Leasehold vs freehold: Which is better for buy-to-let investors in 2025?

Everyone who wants to buy a UK investment property for sale must consider the same questions before purchasing: should I buy freehold or leasehold?

The difference between the two seems simple:

• Freehold – You own the property and the land underneath it outright
• Leasehold – You own the property but not the land on which it is built

However, it’s not quite that straightforward for investors as both types of property have unique advantages, disadvantages, costs and responsibilities that will influence your choice.

This article is a guide to the differences between leasehold and freehold, and what type of property you should buy in 2025.

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Defining some terms

Before we look at the positives and negatives of each type, the following terms will be useful to know:

• Ground rent – A fee that a leaseholder is obligated to pay to the freeholder
• Service charge – An annual fee charged by building owners in some cases that covers management and maintenance of the building

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Freehold property advantages and disadvantages for investors

Freehold is more common on older properties and offers the following advantages:

• No worries about the lease running out
• Never any ground rent payable
• No service charge
• You own the land under the property

These are all advantages that will naturally appeal to anyone buying a property at first glance. But are they positive for investors who are making a business purchase rather than buying somewhere to live?

For example, it may seem like a benefit to not pay a service charge on your freehold property. However, it means your burden of responsibility and workload will increase. You will have to handle all maintenance and repairs yourself – something that is particularly tricky for overseas investors.

It is also worth bearing in mind that buying a freehold property in most cases means you will be buying an older property. Those properties are likely to need more maintenance and repairs, an extra hidden cost that will affect your rental yield.

Similarly, it seems like a good thing on the surface to pay no ground rent. After all, it is another additional charge on top of the cost of your investment. However, there are two relevant factors to consider.

First, the money you will save not paying ground rent may be offset by the fact that freehold properties normally cost more in the first place. So you need to consider the investment as a whole and work out whether the lack of ground rent is really a saving.

That’s especially true if you are borrowing to invest. In that case, the extra cost of buying a freehold property will go onto your mortgage and accrue interest, adding even more to the cost and reducing your yield.

Second, the Leasehold Reform (Ground Rents) Act 2022 put an end to ground rents for most new residential leasehold properties in England and Wales. That means if you’re buying a new property, ground rent will only be levied at a ‘peppercorn’ rate that is essentially zero.

So for investors looking at a freehold property, don’t automatically assume that you are saving money on ground rent compared to buying a leasehold property. In many cases that is no longer true, making the lack of ground rent into a benefit that only applies on paper.

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Are leasehold properties a good investment?

On the other hand, you have leasehold properties which sound like a bad deal for investors on the surface. They traditionally come with:

• Ground rent payments
• Service charge payments
• You don’t own the land under the property
• You have to ensure the lease has a lot of time left on it

Those all seem like problems, but as discussed above the lack of ground rent and service charge with a freehold property is not necessarily a benefit.

From the point of view of investment, older leasehold properties – houses in particular – are something to approach with caution. Those are the properties that may have short leases which cost a fortune to extend and high ground rents.

Similarly, older leasehold apartments can come with a range of issues. The government took action on ground rents because there were many examples of older apartment buildings where it was extortionate, sometimes doubling every five years. Likewise with unregulated service charges and short-term leases which building owners sometimes insisted on.

That’s not to mention the cladding scandal which has made old leasehold apartments such a bad investment in many cases.

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Buy city centre apartments

Now however, new city centre apartments for sale don’t have those issues and offer investors an opportunity to get the best of both worlds.

As mentioned above, the government has largely eliminated ground rent payments on most new developments, so that is not a cost that comes with new city centre apartments. Long leases are now also standard, and future legislation such as the Leasehold and Freehold Reform Act 2024 will give even more power to leaseholders.

That includes greater transparency and stability over service charges. You will know what you are paying for and be able to dispute charges much more easily. If you and the other leaseholders in a building would like to, it will also be possible to jointly take over the management of the building yourself.

In the meantime, choosing a new city centre apartment means you will get all the benefits that a service charge pays for the in modern era:

• Repairs and maintenance of common areas
• Building management and security
• High-class amenities that attract the highest-paying tenants

All the benefits of buying a new city centre apartment are magnified when you buy off-plan investment property in the UK’s best city centre locations.

You’ll ensure you get a brand-new property with minimal maintenance issues. You will be able to offer tenants the best amenities and facilities, and you will benefit from all the new legislation when it is passed over the construction period. For instance, the cladding on new buildings will not be a danger to life.

And while you won’t own the land under the building – do you need to? If you’ve got a 900-year lease with no ground rent, it’s effectively the same thing for all intents and purposes. Especially if you’re a landlord not living in the property yourself.

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