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Is Leasehold Property a Good Investment?
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Is leasehold property a good investment? Generally, leasehold property is a good investment if you have the right strategy involving location and the lease agreement.
If you’re considering leasehold property investment, it’s important to understand the essential pros and cons beforehand. To find out whether leasehold property is a good investment in 2026, how it’s different from a freehold, and what to check before investing, continue reading.
What is a Leasehold Property?
A leasehold property is a home you own for a set period of time, but not the land that it’s on. Essentially, you buy the right to live or use the property under a lease, and when the lease ends, ownership returns to the freeholder.
When investing in a leasehold property, you don’t usually become the freeholder unless you buy the freehold or acquire a share of it.
If the location is strong and the lease has plenty of years left, a leasehold property can be a good investment. However, shorter leases may become more difficult to sell or remortgage, making the lease length one of the most important factors to check before purchasing.
Leasehold vs Freehold
There are two key terms you should be aware of when investing in leasehold properties — freehold and leasehold:
- Leasehold – You own the right to live in or use the property for a fixed number of years, but someone else owns the land.
- Freehold – You own the property and the land it sits on.
In simple terms, being a leaseholder (which is what most investors are) is like having a long rental agreement with the ability to sell your remaining lease to someone else unless you want to extend it.
However, being a freeholder means you just own everything outright.
Most individuals who invest in leasehold properties are buying the leasehold interest, so they become the leaseholder, not the freeholder.
Typically, this is because it’s much more affordable. It allows you to own an asset to rent out, while avoiding the process of buying a freehold, which is a different type of investment. A common example of a leasehold property is flats, which are often sold as leasehold while the land and building structure are owned by a freeholder.
Leasehold | Freehold |
You own the right to use the property for a fixed number of years | You own the property |
Someone else owns the land | You own the land |
May be required to pay a service charge | Won’t have to pay a service charge |
Lease gets shorter over time | Ownership doesn’t expire |
Less control and rules must be followed | More control over the property |
Pros and Cons of Leasehold Property
Leasehold property, like most investments, has both advantages and drawbacks that may affect your decision as an investor.
Pros include:
- Lower purchase price – Leasehold properties are often less expensive than freehold properties.
- Less maintenance – Either the freeholder or externally hired management handles maintenance, especially in communal areas you don’t own.
- Potentially stronger yields – Purchase price can be lower in some areas, which means there’s a chance of more attractive returns.
- Demand in city locations – If you plan to invest in cities, leaseholds (especially flats) are a good idea, as tenant demand is strong in these busy areas.
- On-site benefits – Many leasehold developments provide key perks, such as on-site security, gardens, and other helpful services.
Cons include:
- Extra costs – Ground rent and service charges should be factored into cost planning, as they could potentially reduce profit.
- Less control – Some leaseholders may need to obtain permission from the freeholder for certain matters, such as pets or home alterations.
- Lease extension – If you wish to extend a short lease, it can be costly and time-consuming.
- Selling or remortgaging – As the lease gets shorter, the leasehold property may become more difficult to sell or remortgage.
Leasehold and Freehold Reform Act 2024
The Leasehold and Freehold Reform Act 2024 (LFRA), which follows on from the Leasehold Reform (Ground Rent) Act 2022, is a UK law that was passed to improve the rights of leaseholders and make them both fairer and less expensive.
The Act is essentially part of the wider reform agenda, making lease extensions and freehold purchases much easier by improving transparency and reducing overall costs. While most reforms have already begun, some are yet to be rolled out.
The LFRA 2024 will strengthen leaseholders’ rights by:
- Making it cheaper and easier for leaseholders to extend their lease or buy the freehold
- Removing the requirement to pay marriage value in some cases
- Increasing the standard lease extension to 990 years
- Reducing the ground rent to zero when the extension premium is paid
- Giving more leaseholders the right to extend their lease, buy their freehold, or take over building management
- Banning most new leasehold houses (with some exceptions)
- Making service charges clearer
- Giving leaseholders the right to ask for more information
- Making administration charges and insurance commissions clearer
- Stopping assumptions that leaseholders must pay the landlord’s legal costs when challenging poor practice
- Letting leaseholders apply to recover their legal costs from the landlords
- Giving leaseholders access to redress schemes where the freeholder manages the property directly
- Making sure important property sales information is given to leaseholders faster
Many more provisions will require further consultation before secondary legislation is introduced.
What to Check Before Investing in a Leasehold Property
If you’re considering investing in a leasehold property in 2026, there are a few essential factors worth checking.
Let’s take a look at the three most important factors to check.
1 - Lease Length
The lease length is one of the most important factors for investors. Longer leases, which typically last 100+ years, are often more attractive to buyers and lenders. However, once a lease drops, it may become more expensive and reduce the property’s overall value and mortgage options.
2 - Service Charges
Service charges are ongoing costs that are paid to maintain the building and communal areas. Although fees can vary widely, it’s important to check the amount you’ll be required to pay per year and also what’s included within that price. If rising service charges occur, they may affect rental yields.
3 - Mortgage Restrictions and Lease Terms
Lease agreements typically include rules on how you can use the property, which may affect you in certain areas regarding pets and renovations. Familiarising yourself with these restrictions is highly important to understand exactly what you can and can’t do.
Lease length also affects your ability to get a mortgage. Most lenders require at least 70-80 years remaining at the end of the mortgage term, and some may even decline to lend altogether if the lease drops below this.
A shorter lease can therefore limit your options for financing, remortgaging, or selling to a buyer who also needs a mortgage, making it well worth checking the lender criteria before fully committing.
So, is Leasehold Property a Good Investment?
Leasehold property can be a good investment, depending on lease terms, costs, and the property’s rental prospects.
For investors in the UK, leasehold can work if the lease is long enough, the location has high tenant demand, and the service charges are manageable.
Leasehold property may be a good investment if:
✔ The lease is long enough with plenty of years left
✔ The property is in a good location with high rental demand
✔ The service charges and ground rent are reasonable
✔ The lease terms aren’t too restrictive
✔ The property is easy to let and can be remortgaged
However, leasehold property may not be a good investment if:
✘ The lease is too short
✘ The ground rent or service charges are too high or set to increase
✘ The lease has strict restrictions that may affect you
✘ Mortgage lenders may be reluctant to lend if the lease has fewer than 70-80 years remaining
✘ It will be expensive to extend the lease or buy the freehold
Support with Leasehold Property Investments
At Peninsular Property, we offer trusted support for investors. We have a highly experienced team who specialise in a wide range of property investments, including leaseholds. If you’re looking to invest in a leasehold property, rest assured we can help.
To learn more about our services to support your leasehold property investment in the UK, please contact us today.
FAQs:
How many years should be left on a lease before buying?
Ideally, aim for at least 90+ years on a lease before buying. Shorter leases are often more expensive to extend and could potentially make the property much more difficult to sell or remortgage in the future.
Can you rent out a leasehold property?
Yes, you can rent out a leasehold property. In fact, most leasehold properties in the UK are rented out. However, renting to tenants with a leasehold property is only possible if your agreement allows it.
Do leasehold properties lose value?
Yes, leasehold properties can lose value over time. As the lease shortens, the property’s value may decrease, especially if there are fewer than 70-80 years remaining on the lease.
Is it easy to extend a lease?
It’s relatively easy to extend a lease, provided you meet the eligibility requirements. If you wish to extend a lease, be aware that it can be costly — but recent leasehold reforms are set to make the process simpler.
