A guide to buying property in the UK – choosing between four different types of property ownership
- TBA
- Oct 23, 2024
- 3 min read
Updated: Feb 25
In recent years, the UK government has introduced many housing policies to the public, aimed at encouraging young people to buy homes and helping first-time buyers get on the property ladder sooner. The UK offers four different types of property ownership – this can be different from other countries, so make sure you are aware of how the property market works here!
This time, the key issues we’ll be covering are:
What are the different types of property ownership?
The explanation and the pros and cons of each type.
Should you choose freehold or leasehold?
We hope this analysis provides valuable guidance for your decision-making and addresses any questions you may have in the related fields.
1. Freehold
Let’s start with Freehold. Simply put, if you buy a freehold property, you own the house and the land it’s on with no time limit. You are free to use, rent, or transfer it, and it can be passed down through generations. You don’t need to pay service charges or ground rent.
However, freehold properties are usually more expensive, and in the UK, only houses are typically sold as freeholds, offering fewer choices.
2. Leasehold
Leasehold means that you’ve bought the right to live in the property, but the land it sits on still belongs to the landowner. Essentially, you are still a tenant, and the freeholder is your landlord.
However, don’t worry too much; the lease period is long, usually between 125 and 999 years for new apartments.
3. Share of freehold
Share of freehold is a special type of leasehold. Some freeholders divide their houses into separate apartments to earn more from the land.
In this case, the owners of different units share the freehold rights of the land with their neighbours within the same building.
4. Shared ownership
Shared ownership is another type of leasehold, which is part of the UK government’s assistance scheme for first-time homebuyers.
The buyer gradually purchases 100% ownership of the property. For example, you can initially buy 25%, and the remaining 75% belongs to a housing association. After moving in, you pay rent on the part you don’t own. Once you have the money, you can buy back the remaining share. This process is known as “staircasing.”
For example, Ms. Zhang purchased a 50% share of a one-bedroom property in East London through this scheme and paid rent on the remaining 50% owned by the landlord. In the third year, after saving some money, she bought an additional 20% share from the landlord. The following year, she purchased the remaining 30% share. Eventually, Ms. Zhang achieved full ownership of the one-bedroom property.
Some advice from TB Accountants
In our opinion, the choice of ownership depends on your budget, needs, and investment expectations. If you’re not sure about which option is best for you, we highly recommend that you consult with the relevant professionals before making your choice. Before buying, you should also make sure to ask about potential issues.
One more important note – when purchasing leasehold property, be mindful of leases that are 90 years or shorter. Leases below 80 years are often considered undesirable and can significantly affect the property’s value, so be prepared to pay to extend the lease. The costs for this can vary depending on the lease and property.
If you have any questions regarding property ownership or related taxes, feel free to consult us further. Our advisors will provide you with professional advice.