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Types of United Kingdom Property to Invest In | Golden Roof Property Consultancy

Types of United Kingdom Property to Invest In


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(This fact sheet is for guidance only and while believed to be accurate, it necessarily contains summary, opinion and generalisation. It should not be relied upon as a basis for entering into transactions without specific professional advice tailored to the precise circumstances of the client. This fact sheet is copyright to GRPC and should not be reproduced for commercial purposes without our permission. However, it may be freely used by way of links to our website or for private purposes.)

 

One of the advantages of UK property is the variety of investment options available. Before describing the options, it is important to explain the two main types of property ownership available under UK law.

 

Freehold

 

Freehold ownership constitutes the purest form of ownership. It generally lasts forever and its value does not diminish over time (subject to usual market fluctuations). Of course, the freehold owner may sell the property or give it away, but this does not extinguish the freehold, it merely transfers it to someone else. Typically, houses in the UK are freehold . Freehold ownership does not mean complete freedom to do whatever you like with the property. For example, there are still planning laws to observe, property taxes to pay and the possibility that the freehold owner may lose the property if they fail to pay any loan which is secured on it. It is nonetheless, the superior type of ownership compared to leasehold as it gives the maximum freedom of use and its value does not generally diminish.

 

Leasehold

 

Leaseholds are created from freeholds. Leasehold ownership gives a person temporary rights and is the normal way to own an apartment. The owner is given a lease document which prescribes that after a certain number of years the lease will expire in favour of the freeholder of that property. The value of the lease therefore diminishes over time as the lease gets shorter. Wherever there is a leasehold there is therefore someone else who still owns the freehold. This does not really mean there are two owners of a leasehold property. The leaseholder is still the owner for all practical purposes. The freeholder will normally own a legal interest in the whole block of leasehold flats and can only really be said to own an individual apartment in the unlikely event of a leasehold actually expiring. Nevertheless, the freeholder does have certain rights over the related leaseholds.

 

The leasehold document also restricts the rights of the leaseholder as to how he may use the property. For example, the lease may declare that excessive noise is not permitted.

 

However, leasehold is not as disadvantageous as it may at first sound. Firstly, most property leases in the UK are long. Some may even be as long as 999 years and 125 year leases are very common. Furthermore, the law allows short leases to be extended. This costs money, but the amount is regulated by the courts. In addition, the restrictions on the use of the lease are usually quite sensible and designed to ensure that people living in apartments can peacefully coexist with their neighbours in other apartments. In practice therefore, most leaseholds are still tantamount or close to full ownership. However, leases can be very complex and whether the lease is a good one, depends on the precise circumstances and professional advice is necessary in order to be sure.

 

Many apartment blocks these days offer leaseholders a “share of the freehold”. Under this arrangement, each leaseholder in the apartment block becomes a shareholder in a company that is set up to own the freehold of the block. This gives the leaseholders indirect shared ownership of the freehold, thus giving them greater control, thereby ensuring that the apartment block is maintained and organised to the leaseholders’ satisfaction. Lease extensions are generally granted for free in this case because the leaseholders themselves indirectly own the freehold. Having a share of the freehold can be advantageous compared to a simple leasehold, but again, everything depends on the precise circumstances, so professional advice is important.

 

When we advise clients about the right choice of property investment, this will include not just the locational and physical characteristics of the property, but also the nature of the ownership that the property offers. For example, if the property is leasehold, we can advise whether, in our opinion, the lease is of sufficient length and how to extend it. We can also give our opinion on matters such as whether the management arrangements of the apartment block are satisfactory. This advice will be given in conjunction with the lawyer instructed to handle your purchase

 

Types of property:

Pre-built and Off-plan Modern apartments Period apartments Terraced Houses
Town houses Detached houses Semi-detached houses Bungalow

 

Pre-built and Off-plan

 

As in any country, purchasers may buy property that is either pre-built or not yet built (usually known as “off-plan”). Off-plan properties are usually offered by large property developers who seek to sell properties before the development is completed. In many countries, buying off-plan is cheaper than newly built, but in the UK that is not always the case. 

 

Whether the purchase is pre-build or off-plan, the type of ownership on offer (freehold or leasehold) is just the same, however the purchasing process is slightly different.

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Modern apartments

 

There are many modern apartments available for sale in London (and other cities). A huge number are available along and near the riverbanks of the Thames and there are sometimes restaurants and shops built into the development for added convenience. Further blocks are being added all the time along the Thames. Most of these flats are about 45-55 square meters for a 1 bedroom apartment and 65-85 square meters for 2 bedrooms.

 

There are also many apartments available in cheaper areas. A developer called Fairview builds apartment blocks which are generally designed for first time buyers and others who are on a tight budget. They are often in regeneration areas. They can be a good investment and are normally built close to public transport. However, build quality is less strong than with some other developers and the original leases may only have been 99 years duration at the outset.

