Buying a property will probably be one of the most important decisions and biggest purchases of your life and so a careful, organized approach is required if you want to secure your ideal property.
To help you navigate your way on this journey, this step-by-step guide will help you with your planning and with understanding the processes involved.
Are you ready? Let’s go.
Step 1 – Establish your personal budget. How can you determine this?
If you are intending to use a mortgage to finance your purchase, your first step towards buying a property should be to talk to a mortgage advisor to establish your budget.
Banks’ lending criteria change regularly depending on their appetite for lending, so the amount you will be able to borrow may be different from what you expect.
Similarly, if you are looking to remortgage a property you already own with a new or existing lender in order to release equity, you should speak to the lender about your plans.
Lenders’ requirements will vary, but you will often be required to get a survey of your property to establish the value and will need to instruct a solicitor to act on your behalf.
If you are selling a property to finance your purchase, contact a local estate agent to get their opinion on the current value of that property.
They should also be able to tell you the current typical timescales for the sales process. When setting your budget be aware of additional costs, which, as a minimum, will include:
- Stamp Duty Land Tax
- Mortgage arrangement fees (variable but may be between £1,000 and £2,000)
- Solicitor’s fees (variable depending on the complexity of the transaction)
- Management pack if leasehold (variable but may be between £100 and £400)
Depending on your circumstances and what type of property you decide to buy, there may be other costs to consider, such as:
- Surveyor’s fees
- Move costs
- Ground rent and service charges
- Estate agent fees for selling your current property
- Renovation/refurbishment costs
- Lease extension costs
- Increased utility/council tax bills
Step 2 – Become ‘proceed-able’
A ‘proceed-able buyer’ is one that is in a position to exchange contracts and ultimately complete the transaction. To make yourself as proceed-able as possible, you should endeavor to either have funds in place; confirmation from a lender that they are willing to lend you the required funds; or, if you are selling a property to finance the purchase, have that property ‘under offer’ to a proceed-able buyer.
If you are taking a mortgage, once you have spoken to a mortgage advisor and discussed your borrowing options, they will be able to provide an ‘Agreement in Principle’ or ‘AIP’ (sometimes also referred to as a ‘decision in principle’ or ‘mortgage in principle’) from your preferred lender.
This may involve a full credit check by the lender, who will then confirm in writing how much they are prepared to lend to you, subject to them checking the information you have given to them.
This AIP can then be used to prove your creditworthiness and seriousness as a bidder.
For impartial mortgage advice, I recommend that you speak to Springtide Capital, our partner mortgage brokers.
Step 3 – Start your search
The time required to find a suitable property can be minimized if you have a clear idea of what you are looking for from the outset.
For most buyers, the two most important considerations when buying a new home are location and budget but in addition to this, you are likely to have many other specific requirements that are important to you.
You should also think about buying a new home that comes with a 10 year build warranty as well as modern amenities like a gym, concierge, swimming pool and more. Nowadays, more and more tenants are demanding for such facilities compared to “old” properties that lack such facilities
It is a good idea to prioritize these by creating a list of “like-to-haves” and “must-haves” things that you can compromise on, and things that you cannot.
Once you’ve determined your search criteria and the areas in which you would like to live, contact local estate agents, communicate your requirements to them and let them know your position as a buyer (i.e. whether you have your property on the market or under offer; whether you’re chain-free etc.).
The estate agents should then keep in touch with you regarding any suitable properties they have available.
Step 4 – Viewing properties
Although property purchases are often emotional decisions, don’t forget about the practicalities and compare each property to your list of requirements.
Things to consider include:
- Potential issues such as mould, damp or any visible cracks in walls or ceilings. These are all things that can be rectified, but they may affect any potential offer you make
- Whether your current furniture and belongings fit the space and layout of the property
- Service charges, ground rents and the length of the lease
- If the property has a garden, how much maintenance it would require
Don’t forget to think outside the property too:
- Are there any communal areas? What condition are they in?
- Who are the neighbors?
- How close are your local amenities?
- Does the road get busy at certain times of day?
- Is there parking?
If, once you have been looking for a while, you cannot find what you are looking for within your budget, be practical and question whether your expectations are realistic or whether you need to look in different areas or adjust your criteria.
Step 5 – Make an offer
Once you have found a property that you like, you will need to submit an offer to the estate agent that you viewed it with and they will then convey that offer to the seller.
One thing to note – you cannot make an offer direct to the seller as that would breach their contract with the agent.
