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Mortgage Guides

Leasehold properties: Your rights and mortgage options

NatWest mortgages are available to over 18s. Your home or property may be repossessed if you do not keep up repayments on your mortgage. The content on this webpage is guidance only and does not constitute advice.

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Buying a leasehold property

When it comes to buying a property in the UK, there are generally two types of ownership – leasehold and freehold. If you buy a leasehold property, that means the land it’s built on belongs to the freeholder. The fabric of the building itself may also belong to them.

This type of arrangement is common with blocks of flats. Often because it’s beneficial for freeholders or landlords to be responsible for things like shared areas. For instance, communal gardens or hallways. However, this setup does exist for houses too.

As a leaseholder, your name will appear on the title deeds, but you’ll only own the property (not the land) for the remaining length of the lease period. This isn’t always a short-term thing though. Sometimes this period can last for years, decades, or even centuries.

What is a lease?

A lease sets out your rights and responsibilities when living at a property. For example, you’ll be expected to pay an agreed amount of ground rent every year to the freeholder (landlord). The terms of a lease will state what the current ground rent rate is, as well as whether it will rise over time.

When you’re looking to buy a new home, you’ll be told whether the purchase is freehold or leasehold. If it’s the latter, you’ll be informed how many years remain on the lease. 

It's important to bear in mind that many lenders will also require a minimum lease period for a mortgage.

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Are there extra fees with a leasehold property?

You may have to pay an annual amount as a service charge on your leasehold property. This is usually used to help with the upkeep of communal areas, or buildings insurance. The lease should clearly state what responsibilities the landlord and leaseholder have.

The freeholder may also require leaseholders to pay money into a ‘sinking fund’, also known as a 'float'. This is used to cover the cost of major or unexpected works, such as roof repairs. The amount of these contributions may be set out in the lease. Even if they aren’t, they should be deemed ‘reasonable’ in the eyes of the law.

What do you own in a leasehold?

When you buy a leasehold, you own the property, but not the land itself. Because of this, your lease may restrict your ability to alter or rent out your property. It’s often the case that you’ll need to get your freeholder or landlord’s consent before making any big changes. This could also apply to keeping pets.

Although you own the property, you’ll still have to pay a certain amount of ground rent, as per your lease. Exact terms and restrictions will differ depending on your specific lease agreement. It’s important to double-check the terms of your leasehold property lease before applying for a mortgage.

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Getting a mortgage on a leasehold property

The length of the lease on your leasehold property can affect whether you can get a mortgage. The shorter your lease, the less likely it is that lenders will allow you to borrow.

Ideally, you want to buy a leasehold property with at least 70 years remaining on its lease. You may struggle to get a mortgage on a leasehold property otherwise. This is because the value of a property often declines as the lease gets shorter. Many lenders will look for a leasehold with a lease that can continue for around 40 years after the mortgage is up.

Some lenders may also deny you for a mortgage on a leasehold property if you have an absent freeholder. This can occur if the freeholder is not actively involved in managing the property, or fulfilling their responsibilities as outlined in the lease agreement.

You can get an Absent Landlord Indemnity Policy to help encourage the process. However, some may still deny your loan without confirmation from the landowner. It’s always a good idea to seek advice in these situations.

For more information, or help with leasehold properties, contact a mortgage professional.

Leasehold properties: FAQs