8 Step Guide to Buying a Property
28 September 2016
At times the property purchasing process can feel frustrating and stressful, but by understanding the different steps below and keeping up-to-date with progress, you can save time, money and make the process easier.
Step 1: Buying a Property
Your first step is to understand your finances and what you can afford. Legal Fees are usually higher on a purchase transaction than a sale. This is because you need to obtain searches on a purchase, take into consideration Stamp Duty Land Tax and usually higher legal fees in general. If the property you are purchasing is leasehold you will probably be charged a higher fee due to complete the additional work required.
When you have determined your price range ensure you obtain quotes including both legal fees and “disbursements”. Disbursements are third party fees such as Stamp Duty, search fees and Land Registry fees. If you are buying a property with a mortgage visit your financial advisor or bank to understand what type of mortgage you require (tracker, fixed, interest only) and what your potential repayments will be.
Once you have finalised your budget you can start viewing properties in your price range.
Step 2: Stamp Duty and Fees
Stamp Duty Land Tax (SDLT) is payable when you buy a property or land but it can be confusing to understand when Stamp Duty Land Tax is payable, when it isn’t and at what rate you have to pay.
As a general rule Stamp Duty Land Tax is payable when you:
• Buy a freehold property
• Buy a new or existing leasehold property
• Buy a property through a shared ownership scheme
• Transfer land or property in exchange for payment e.g. you buy a share in a house
Stamp Duty Land Tax is payable within 30 days of completion of your purchase. If the return and payment is not made within 30 days you may be charged a penalty and interest.
It is important you budget effectively and are able to pay the tax. Your Lawyer will usually file your return on your behalf on the day of completion. When you instruct a Lawyer ensure you understand whether they will undertake this work on your behalf. Some Lawyers will charge an additional fee for completing this form and submitting to HMRC. At Co-op Legal Services we do not charge any additional fees, the fee you are quoted is the fee you pay.
Tax is calculated as a percentage of the consideration which is usually the purchase price you pay, this can vary from 2% to 12%. From April 1, 2016 the UK Government introduced a new way to calculate stamp duty if you own more than one home. If you own a second home you will pay 3% above the current scale.
If the property you are purchasing is your main residence then you will pay the standard rate. However, if you haven’t sold your main residence by the time you purchase your new property you will need to pay the increased percentage at the time of completion. You can then claim back the difference if you sell your existing property within 18 months.
You must ensure when instructing your Lawyer you provide information relating to your personal circumstances to enable them to provide a full breakdown of costs and disbursements. To enable you to budget effectively make sure you are aware of all potential costs and you can afford to proceed with the purchase.
Step 3: Finding a Property
It’s always best to look for properties both online and through local estate agents. Looking online is quick and informative, but when you contact estate agents in the area where you want to buy; you could open the door to finding a property that hasn’t been listed yet. Also look in the local papers as you may find a seller who wants to avoid paying estate agent fees.
Go and view as many properties as you can to get a good understanding of the properties available. When viewing a property consider any additional factors that may cost you more money when you move such as new windows, a new boiler or repair of a roof. If you need parking make sure there is enough.
Step 4: Property Searches
Property searches are a very valuable tools to find things out about the property which you can’t tell just by viewing it. Property searches are designed to give you all the information you need about the property you’re looking at and checking there is nothing hiding in the background that could change your mind.
Make sure all the Conveyancing quotes you get include a detailed breakdown of all the searches and the fees. The full search requirements can take as long at 6 weeks to receive, so the sooner you pay your Lawyer for searches the sooner you will receive the results.
If you are buying your property with a mortgage, it is usually a lender requirement that you obtain full clear searches before mortgage funds will be released.
If you are a cash buyer you can choose not to obtain searches before you buy the property. However, it is always good advice to ensure you have the complete searches in-hand before exchanging contracts, so you should build this into your timeframe. For more details see What Property Searches Do I Need and Why?
Step 5: Enquiries
Your Lawyer will receive draft contracts from the seller’s Lawyer. The contracts will usually contain a Property Information and Fixtures, Fittings and Contents Form together with a copy of the title to the property.
If the property is registered at the Land Registry you will receive an up to date copy of the title together with a plan. If the property is not registered your Lawyer will receive an Epitome of Title which is a copy of all the documents proving the seller has good title to sell to you. Your Lawyer will review the documentation and ensure everything is in order. They may raise enquiries with the seller’s Lawyer if further information is required.
Once the Lawyer is in a position to proceed and happy with the contract documentation they will report to you on the legal matters affecting the property. It is important that you carefully read any report and raise any further enquiries or concerns with your Lawyer. For example:
When you receive a copy of the plan of the property check that your understanding of the boundaries is the same as the plan.
Check if there are any planning permissions revealed on the searches or entries which may impact the property such as a road widening scheme or telephone masts.
Check if the report makes reference to any shared services or driveways.
Check for any restricted covenants, if they are any, ask your Lawyer to explain them.
Remember you have appointed your Lawyer to provide a service for you and will investigate and report to you on these matters. If you are unsure of anything discuss any concerns with your Lawyer.
Step 6: Mortgage Offer
If you are buying the property with a mortgage, once you have found the right property you should provide the information to your mortgage lender and confirm the agreed purchase price. The mortgage lender will then undertake a survey, this survey will be for valuation purposes only and not a structural survey. You should consider getting your own structural survey done as part of the transaction. Whilst these are not cheap they can save you a fortune in the long run.
Once the valuation has been carried out by your mortgage lender you will receive a mortgage offer. When choosing a Conveyancing Lawyer ensure that they are on the Lender Panel and can act for both you and your mortgage lender.
When you receive your copy of the mortgage offer, your Lawyer will also receive a copy. There may be specific instructions in the offer you must comply with before funds are released. You must check the mortgage offer, check the mortgage advance, repayments and any other conditions before you proceed. As part of your budget ensure again you will have sufficient funds to repay your monthly instalments.
Step 7: Deposit & Exchange of Contracts
It is usual to pay 10% of the purchase price when contracts are exchanged. Before contracts are exchanged all searches should be received, any queries replied to by the sellers Lawyer and your finances/mortgage offer is in place.
When contracts are exchanged the property transaction is legally binding and a completion date will be fixed – this is when you get the keys and can move in! If you fail to complete on this day you can be charged interest. If you cannot complete at all after exchange of contracts the seller may be within their rights to keep your deposit.
Step 8: Completion
When you have exchanged contracts a date is agreed for completion. The completion date is when you become the owner of the property.
Prior to completion your Lawyer will send you a completion statement which will set out the final balance of funds due from you. You will be required to send funds to the Lawyer prior to completion as cleared funds. Your Lawyer will request the mortgage advance from your lender to be received the working day before completion.
On the day of completion your Lawyer will confirm the figure to be sent to the seller’s Lawyer and arrange to transfer funds. Once the seller’s Lawyer has received the funds they will confirm completion and release the keys which will usually be held with the estate agent unless you have made alternative arrangements with the seller. Once the keys have been released you will be able to collect them and move into your new home.
At Co-op Legal Services we have competitive Conveyancing fees for both sale and purchase and operate a No Completion No Fee. This means that if the matter does not complete you will only be charged for any disbursements incurred.