A good offer will include more than just a price; it should be treated as a pitch to the seller, presenting you as the best buyer for the property by clearly setting out:
- Your position as a buyer (i.e. whether you are in a chain)
- Your financial position (e.g. whether you have finances in place; the size of your deposit etc.)
- The time-frames you are looking to complete the transaction within and how flexible you can be with these timings
- Which fixtures and fittings you would like included in the sale
- Although it isn’t essential, sometimes some personal information about yourself, such as your profession, family etc can also reassure a seller
- If a property is popular, and has multiple offers made for it from other interested buyers, this will often lead to an ‘informal tender’ process more commonly referred to as “sealed bids” or “best and final bids”. This process involves a type of auction process in which all bidders simultaneously submit sealed bids to the estate agent, so that no bidder knows how much the other participants have bid.
- Agents are required by law to submit to the seller every offer they receive and a seller is under no obligation to accept the highest bid; they can choose to proceed with whichever buyer they wish. It is for this reason that a well-constructed offer can be so important.
- In some situations, a buyer may ask to enter into a ‘lock-in agreement’ with the vendor, which prevents the vendor from negotiating with another interested party for a specified period of time.
Step 6 – Offer acceptance
If your offer is accepted, it will be ‘subject to contract’, which means that it is not legally binding until contracts have been exchanged.
At this point, you will need to formally appoint a solicitor to undertake the conveyancing process on your behalf. You need to let your solicitor know from the outset if you are also selling a property and need the transactions to be tied together.
Step 7 – Mortgage and valuation
As soon as your offer is accepted, you should notify your mortgage broker or lender so that they can start the formal application process.
Before you commit, however, it is always worth checking to see if there are any more favorable rates being offered by other lenders.
As part of the formal mortgage application, you will be asked to provide documentation to confirm your income (usually your last three payslips) and expenditure (usually three months’ worth of bank statements).
The lender will then carry out various affordability and suitability checks before arranging for a valuation of the property to be carried out by their appointed surveyors.
This survey will confirm the value of the property and check that the property is safe to lend against. It is not an in-depth examination and only considers the general condition of a property.
If the lender is still happy to lend on the property, they will produce a formal mortgage offer, which will detail exactly how much it is willing to lend and any conditions attached to this offer.
Buildings survey and Home Buyers Reports
- You cannot rely on your mortgage valuation as a guarantee that the property you are about to buy is structurally sound and isn’t in need of any major work.
- Some buyers choose to commission additional Buildings Surveys and Homebuyers Reports, which are more detailed surveys of a property that will establish the structural stability of the property and highlight any potential issues (such as damp).
- If it becomes apparent that there is an issue with the property, you may be able to negotiate a discount on the asking price.
- A full buildings survey can cost upwards of £600, depending on the size of the property, and is suggested for older buildings, buildings made from non-standard building materials or built to unusual designs. This offers you the most protection should any problems become apparent in the future.
Step 8 – Pre-exchange conveyancing process
Conveyancing is the legal process of transferring the ownership of a property from the seller to the buyer. It starts as soon as the seller accepts your offer.
As it involves contracts that will be unique to every property and every transaction, the process can be complicated and cannot be covered in full detail here. However, we have listed the main steps:
- Your solicitor will write to the seller’s solicitor to confirm that they are instructed and request the draft contract and supporting papers.
- Your solicitor will examine the draft contract documents and raise enquiries with the seller’s solicitor. These enquiries can range from the length of the lease to requesting copies of service charge accounts and warranties for appliances.
- Your solicitor will raise a number of ‘Property Searches’ to check for any factors that could impact your property. These can take up to a few weeks to be sent and will be charged for by your solicitor. They will probably include: local authority searches (will detail if there are any plans for new roads or infrastructure nearby); checking the ‘title register’ and ‘title plan’ at the Land Registry (these are the legal documents that prove the seller’s ownership); checking flood risk with the Land Registry; water authority searches (details of your water supply); environmental search from the Environmental Agency (indicates whether the property might be built on or near contaminated land); chancel repair search (ensures there are no potential liabilities on the property to help pay for church repairs); location specific searches (your solicitor will advise you of these, if there are any required or recommended)
- If you are taking out a mortgage your solicitor will receive a copy of the offer once the survey has been done and will go through the conditions.
- Once answers to all the enquiries and searches have been returned to your solicitor, they will report their findings to you and, if you are happy, draw up the contract of sale. This will include the agreed purchase price, the deposit amount and completion date and will need to be signed by you and the seller.
- At this stage, your solicitor will request that you transfer the deposit funds to them. This is usually 10% of the purchase price but can be negotiated.
