Leasehold homes offering a leg-up to homebuyers

While the current stamp duty holiday has led to a turbocharged property market, an uplift in buyer activity has pushed house prices ever higher, making it even more difficult for aspiring homebuyers to climb the ladder.

Research from Warwick Estates shows that leasehold homes could hold the key to homeownership for many as they present a far more affordable foot on the ladder.

The research by Warwick Estates analysed sold price records from the Land Registry and how this property price differed when comparing leasehold properties to freehold.

The figures show that leasehold homes in England sold for an average of £200,000 in 2020, a third (33%) cheaper than the £267,500 required to buy a freehold.

Leasehold homes have been a controversial topic in England in recent years, as some leasehold contracts have seen ground rents escalate significantly, by doubling every 10 years for example.

However, the government is currently taking action on such practices, as there are plans to allow leaseholders to extend their lease for 990 years with zero ground rents. With this protection in place, leasehold homes have now become an even more attractive proposition when looking to buy.

Biggest leasehold house price bargains by region

The biggest leasehold house price bargains based on transactions over the last year can be found in the South East.

In the South East, leasehold property sales sold for an average of £205,000 compared to £370,000 for freeholds, a huge 80.5% difference.

They’re also significantly cheaper in the East of England (68.4%), East Midlands (68.0%) and South West (64.0%).

There’s less of a difference in the North of England, although the good news is that both property types are relatively affordable to begin with.

For example, in the North East, leaseholds have averaged £150,000 in the market in the last year, with freeholds just 18.9% more expensive at £185,000.

Flat prices

One of the reasons freehold prices are higher is it’s more common for houses to be sold as freehold than leasehold.

That said, if you look at the cost of flats alone there’s still a premium when buying as a freeholder, albeit a smaller one.

In London, leasehold flats are 27.9% more affordable than a freehold apartment.

There’s also a sizable price gap in the West Midlands (24.69%), East Midlands (17.8%), South East (17.0%) and the East of England (16.8%).

The difference in price is more negligible in the North West (0.4%), North East (5.1%) and South West (5.9%).

Yorkshire and the Humber is an outlier, as leasehold flats are actually pricier than freeholds, at £122,500 compared to £116,925 (-4.6%).

COO of Warwick Estates, Emma Power, commented:

“Getting on the housing ladder isn’t getting any easier, as prices tend to rise every year.

However, if people can overlook the negative headlines about buying as a leaseholder, our research shows they tend to offer a far more affordable route to homeownership.

With the government now removing the danger of leaseholders being stuck with escalating ground rents, demand for leasehold homes is likely to climb and in the long run, we could well see the price gap between the two starts to close.

As a result, savvy buyers who get a foot on the leasehold ladder now could well see a strong return on their investment when they come to sell.”