof tiles. Service charges can vary hugely from property to property. The majority of flats being sold are leasehold properties and because they have more common areas – such as stairs, lifts, and entrances – service charges can be expensive.
According to data from the estate agent Hamptons, the service charge for a one-bed flat in England and Wales averaged £1,940 in March of this year. While the average service charge for a two-bed flat sat at £2,311. Around 5% of leaseholders now pay more than £5,000 per year.
New laws which received Royal Assent last month will change the way service charges are formatted and will “standardise” them so people have “greater transparency” about what they are being charged. Alongside this, leaseholders will be given more rights of redress, so they can receive more information about what charges they pay, and the ability to challenge how reasonable they are.
Ground rent
For those who are not buying or starting a new lease, ground rent still applies and there are two main versions of ground rent. These are fixed ground rent and escalating ground rent. Fixed ground rent stays the same throughout the term of the lease while escalating ground rent is where charges rise over time.
There is no set way of determining Ground Rent it can vary from lease to lease. According to MyPropertGuide.com, some modern flats may have ground rent from £200 to £500 per year, whilst most ex-local authority flats have a ground rent of £10 per year. If you bought a new leasehold property after June 2022, your ground rent will be zero because of changes to the law. This then applied to retirement properties from April 2023. For shared ownership properties, landlords can only levy ground rent on the share that the tenant does not own.
The Leashold and Freehold Reform Bill which passed last week was originally going to include a £250 cap for ground rent – however, this legislation was dropped and it passed without. The amount of ground rent also affects the price you would pay for your lease extension and if you fail to pay the rent, the freeholder is entitled to take you to court to recover the debt. However, when you do a lease extension your ground rent is currently reduced to a “peppercorn” or £0.
Administration fees
Larger landlords such as housing associations will often charge administration fees for tasks such as approving alterations to a flat, providing information or dealing with a failure to pay ground rent or service charges. The bigger the organisation, the higher the fees are likely to be.