Are you considering buying your first property in London? Our guide will share some helpful tips we've shared with our clients over the years from getting a mortgage to making an offer on a property.
Freehold vs. leasehold
It's important to know the difference of advertised properties, and you will come across freehold and leasehold as common ownership terms. If you own the freehold, then the property is yours outright. You will be responsible for all upkeep and maintenance of the property as long as you are the owner.
If you own the leasehold, you are permitted to dwell in this property for as long as the lease specifies. Many leases are for 999 years, although existing leases on properties are normally much shorter. The lease will say who is responsible for the upkeep of specific parts of the property and there is the matter of ground rent to be paid to the freeholder. If the lease is less than 60 years, then it is not recommended to go ahead with the purchase. Your solicitor will be able to give you more information on the property you are buying.
Obtaining a mortgage
Independent mortgage brokers can help you with working within your budget. Alternatively, if you go to a building society, they can recommend one for you. It is advisable to shop around as there are some very attractive packages not only for first-time buyers but all buyers. Try to stay within the budget you have set yourself to make things a little easier for yourself.
Making an offer on a property
If the property is being advertised by an estate agent then offers must be made to the agent. You can submit offers over the phone, in writing or in person. Until contracts are exchanged, then an offer is not legally binding. Additionally, the asking price may have to be renegotiated should the survey detect major works that need doing.
How much will it cost to buy a property?
There are many one-time costs to consider when buying a house. From small expenses such as travelling, if you are thinking about moving to another part of the country, to instructing a surveyor, there are some fees you may not necessarily know about. Use this guide as a reference, but also consult a friend or family member to come fully prepared to the offer.
Have your independent survey done to check for defects. There are three main categories of a survey:
1. Valuation Survey – The fee is reflected in the price of the property
2. Homebuyer's Report – Prices range
3. Structural Survey – This is the most expensive but by far the most thorough
This is a standard fee charged by the lender for the actual setting up of the mortgage. This charge is sometimes halved or waived altogether as an incentive for opting to use the particular lender.
Stamp duty tax
Stamp duty is a tax usually levied on properties worth £125,000 and works on an upward scale depending on the value of the property.
Exemption from stamp duty
You are exempt from Stamp Duty if you are deemed to be buying in a 'disadvantaged' area and the property is valued at £150,000 or less. Ask your lender for more details or search 'buying in disadvantaged areas' on the internet.
Some solicitors charge a flat rate for this whereas others will charge a percentage of the price of the property up to half a percent. The fee may be higher should the transaction be more complicated or there is more time spent on your transaction than would be normal. As well as your solicitor you are also responsible for any fees incurred by your lenders' solicitor so shopping around for the best deal is again recommended.
Fees for Land Registry
In England and Wales, there is a department that looks after the register of all properties. There is a fee involved for transferring the register to the new householder, which is as follows:
Up to £40,000 - £40
£40,001-£70,000 - £60
£70,001-£100,000 - £100
£100,001-£200,000 - £200
£200,001-£500,000 - £300
£500,001-£1,000,000 - £500
£1,000,001 and over - £800
The legal process
Upon acceptance of an offer, a contract is drawn up by the seller which covers all details of the sale, selling price, if anything in the property is included in the price and the date of completion.
2. Contract exchange
When both parties have agreed on the contract, copies are signed and sent to each other. This is now a legally binding contract, and compensation will have to be paid should either party decide to pull out of the transaction.
3. Between exchanging and completing
The conveyancers will make the necessary checks and then when everything is ok the money will be paid to the seller.
Everything presented in the offer was in good order and the process has completed. The property now belongs to the buyer, keys are handed over, and removal vans are booked.
5. After completion
The change of ownership is now registered by the buyer’s conveyancer; the buyer now has to inform their insurer that completion has been reached and has to pay stamp duty.
There is a great deal to consider when buying-to-let.
You can never be too thorough with buying to let. Try to get as much information as you can, and it might be wise to ask your solicitor if he has done this kind of work before.
Again, this is of paramount importance. You might want to consider having two surveys done: the general upkeep of your property as well as the new buy-to-let property as it could prove to be a significant drain on resources.
3. Buy-to-let Mortgages
These are proving more and more popular and can be specifically tailored to help combat the down time when the property isn't occupied. The drawback with these mortgages is they can prove to be a great deal more expensive than a standard mortgage with some lenders asking for a deposit anywhere between 20 and 30%.
4. Additional Costs
- Maintenance and repair
- Furnishing the property
- Landlord insurance
- Mortgage repayments (when property is unoccupied)
- Legal fees
- Stamp duty tax
5. What kind of property do you want to buy-to-let?
Having taken into account all the prospective financial considerations, you then need to decide exactly what kind of property you might want to buy-to-let. Besides your budget dependent, do you want a flat, a house? How many bedrooms? Near to shops and amenities? Do you want to furnish or part-furnish the property? These questions will help you have a more focused property search.
Should I buy a property with a short lease?
The shorter the lease, the less expensive the property.
Most leases are around 99 years, and as the time comes closer to a lease expiring, mortgage companies tend to shy away because no-one wants to be left with the uncertainty about what the freeholder may want or indeed not want to do. For example, if you have a 25-year mortgage and a lease expiring in 20 years there would be a major problem moving house after 10 or 15 years because the lease would expire on the next buyer.
Negotiating a new lease while buying the property may be a solution to this. If you are not sure about any of this, then ask your estate agent or solicitor. Alternatively, you can speak with a member of our Leasehold Reform team.