Buying a property

Young Realtor With Keys In An Apartment It Could Be The Tenant TooIs the property a leasehold or freehold?

Freehold

If the property is freehold, it includes both the land and the building. If you buy a freehold property, you will be the owner until you subsequently sell it or otherwise pass it on to someone else.

Leasehold

If a property is leasehold, it only includes part of a larger freehold property. Most leasehold properties are flats or apartments, but they can be houses too. If you buy a leasehold property, you will in effect be a tenant of the owner of the freehold (freeholder). A description of a leasehold property and your rights and obligations will be contained in a document called the lease. Your ownership lasts for the length of lease or until you sell it or otherwise pass it on.

If you are buying a leasehold property, you should check that the remaining length of the lease is acceptable to your mortgage lender. Each lender has its own conditions, but a lease with over 70 years remaining will normally be considered acceptable. It is highly unlikely any lender would accept a lease with less than 35 years remaining. If there are not enough years left on the lease to satisfy the lender, you may have to contribute to a lease extension or look for a different property.

You may have to pay ground rent to the freeholder. You may also have to pay an annual service charge. This usually happens with a flat. The service charge covers aspects such as maintenance and repairs to the buildings, cleaning of common areas and looking after the grounds. The service charge is usually paid to the freeholder or to a management agency acting on behalf of the freeholder.

A group of leaseholders living in the same building may have a right to buy the freehold.

Is the property registered or unregistered?

In England and Wales, a property can either be registered or unregistered. A property is registered if the title to the property (details of ownership) is held at the Land Registry. The owner receives a Title Information Document.

Registration acts as a government guarantee of ownership – you can be certain that the property described in the Title Information Document is the property you are buying.

If a property is unregistered, ownership is not guaranteed by the government. Ownership can only be proved by looking at the title deeds, which are all the various transfer documents going back 15 years. With unregistered property, there is potential for disputes over title.

Can I buy a property with other people?

You can buy your property with other people, whether it is your spouse, relatives or just friends. You can choose to do this as either joint tenants or tenants in common.

Joint tenancy

If you buy and own the property as a joint tenant, all owners will own the whole property rather than individual shares. You cannot do anything to the property, such as re-mortgaging, selling or even building work, without the agreement of all the other owners. You also cannot sell an individual share of the property or give it away in a will. If you die, your right of ownership passes automatically to the other owners. Joint tenancy is the usual form of ownership for married couples.

Tenancy in common

If you buy and own the property as a tenancy in common, each owner has a specific share of its value. It is up to the owners to decide how much each share will be. You can give away, sell or mortgage your share without the agreement of the others. If you die, your share of the property can be left to anyone you like in your will.

What happens when I place an offer?

If you decide that you want to buy a property, you first make an offer of a price to the seller or to the estate agent. The seller will then decide whether to accept your offer. You must then carry out more detailed enquiries of the property to make sure there are no hidden problems with the property. Once you are satisfied there are no problems, you can then sign and exchange contracts.

It can take up to seven weeks from the acceptance of your offer to the exchange of contracts and a further four weeks to complete the purchase. An average property purchase can take around 12 weeks. If there are any major problems, it may take longer. If you are also selling a property, the completion date on both your purchase and your sale will usually be the same.

The purchase of the property is not secured until contracts are signed. Negotiation on price can carry on until you do sign contracts. So the seller can change their mind and accept a higher offer (gazumping) or you can change your mind and lower your offer (gazundering). 

Gazumped

You can protect against gazumping by asking the seller to sign an exclusivity agreement or at least insisting that the seller takes the property of the market.

What enquiries do I need to make?

Draft contract

Once the seller has accepted your offer, you should receive the draft contract (via your legal adviser if you have one) from the seller's legal adviser. This will state the purchase price, yours and the seller’s names, information about the property taken from the seller's title deeds, and other information about the purchase such as deposits. You should check it yourself in case anything has been missed out. You may also wish to change it as you find out more information about the property; your legal adviser will negotiate on your behalf.

Valuation and survey

If you are taking out a mortgage, your lender will usually carry out a valuation on the property, which is done by a surveyor. It is up to you whether you rely on the mortgage valuation alone or have an in-depth survey carried out. A survey would not only cover the value of the property but also the structure of the property. There are two types of survey: a full structural survey or an intermediate or house/flat buyers report. You can use the same surveyor as the lender, which may be cheaper, or you can choose a different surveyor. 

If the surveyor reports any problems with the property, you may have to think about whether to go ahead with the purchase or negotiate about the price.

Standard enquiries

Your legal adviser will also make the following standard enquires to the seller’s solicitors:

  • the exact boundaries of the property and who is responsible for maintaining hedges and fences
  • disputes with neighbours
  • whether any changes to the property have planning permission and comply with building regulations
  • whether there is a right of way or footpath going through the property
  • whether you have to share rights of access with a neighbour, such as via a shared garden or driveway
  • any conditions or prohibitions (restrictive covenant) relating to, for example, keeping pets, outside colour of the house, etc
  • whether gas, water and electricity utilities serve the property via a neighbour's property or are shared with a neighbour
  • a list of what is included in the sale (Fixtures and Fittings)
  • whether the property is freehold or leasehold
  • if the property is leasehold, details of the managing agent, the freeholder, and whether the seller is up to date with ground rent and services charges
  • that the seller really is the owner of the property and has the right to sell it

You can also ask your legal adviser to raise any other enquiries that you wish to make.