 

 

Maintenance costs for modern apartments vary considerably. For a 2 bedroom flat, a charge of £1000- 2000 per year (10000 – 20,000 Yuan) would be quite normal. Some high end developments may charge considerably higher fees especially if there are facilities such as a swimming pool, gym or a concierge . A two bedroom modern apartment usually has the benefit of 2 bathrooms, which can be a big advantage for renting.

 

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Period apartments

 

Throughout London (but less so in other cities), there are many blocks of flats dating back to the 1930’s or Victorian period (19th century). These blocks are sometimes called “Mansion blocks” perhaps because the apartments are often of a more generous size than newly built apartments. For a two bedroom flat, 80 square meters is quite normal and some can be much larger. Such apartments come with so-called “period features” such as ornate detailing in the ceilings and tend to be quite popular.

 

Surprisingly, maintenance costs are not always higher in older apartment blocks than for modern apartments, although this may be partly due to the absence of on-site gyms, swimming pools etc. The build quality of these older flats is often very good and there tends to be a more stable group of residents than in newer apartments, which helps to ensure good maintenance standards. Residents tend to be older than those in new build apartments and the proportion of apartments being rented out may be lower. Thus there is often a different living environment in such apartments – quieter and with a more strict observance of rules about noise, parking, maintenance etc.

 

In these apartments, a share of the freehold may be more common. However in some parts of central London, the freehold of the flats is sometimes owned by traditional family estates and leases can sometimes be very short. However, since the law changed to allow leases to be extended whether or not the freeholder consents, longer leases in such estates are becoming more common.

 

Many period apartments will only have one bathroom, but the bedrooms are likely to be bigger than those in modern apartments.

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Terraced Houses

 

In many cities of the UK, including London, there are very large concentrations of terraced housing built in the 19th century, the 1930’s and 1950’s. These houses are physically connected on either side to a neighbouring property and usually enjoy good build quality. The older houses have desirable architectural character similar to the mansion apartments of the same age. Terraced houses usually contain between 3 and 4 bedrooms and tend to be sized in the range of 100-130 square meters. They are popular with families who need to be close to the city centre to commute.

 

Many terraced houses have been extended, usually to the rear (thus reducing the size of the garden) and also in the attic or “loft”. Such loft conversions are extremely common as they typically add an extra double bedroom and bathroom to the house (when usually there was only one bathroom previously). Such conversions usually add greater value to the property than the building cost.

 

Terraced houses generally have the advantage of a garden. These are not always very big (typically around 10~15 metres long), but in London especially, such outside space is considered very valuable. They are also generally freehold. Disadvantages can sometimes be lack of private parking and poorer noise and heat insulation by comparison to more modern houses.

 

Of course there are also terraced houses available for sale which have been built in much more recent times, but they are still in the minority as developers these days have generally been concentrating on building apartments in the city areas.

 

 

Town houses

 

These are a type of terraced house. They tend to be divided into older properties, often of very grand proportions and newer built properties from the 1970’s onwards. The older properties can be found in some areas of Prime Central London and may often be very large by UK standards (often between 250~450 square meters) and very expensive as a result.

 

What probably distinguishes the town house from other terraced houses is that it often has more floors, typically 3, often 4 or even 5. This means townhouses may have more total living space than other terraced houses. It is also common for modern townhouses to have a built-in garage and a private parking space in front.

 

Modern townhouses are popular because they have good insulation and noise control and usually several bathrooms and the parking facility is a bonus too. They also make good rental investments and can be rented out as a single house or room-by-room. The disadvantage of such houses includes the many flights of stairs to be climbed!

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Detached houses

 

Most homeowners in the UK ultimately aspire to own a detached house. Such houses have no physical connection to neighbouring houses and therefore tend to have a larger plot size, with a more spacious rear garden and often a front garden too. There is no real size guide that can be given, as such houses can vary in size hugely. Because they take up more space, detached houses tend to be built in areas where land is a bit cheaper, for example on the edge of cities or in the home counties. Such houses are very rare in city centre locations. Prices vary hugely, though given the larger plot size, a detached house is likely to cost perhaps 25% to 50% more than a terraced house in the same area.

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Semi-detached houses

 

As the name implies, such houses have a physical connection to a neighbouring house on only one side. For this reason they are generally less desirable than detached houses, but more desirable than terraced houses. This is a generalisation of course, as there can be some semi-detached houses of a much larger size and with a bigger overall plot than detached houses.

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Bungalow

These are single storey houses, usually detached, often favoured by elderly people because all accommodation is on one floor. For reasons that are not fully obvious, bungalows currently attract the highest rental yields of all housing types, averaging 7.2%.

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