- Once your solicitor has the deposit funds and the signed contract, they will check with the seller’s solicitor that the contract has been signed by the seller and that they are ready to proceed with the exchange.
- Your solicitor will draw up the transfer deed so that the property can be registered in your name as soon as possible after completion.
- Your solicitor will arrange for the title deeds to be registered in your name and if the property is leasehold ensure that your name is entered on to the lease.
Step 9 – Exchanging contracts
The exchanging of contracts is carried out on your behalf by your solicitor and is the point at which the sale becomes legally binding.
In order to exchange, you will need to have signed the contract and transferred a non-refundable deposit to your solicitor. This deposit is usually 10%, but you can ask your solicitor to negotiate a smaller deposit with the seller’s solicitor.
If you pull out of the sale after contracts have been exchanged, you will forfeit your deposit. If you paid less than 10% deposit, the seller can still seek to claim the full 10% from you if you break the contract.
The contract will state the completion date, which you will have agreed with the seller, so at this point you can start organizing the practical side of your move.
You should also contact an insurance company to arrange for the property to be insured from the day that completion takes place.
Step 10 – Completion
On the day of completion, both parties have to fulfill the terms of the contract. Your solicitor will transfer the rest of the monies to the seller’s solicitor.
When the money has been received by the seller’s solicitor they will send a deed transfer document to your solicitor, confirm that the seller has vacated the property, and the property will officially be yours.
At this point your solicitor will also arrange for any Stamp Duty Land Tax to be paid. Once you have completed, you can arrange with the estate agent to collect the keys to the property.
If you collect the keys from the seller, you could take a few moments to ask them some questions that will make your life easier when you move in, such as where are the gas and electricity meters, what day are the bins collected, where the stopcock is located etc.
Congratulations! You are now a proud UK homeowner!
Stamp Duty Land Tax (SDLT)
SDLT is payable on the purchase of a UK property. The applicable rate will depend on the value and nature of the property, with different rates being applied to various ‘bands’ of the value (see table below for details).
As a new policy introduced in 2016 to curb the sharp rise in UK property prices, there is additional SDLT payable if an individual purchaser (or their spouse) already owns a residential property (anywhere in the world) and will continue to do so following the purchase. The surcharge imposes an additional 3% SDLT, bringing the applicable rates to between 3% and 15%.
There is a punitive rate of 15% (on the whole purchase price), on purchases made by ‘non-natural persons’ such as companies. This broadly covers purchasers who fall within ATED (see below). There are exemptions from this rate, e.g. for qualifying rental businesses.
You must pay Stamp Duty Land Tax (‘SDLT’) if you buy a property or land over a certain price in England & Wales and Northern Ireland.
*NEW* Please note that additional 2% will be charged on top of the 3% if completion takes place after 1st April 2021 for non-UK residents.
You should refer to HMRC Website for more detailed advice on the SDLT regimen in the UK.
You can follow the link below if you wish to calculate your SDLT liability.
You may be entitled to certain exemptions. You can refer to the link above for further information.
Ownership of UK property
What are the types of real estate ownership in the UK for foreign investors?
There are two main types of interests in the UK, namely, Freehold and Leasehold. Unlike in the other countries, overseas investors can purchase both Freehold and Leasehold in either their own names or under the name of a company controlled by them.
There are no restrictions on overseas investors acquiring real estate in the UK. Real estate can be purchased, rented, sold, financed (refinanced) or leased by individuals or companies for their own use or as an investment.
What are the benefits of owning a freehold property?
The benefits of owning a freehold property are plenty. For example, you do not have to:
• Worry about the lease running out, as you own the property outright.
• Deal with the freeholder (often known as the landlord or freeholder).
• Pay ground rent, service charges or any of the landlord charges.
What does leasehold property mean?
With a leasehold, you own the property (subject to the terms of the lease) for the length of your lease agreement with the freeholder.
When the lease ends, ownership returns to the freeholder unless you can extend the lease. There is legislation to allow any leaseholder to extend their lease for a premium, provided they comply with the criteria set out in the legislation.
Most flats are sold leasehold basis, so when you own the property in the building, you have no stake in the building it is in or the land on which the building sits on.
Some houses are sold on leasehold basis. If this is the case, you own the property, but not the land it sits on.
Things to consider when buying a leasehold property
• How many years are left on the lease; if the lease is less than 70 years, you might struggle to get a mortgage.
• How much is the service charge and ground rent and other related costs, so you can budget for them.
