Buying and Selling a House or Property in the UK

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Buying and Selling a House or Property in the UK

Buying and selling a property in the United Kingdom can be a complicated process. Below is a step-by-step guide to help through the process.

The Stages

Below is a summary of the stages involved when buying or selling a property; bear in mind that these can often overlap.

• Researching local estate agents and obtaining a market appraisal of the property
• Choosing the right agent/s
• Arranging an Energy Performance Certificate (EPC)
• Instructing a conveyance/solicitor
• Getting an 'in-principle' mortgage agreement from a lender (if a loan is needed)
• Searching for the right property
• Making an offer
• Getting a date for a survey to be carried out
• Finalising the mortgage
• Agreeing on a date for exchange of contracts
• Arranging buildings and contents insurance to start from the exchange date
• Agreeing on a completion date
• Exchanging contracts
• Informing utility companies of the moving date

Finances and Buying Property

Before starting to look for a property, if it is to be financed by a loan it is necessary to work out how much can be borrowed. If buying alone, it may be possible to borrow up to four times the person's annual salary. If buying with a friend or partner, up to approximately two-and-a-half to three times the combined salary may be borrowed. However, this is only a guide and the range of mortgage products on the market means that each buyer must do their own research.

Remember that the cost of the mortgage may go up if interest rates rise, so take that into account before deciding on the loan required. The buyer must also take into account the stamp duty land tax. The more money put down as a deposit, the more can be spent on a property, so take into account any savings. Also, don't forget to count any money from the sale of the current property (if applicable). Finally, make sure the lender gives a written 'in-principle' mortgage agreement.

Mortgages

Finding the right mortgage can be complicated. Some people employ an independent mortgage adviser, who will search for the deal that suits their needs. Other people choose to find their own mortgage and scour the market for the best products around; price-comparison websites have now made this task much easier. Estate agents may be able to recommend a local mortgage adviser. Beware of mortgage-arrangement fees, which can increase the cost of an apparently cheap mortgage.

Repayment or interest-only mortgage?

There are two basic types of mortgage: repayment and interest only. The buyer just has to decide whether they want to start repaying their mortgage now, plus the interest charged on it, or whether they want to just pay off the interest every month and repay the mortgage later (usually at the end of the mortgage term). If interest only is chosen, the lender will want the person to set up a saving plan to provide a lump sum that can be used to repay the debt, such as an individual savings account (ISA) or an endowment pension plan. If the person starts paying their mortgage straight away, they will clear the debt much sooner.

Interest-rate terms

The buyer will also need to decide what kind of interest rate they want with their mortgage. There are a few to choose from:

Fixed rate: With a fixed-rate mortgage, the interest stays the same so the buyer has the security of knowing exactly how much they will be paying every month for a fixed number of years. So even if interest rates go up, repayments won't.

Standard variable rate: At the end of any agreement with the lender, the mortgage will switch to a standard variable rate. This means mortgage payments will go up and down in line with the bank's base rate, plus a little more on top.

Tracker rate: This works in a similar way to the standard variable rate, but follows the Bank of England's base interest rate. The tracker rate will be more than the Bank of England's rate, but lower than the lender's fixed rate.

Capped rate: A capped-rate mortgage means the borrower won't pay above an agreed rate for a fixed number of years. If the base rate falls, the interest rate on the mortgage will also fall accordingly.

Discounted rate: The interest rate charged is lower with a discounted rate than other standard mortgages, for a fixed period of time.

Offset: Simply put, a mortgage can be offset against the borrower's current account, their savings account or both. This way interest is only paid on the remaining sum. However, this means no interest is earned on current and savings accounts for the length of the agreement.

Before entering into any mortgage agreement, remember to check important details such as any penalties for overpayment, late payment, early repayment or switching providers before the term of the mortgage agreement ends. Also make sure it is is clear when any discount or fixed rate ends.

Finding Property to Buy

Viewing properties can be long and laborious if the buyer has not identified exactly what they want and where. The buyer should research the areas they are interested in, paying particular attention to the things that are most important to them, such as local amenities, transport links, schools, open space and council-tax bands.

Once an area has been found where the buyer may want to purchase, they can start viewing properties.

