Buying the land can help you to sell a property

In a slumping market, it's tempting to do anything you can to boost your property – but is it worth the effort and the cost? Alessia Horwich reports

As the housing market slumps further, homeowners are looking for more ways to add value to their homes. But forget repainting everything magnolia and "decluttering", if your property is leasehold, one relatively cheap way to boost the desirability and even profitability of your home is to get your hands on the freehold.

The difference between purchasing a leasehold and a freehold is quite simple. If you buy a freehold, you are not only buying a property, but also the land on which it sits. With leasehold, you do not own the land, just the building, or even just the floors, ceilings and internal walls. This is the case for most flats, since in many cases what lies below is someone else's flat. You can, however, together with your neighbours, set up a company to buy the land, which then becomes the shared freehold.

If you only own the buildings you are expected to pay annual ground rent to your landlord and you may have to pay annual service charges for the upkeep of communal areas.

The value of the freehold depends on several factors. First, the type of property, prices in the area and the state of the market as a whole. You also need to take into consideration the value of the landlord's interest – how much ground rent is received and how much the house will be worth at the end of the lease. The deciding factor is often how long the lease still has to run. If it is longer than 70 years, then it has very little value at all. However, as it drops below this is will increase in value, as there is the leaseholders need to either extend or purchase the freehold.

Andrew Bulmer, a spokesman for the Royal Institution of Chartered Surveyors says: "Because the variables are considerable, it is not possible to designate the value of the freehold as a percentage to the value of the house. It needs a specialist chartered surveyor to calculate it."

Ultimately, the price you offer will be a starting point from which you negotiate until you settle on a figure that will compensate for the loss that the landlord will suffer by selling.

If you do not have the cash to buy the freehold outright, you have two options for securing finance in order to make the purchase. "You can either go to your existing lender for a further advance or completely remortgage," says Ray Boulger, technical director for mortgage broker John Charcol. "Both options are viable and which is most appropriate depends on your existing mortgage."

For those who have plenty of equity, either option is feasible and, considering the extremely low rates currently available for low loan-to-value (LTV) mortgages, remortgaging may look appealing. However, for those who already hold a good mortgage deal at over 75 per cent LTV, remortgaging completely could be a less attractive proposition. This is because new borrowing will push up the LTV and therefore the rate of interest with it. Still, owning the freehold could increase the value of the property as well, and if both the loan and the value rise proportionately, the LTV could remain roughly the same.

When it comes to buying the freehold, the process varies depending on the type of property. For a house in which you or your family are the only occupants, you can simply approach your landlord and negotiate the freehold purchase.

If you live in a property with two or more flats and want to set up a shared freehold, you could follow a similar route, negotiating directly with the landlord. But you also have the legal right to seek "collective enfranchisement". To do this, at least two-thirds of the leaseholders (both if there are only two flats) must petition the landlord to purchase the freehold. If you can not reach an amicable agreement with the landlord, the dispute goes to the Leasehold Valuation Tribunal. This process is long and complicated, and will incur legal costs of at least £500.

A property that is sold freehold is, in most cases, a more attractive prospect to buyers. Mr Bulmer says: "It's difficult to get a mortgage for a property that has a leasehold of 50 years or less. This will make it difficult for sellers to shift the property. In this case, it would be extremely advantageous to purchase the freehold in order to be able to offer it as part of your house to prospective buyers."

Melfyn Williams, a spokesman for the National Association of Estate Agents says: "The majority of properties are easier to sell when they are freehold rather than leasehold, but a lot will depend on the length of the lease – if it's 999 years then it's almost as good as a freehold."

Purchasing the freehold can also add value to your home, especially if your lease is running short. As Mr Williams says: "In the majority of cases, it would add value by at least the amount you pay for the freehold if not more." However, this can be deceptive. Sometimes the valuation of a property will be much the same with or without the freehold attached, but the saleability of the property is a different matter. Properties with a short lease are, in effect, unsaleable, and are therefore worth little or nothing at all.

When it comes to flats, the purchase of the shared freehold will give you control over the communal areas of your own property. "The principal motivation is one of control," says Mr Bulmer. "Because of the way the lease is structured, purchasing the freehold is unlikely to add value to an apartment. But a freeholder will have more control, and a better-managed estate could increase the value of the property. It's not the acquisition of the freehold per se."

Owning the freehold for your apartment can affect how your property is viewed by lenders, though opinions here are divided. Debbie Cocker-Brown, the head of conveyancing at Pepperells Solicitors, says: "More often than not, owning the freehold is of no additional value to the lender as they want to see that there is a management contract in place, assuring the maintenance of communal areas. Your covenants need to be running and most lenders prefer leasehold because it assures this."

But Mr Boulger argues that "there are cases of management companies taking service charges and doing nothing. It's much more likely that the property would be well maintained if it is owned by collective freeholders than by another party. So, if anything, this is favourable for lenders."

Once you have purchased the freehold there are costs involved. You will be responsible for the upkeep of communal areas. For houses, this is less of a concern, but with flat0s this includes vital parts such as corridors and exterior spaces. You will no longer have to pay service charges or ground rent, but these areas must still be kept in good condition to make sure that the property doesn't degrade in value.

Ultimately, it's a question of weighing up what the lease costs you against the price of the freehold. The cost of the lease is not just the service charges, ground rents, terms of the lease and all obligations that you pay now, but also what they could potentially rise to in the future. If the price of the freehold is worth freedom from all these charges then it could be a good investment. As Mr Williams says: "Look at all the factors, but nine times out of 10, it will be the right thing to do."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
Mark Wright has won The Apprentice 2014
tvThe Apprentice 2014 final
Arts and Entertainment
X Factor winner Ben Haenow has scored his first Christmas number one
music
News
i100
PROMOTED VIDEO
News
news
News
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Extras
indybest
News
peopleLiam Williams posted photo of himself dressed as Wilfried Bony
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
    Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

    Marian Keyes

    The author on her pre-approved Christmas, true love's parking implications and living in the moment
    Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

    Bill Granger's Christmas Eve fish feast

    Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
    Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

    Rodgers fights for his reputation

    Liverpool manager tries to stay on his feet despite waves of criticism
    Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

    Amir Khan attacks the Taliban

    'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
    Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

    Michael Calvin's Last Word

    Sepp Blatter is my man of the year in sport. Bring on 2015, quick