Searches

Your legal adviser will also make enquiries of organisations that hold public information about the property you want to buy or about the local area. The two searches that must be carried out are a local authority search and an Environment Agency search.

A local authority search will reveal whether:

  • there are any plans for a major road to be built nearby
  • there are any problems with the property which you would need to rectify
  • there is planning permission for any of the changes to the property that the seller may have mentioned
  • there are plans to develop any nearby buildings or empty land

An Environmental Agency search will reveal:

  • the risk of flooding
  • any contamination issues that may need to be sorted out by a property owner

Depending on information revealed in the local authority or environment agency searches or responses to any of the other enquiries raised, your legal adviser may advise that other searches are carried out.

When can I sign and exchange contracts?

You are ready to sign and exchange contracts when:

  • your legal adviser and you are satisfied with the responses to all the enquiries
  • you have received the surveyor’s report and any necessary work has been done
  • you receive the formal mortgage offer
  • arrangements about the payment of the deposit have been made
  • the date of completion of the purchase has been agreed

When the final contract between you and the seller is prepared, you will receive a copy to be signed. When you sign it and send it back to your legal adviser, it will be sent to the seller’s legal adviser, who will also send a copy of the contract signed by the seller. Exchange of contracts has now taken place. You are legally bound to go through with the purchase. If you drop out, you are likely to lose your deposit and may have to pay compensation for breach of contract.

When can I complete the purchase of the property?

The date for completion will be stated in the contract.

Your legal adviser will make final enquiries with the Land Registry (if the property is registered) or with the Land Charges Registry (if unregistered). This is to make sure that there are no mortgages, debts, country court judgments or disputes against the property which the seller has not mentioned. If there are, these will have to be sorted out before your purchase is completed.

You should also make sure that:

  • buildings insurance is arranged from the date of exchange, because you are now responsible for the property
  • all the terms of the contract have been fulfilled, such as any repairs
  • there are arrangements for a gas and electricity supply, telephone service and other utilities from the date you intend to move in (usually, the completion date)
  • the seller is arranging for final meter readings to be made

The only things that need to be done on the day of completion are for:

  • the mortgage lender to release the mortgage
  • the deeds to the property to be handed over to your legal adviser
  • the seller to hand over the keys (to the estate agent) and leave the property by an agreed time

If completion cannot take place on the date stated in the contract, and it is your fault, you may have to pay compensation to the seller for any extra costs.

What happens after completion?

You are now the owner of the property and can move in (or give it for letting). But, there are still a number of details to tie up, which your legal adviser can help with.

Stamp Duty Land Tax

You have to pay Stamp Duty Land Tax (SDLT) to HM Revenue and Customs (HMRC) within 30 days of completion. How much you pay will depend on the purchase price. If the purchase price is less than £125,000, you will in effect not have to pay anything. However, you will still have to declare the purchase to HMRC as, technically, you are paying tax at 0% or zero-rate.

Registration

When you pay SDLT, HMRC will provide a certificate as evidence you have paid. You will need this certificate, as well as other documents, when you register your purchase with the Land Registry. Once all the documents have been checked, the Land Registry will issue a Title Information Document as evidence that you are the legal owner of the property. If the property was unregistered and you are registering it for the first time, you will have to do this within two months of the completion date. You must keep a copy of the Title Information Document in a safe place as you will need it if you decide to sell in the future.

If you have bought a leasehold property, you will have to notify the freeholder or their managing agents that you are the new owner. They will usually have their own documentation which you will have to complete and they usually charge a fee.

How can I cut the cost of buying a property?

Shared ownership

If you cannot afford to buy your own home because, for example, you cannot get a mortgage, there is the option of shared ownership. This means that you would own part of the property, and another organisation, such as a local authority or housing association, would own the rest. The other owner will become your landlord for part of the property, and you have to pay them rent. If you use a mortgage to buy your share, you will have to make regular repayments to your lender. You will usually be able to increase your share in the property at a later date.

Buying a property at auctions 

The types of properties that come up at auction include those that have been repossessed, are in need of renovation or left empty due to a death. But, they are likely to need a lot of work.

The legal process is the same as if buying the normal way but the main differences are:

  • you should contact the auctioneers (not the estate agent) to arrange a viewing
  • on viewing the property, you will need to take detailed notes about how much renovation is needed and obtain estimates for the work from local builders
  • you should have all the money in place before the auction, as a purchase is legally binding the moment the hammer drops; around 10 per cent of the price is paid at the auction and the rest within 28 days
  • your mortgage lender will require a valuation or survey before the auction and it may be a good idea to carry out a full structural survey for properties in need of a lot of renovation work; some auctioneers produce their own information pack which would include a survey
  • your legal adviser will have to carry out most of the enquiries before the auction

There are a number of risks to consider if you are thinking of buying a property at auction.

If you are buying a repossessed home, the previous owner’s bad credit may by mistake show up in your credit history as you are moving into the same address. You should check with a credit referencing agency to see if this is the case so that it can be corrected.

Sometimes there is malpractice by both the seller and auctioneer. One practice to watch out for is 'bidding against the wall', where an auctioneer might use the chaos of a packed auction room to invent a bidder so that the price increases. Similarly, a seller may use a friend to make a 'dummy bid', to inflate the price. Many experts will advise attending a few auctions as a spectator before considering buying at an auction to familiarise yourself with the bidding process.

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