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Four questions landlords should ask when buying a leasehold property

2-minute read

Four questions landlords should ask when buying a leasehold property
Mollie Millman

Mollie Millman

4 April 2019

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Landlords who are considering buying a flat as an investment may not be aware of some of the questions they need to ask.

  • What's the difference between freehold and leasehold property ownership?
  • Is buying a leasehold house a worthwhile investment for buy-to-let landlords in the UK?
  • The 10 features tenants most want in a rental property
  • Do I need landlord insurance?

The pitfalls of leasehold properties are on the government’s radar, with ministers announcing that they intend to clampdown on leaseholders being trapped in unfair and costly deals.

Here, we outline four questions that landlords should ask if they’re looking to buy a flat, which will more than likely be a leasehold property.

Answering these questions should help you understand what factors could ultimately eat into your profits.

1. How long is left on the lease?

If you’re buying a flat, it’s more than likely that it’s a leasehold property. This is where you buy the right to live in a flat for a number of years and don’t own the ground that it sits on, which is owned by the freeholder.

Leases tend to be long-term, typically around 125 years, but can be as high as 999 years. It’s essential to check the exact term remaining, as lenders tend not to provide mortgages on properties with a lease of less than 70 years. This is also worth keeping in mind when you come to sell the property.

2. Who is the freeholder?

This may not seem important, but it can have a big impact on your finances. For example, if it’s a big company, is it efficient at sorting out repairs before they become a larger issue? Or is it a one-man band who lives overseas and can’t be contacted easily if there’s a problem?

3. What’s the service management charge?

If you’re looking to buy a flat, there’ll be a service management charge that covers the cost of maintaining the communal areas. This will include items such as garden landscaping and building insurance.

How much leaseholders actually pay to the freeholder for this charge varies significantly depending on the development. Landlords need to know how much this charge is to avoid it eating too heavily into their profits.

4. What’s the ground rent?

In the same way, it’s vital to find out how much the ground rent will be and how much this will increase in the future. Ground rent covers the ‘rent’ paid under the terms of a lease to the owner of the land on which the property is built. Some properties have a peppercorn rent of perhaps only £100 a year, while others have much more – and it can go up over time.

What are your thoughts on leasehold properties? Let us know in the comments below.

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