• How the length of the lease might affect you getting a mortgage and the property resale value. The lender will normally need it to run for 25-30 years from the end of your mortgage. As a result, it might be difficult to sell a property, if the lease is for less than 80 years.
What does freehold property in UK mean?
• You own the property including the land that it’s built on outright.
• You are responsible for maintaining your property and the land.
• Most houses (Landed Property) are freehold but some might be leasehold – usually through shared-ownership schemes.
Can I extend the leasehold for my property in UK?
Yes, you may ask your Landlord to extend the lease at any time. Once you have owned the property for two years, you have the right to extend your lease by 90 years, provided you are a qualifying tenant. Usually, you will be a qualifying tenant if your original lease was for more than 21 years. The freeholder will charge to extend the lease and the cost will depend on the Property.
Can I get my property title deed in the UK?
Yes. The UK Land Registry is a government agency that maintains a public register of each title to the land. Each piece of land has a separate title number so when a potential purchaser wants to check the title, a quick search of the public register can be performed.
During the purchasing process, your appointed solicitor would undertake due diligence on the title and also undertake registration duties after completion of the purchase.
What type of mortgage financing can I get in the UK?
The common way to borrow money in the UK is to take a mortgage loan from a bank or other lenders. The lender may approve a mortgage loan up to 80% of the property’s value, but this can be less depending on your personal circumstances and financial standing.
What are the taxes I need to pay when I buy a property in the UK?
Taxation of residential property has been a focus for the UK Government in recent years. The resulting changes have added complexity to the tax system, whilst at the same time, the buoyant UK property market has attracted increasing numbers of overseas buyers.
If you are seriously contemplating a property purchase in the UK, we recommend that you seek tax advice from a tax advisor. The information in this note serves a broad guide but is no substitute for full advice.
What is the Inheritance Tax in the UK?
For those not domiciled in the UK, IHT is payable on death, and on gifts into trust, on UK assets. UK residential properties held via offshore companies have been deemed ‘UK situs’ for tax purposes since April 2017 and are subject to IHT on a shareholder’s death.
IHT is charged at 40% above the Nil Rate Band of £325,000 (charged at 0%), although various reliefs are available. Many clients consider mitigating IHT by giving properties to their (minor) children.
Whilst this may seem appealing, it can have severe tax disadvantages in some cases. This is an area where early advice is beneficial as it is difficult to unwind such a gift once made.
What is the Non-Resident Capital Gains Tax (NRCGT)?
Since April 2015, NRCGT has been payable on gains realized by non-residents on the disposal of UK residential property. The rate of NRCGT is 28% (although in some cases an 18% rate will apply).
NRCGT is payable on the increase in the value of the property – the difference between the purchase price and the value at the date of disposal (less any deductions or reliefs).
NRCGT returns must be filed and tax paid within 30 days of disposal.
NRCGT arises on all ‘disposals’ of residential property (by individuals; the position of companies is slightly different and beyond the scope of this note), for example, gifts to family members. Gifts can have wide-ranging UK tax consequences (with NRCGT just one tax to consider), and it is important that tax advice is taken before any gift is made.
It is worth mentioning that NRCGT was extended to all UK property, e.g. commercial property, owned by non-UK residents from 1 April 2019.
What does Annual Tax on Enveloped Dwellings (ATED) mean?
ATED is an annual tax on properties worth over £500,000 and owned by ‘non-natural persons’, such as companies. ATED charges range between £3,650 and £232,350 per year depending on the property’s value; the charge increases annually in line with inflation.
An ATED return must be submitted each year. There are reliefs available in specific situations, but these must be claimed in an ATED return annually.
Do I need to pay tax on my rental income in the UK?
If you are buying UK residential property to let to tenants, income tax is payable on the rental income. Rates range between 0% and 45%, depending on the amount of income. Following the end of the UK tax year (5 April), non-resident landlords must submit a UK tax return to declare rental income, and pay any income tax (by the following 31 January).
What happens to my UK properties when I pass away?
In the absence of a Will, succession to UK property is governed by UK intestacy law. The intestacy rules may not be in line with your wishes and may produce a negative tax outcome. You are strongly recommended to make an English Will when purchasing a property in England, to give certainty on the succession and tax position on death. Your appointed solicitor can assist you in preparing a Will.
Please note that this information is for general purposes and is not intended to be tax advice. Tax rules are subject to change at any time without prior notice. You should always obtain specific advice which is relevant to your circumstances. SDLT rules are very complicated and advice can vary depending on your circumstances.