Getting to grips with the complexities of property ownership can be a daunting prospect, particularly when purchasing residential properties for investment purposes. You need to know how the different types of property ownership work.
Doing so will help you identify the most appropriate form of ownership for you, in accordance with your long-term financial goals.
Leasehold vs. Freehold Ownership
Drawing distinctions between leasehold and freehold ownership is essential, as this will determine whether you are buying the right to use, possess or occupy the property.
Some houses and almost all flats are sold on a leasehold basis. This means that while you technically own the property, you take ownership of it only for the period of time specified in the leasehold agreement.
This agreed leasehold term can be anything from 99 years to 999 years, after which the ownership is transferred back to the freeholder – i.e. whoever owns the land the property was developed on.
When the lease agreement approaches expiry, the property owner can negotiate with the leaseholder to renew or extend it. Hence, you will not automatically forfeit ownership of the property when the leasehold agreement expires.
However, some lenders restrict their mortgage products to properties with at least 70 years left on the leasehold agreement. If you are interested in purchasing a property with less time left on the lease, you may need a specialist product like a bridging loan to go ahead with the investment.
With a freehold contract, you take full ownership of the property for an unlimited amount of time.
While this is often the preferred option for many investors, it is essential to check how the planning rules and restrictions could affect your long-term plans. You will also need to ensure that the property is considered eligible for a mortgage by your preferred lender.
Buying in Person or as a Limited Company
Purchasing an investment property through a limited company can bring certain tax advantages. But this is entirely dependent on your current income, your financial status, your long-term goals and what you intend to do with the property.
It is therefore essential to consult with an experienced bridging loan broker before making your decision. This will help you build a clear picture of which of the two options will prove more profitable and cost-effective.
Purchasing a property as a joint ownership business venture can be approached in two ways:
- Joint Tenancy. This is where you and your business partner both take full ownership of and responsibility for the property; neither party has authority over the other and all decisions must be made jointly, such as when to sell the property or who it should be left to in a will.
- Tenancy in Common. This option makes it possible for an unlimited number of partners to own shares in a property. The size of a person’s share will determine how much say they have in what happens to the property, but it is still mandatory to get the agreement of every shareholder before the property can be sold.
For more information on any of the above or to discuss any aspect of property finance in more detail, contact our team anytime for an obligation-free consultation.