In cerebral small vessel disease (CSVD), both white matter hyperintensities (WMH) of presumed vascular origin and the normal-appearing white matter (NAWM) contain microstructural brain alterations on diffusion-weighted MRI (DWI). Contamination of DWI-derived metrics by extracellular free-water can be corrected with free-water (FW) imaging. We investigated the alterations in FW and FW-corrected fractional anisotropy (FA-t) in WMH and surrounding tissue and their association with cerebrovascular risk factors. We analysed 1,000 MRI datasets from the Hamburg City Health Study. DWI was used to generate FW and FA-t maps. WMH masks were segmented on FLAIR and T1-weighted MRI and dilated repeatedly to create 8 NAWM masks representing increasing distance from WMH. Linear models were applied to compare FW and FA-t across WMH and NAWM masks and in association with cerebrovascular risk. Median age was 64 ± 14 years. FW and FA-t were altered 8 mm and 12 mm beyond WMH, respectively. Smoking was significantly associated with FW in NAWM (p = 0.008) and FA-t in WMH (p = 0.008) and in NAWM (p = 0.003) while diabetes and hypertension were not. Further research is necessary to examine whether FW and FA-t alterations in NAWM are predictors for developing WMH.