Funding
Usually, a property will be purchased with the aid of a mortgage and it is therefore important to obtain a prequalified and preapproved credit. This will give you an indication as to how much money lenders will give you and help you to focus your research on properties which are within your budget.
Arranging a mortgage can also take up to several weeks in the UK due to several considerations that apply. Firstly, you will need to decide upon the type of mortgage suitable for you as lenders can offer mortgages on standard and variable interest rates as well giving interest-only models. Secondly, lenders will also want to ensure that the property to be purchased is valued before an application is accepted. This is mainly so that they will have security if borrowers default on their repayment plans.
As a result, if you are thinking of purchasing a property, one of the first steps for you to consider should be funding.
Initial stages
It is usual for buyers to seek assistance from estate agents who will initially act as the first point of contact when searching for a property. It is important to find and work with an estate agent who can provide you with helpful information that may not be easily accessible to the public. Once a suitable location and property is found, an offer will be put forward. If this is accepted, estate agents will begin preparing a memorandum of sale setting out terms such as price, details of sellers and buyers and their respective solicitors.
The Buying Process
Once the above steps are considered and completed, the process of purchasing a house can begin. This process is usually known as ‘conveyancing’ and it could take between 2 – 4 months to complete. The main reason for this can simply be summarised as ‘due diligence’. Due diligence is where the buyer’s solicitors carry out searches before a property is purchased and it can consist of several matters such as:
- Reviewing title of the property;
- Obtaining a survey;
- Agreeing terms of the contract with the seller’s solicitors;
- Undertaking searches with local authorities
Each step may require a significant amount of time, which could lengthen if the solicitors make any adverse findings about the property. Buyers should be aware of this process given that in many other European countries property contracts are entered at the outset before due diligence is carried out.
Tax considerations
One of the most important tax considerations is the Stamp Duty Land Tax (SDLT) which has recently been revised in the government’s Autumn Budget in November 2017. SDLT is a type of tax paid on the purchase of land. SDLT rates will differ for first-time and non-first-time buyers of residential property.
First-time buyers do not have to pay any tax where the value of the property is up to £300,000. Thereafter, a 5% tax rate applies for properties valued between £300,001 to £500,000 and where the property is more than £500,000 the below rules will apply.
Non-first-time buyers do not have to pay any tax where the value of the property is up to £125,000. Thereafter, the below rates apply:
- 2% tax rate applies for properties between £125,001 to £250,000
- 5% tax rate applies for properties between £250,001 to £925,000
- 10% tax rate applies for properties between £925,001 to £1.5 million
- 12% tax rate applies for properties worth more than £1.5 million
Exchange of contracts, completion and post-completion
Once the due diligence process is complete, the buyer and seller will exchange contracts to enter into a legally binding agreement. There will then be a period between exchange and completion where the buyer’s solicitors will prepare transfer documents, apply for mortgage monies and complete pre-completion searches.
Once completion occurs, buyer’s solicitors are required to send forms to the Inland Revenue confirming their stamp duty payments, apply to the Land Registry to register buyers as the new owners of the property and tell the lender of completion.
Taking all of the above points into account, it can be seen that purchasing a property is an onerous task and the above points are only for guidance and are not intended to be conclusive. If you are thinking of purchasing a property, you should consult legal advisers before embarking on this journey.
