Furthermore, some leasehold agreements include clauses allowing for the doubling of ground rents every 10 years or so. This leaves leaseholders trapped in properties they cannot afford, but also cannot sell or remortgage.
Service charges can also come with a lack of transparency. Often freeholders find providers for products such as buildings insurance without consulting the leaseholders that are paying for it.
In one instance, leaseholders found they were paying for “terrorism insurance”, despite never being asked. In another, a flat owner found her annual charges had risen from £1,400 to £5,500 in just two years.
Leasehold agreements usually run for terms of 99, 125 or in some cases 999 years. Terms start when the freeholder creates the lease and it runs down as time passes.
Often, leasehold properties will lose their value as the time left on the lease decreases, so be sure you know your lease term when you buy the property to avoid a shock later on.
Currently, the outlook on reform is uncertain and so as a buyer you will need to factor in the likelihood of paying ground rent and service charges for the duration of your time in the property.
What insurance do you need when you buy a flat?
Whether you are a freeholder or a leaseholder of your property will also determine what insurance you need to buy, says Hannah Davidson, senior underwriting manager at Aviva.
While building insurance is usually covered by the freeholder, if you own your flat outright you will need to find and pay for this yourself. However, there is good news.
Introduced this year, the Fire Safety Reinsurance Facility will reduce costs for individual flat owners who were having to pay significant premiums to insure flats with cladding – saving some thousands of pounds a year.
However, both leasehold and freehold owners need contents insurance, so check whether you are in a flooding area if you are on a lower floor to make sure you are protected in case of a weather event.
Security is also a key issue for flat owners, especially if there isn’t a concierge or security service. As it is likely there will be lots of visitors to the building, make sure you have security systems installed like alarms, locks, or security cameras, which can help in the event of an insurance claim, advises Ms Davidson.
What is the outlook for flats?
There are also good reasons to buy a flat. In the current market, with high interest rates and low housing stock, they offer a route to property ownership for many who aren’t able to afford a house. And schemes offered to first-time buyers by developers, such as deposit boosters, provide a much-needed helping hand.
Furthermore, the gap in price growth between flats and houses is narrowing, says Tom Bill, head of UK residential research at Knight Frank.
“In terms of price performance the gap has narrowed over the last couple of years. During Covid a gap opened and has since narrowed and is unlikely to reopen,” he said.
“Looking ahead, I don’t see the outlook is particularly different for flats and houses. There are ongoing uncertainty issues for leasehold flats but I’m not sure it is having a noticeable impact.”
He notes that flats perform differently in different markets, and therefore it may be better to compare properties in terms of region, rather than type.
“There are tens of thousands of property markets around the UK, and there isn’t a single one that gives you a good idea of the average performance. But if you look at London – the prices in London aren’t going to grow as fast inside the M25 as outside the M25 because of affordability constraints.”