It's best to have a list of things to ask and look out for, to help identify properties that might be worth a second viewing.

Here are some things to look out for:

• What state are the kitchen and bathroom fittings in? White bathroom suites and simple neutral kitchen units are ideal and could make it easier to sell in the future
• Is there any evidence of damp
• If it is a leasehold property, how many years are left on the lease? Lenders prefer the lease to have at least 65 years left to run
• Does the property have gas central heating? If so, get the boiler checked.
• What council-tax band is the property in?
• Ask to see a copy of the Energy Performance Certificate (EPC)
• Does the property have double glazing?
• Is there an attic? If so, is it well insulated (check the EPC)
• Check the state of the roof
• Ask to see copies of recent utility bills - this should give you an idea of how energy efficient the property is (or check the EPC)
• Ask what the neighbours are like and if there are any longstanding disputes.
• Is the property near a busy main road?
• Is the property on a well-lit street?
• If the property is leasehold, are there any service charges?
• Is the property near suitable transport links?

Leasehold, Freehold and Commonhold Properties

Freehold means the that the person owns the land and the property completely and is responsible for all maintenance and repairs.

Leasehold means the freeholder agrees to sell a lease on the property for a specified number of years. The lease will state who is responsible for maintaining the property and grounds. It may be necessary to pay ground rent and service charges. Leases (typically) are initially for 99 years or 999 years, with the length reducing each year. Recent laws have increased the rights of leaseholders, enabling them collectively either to buy the freehold or seek an extension to the original lease. The laws are complex and independent legal advice may be necessary. The Leasehold Advisory Service (LEASE) website, is a good place to start.

Commonhold applies to flats. It means the person owns the freehold to the flat and shares the freehold of the communal areas and grounds with the other owners. Service charges or ground rent don't have to be paid, but the owner will have to contribute towards the commonhold association fund for things like maintenance and insurance.

Making the Offer for Purchase

Once a property has been chosen there are a few things that should be checked before making an offer:

• Find out what fixtures and fittings are included in the sale of the property and get this in writing - this can help to avoid confusion later
• The buyer should ensure they have a written agreement-in-principle mortgage (AIP) as this can speed things up for both the buyer and the seller
• Does the timing work? In other words, are the sellers looking to move at around the same time as the potential buyer?
• Consider the cost of any obvious repairs/maintenance revealed by the surveyor

The buyer may then choose to put their offer in writing to the seller and give the name of their solicitor. If an estate agent is involved in the transaction, they will contact the seller and await their decision. If the seller receives similar offers, the potential buyer may be asked to take part in a sealed bid. This means they must make only their best and final offer, and the seller will use this information to make a choice.

If the offer is agreed

If the offer is accepted, the agent (or if there is no agent, the seller) will write to confirm the address of the property, the agreed price, and the terms and conditions. The document will also include the names and addresses of both parties and their solicitors.

Potential Problems

There are a number of hurdles to be aware of when buying a property:

Chains

A chain is simply a group of buyers and sellers who are linked by their properties. Everyone in the chain relies on the sale of another's property. If one person backs out of a sale, the whole chain can fall apart. For first-time buyers, this is not a problem as no one is relying on the sale of their property before they can buy another.

Gazumping and gazundering

Gazumping refers to when someone steps in with a higher offer. The seller accepts the new one and the original buyer is left with nothing, but there is little they can do about it. There is little that an estate agent can do about this as the law requires them to put all offers to the seller.

Gazundering refers to when the buyer reduces their offer at the very last minute. Unless they have a good reason for this, such as a serious fault with the property, it is very bad practice. It can cause the chain to collapse if the seller refuses to accept the lower offer.

The Legal Procedure

Conveyancing

It's best to get a professional to handle conveyancing, or the legal side of buying and selling.

If selling, the conveyancer will prepare the contract to transfer the ownership of the property to the buyer. Their conveyancer will check all the details of the contract thoroughly and take charge of any negotiations on the buyer's behalf. Searches will be conducted to check the 'title' of the property (to ensure the seller is indeed the legal owner); any planned works in the area that may have an impact on the property; boundaries and any legal or planning restrictions.

When both parties and their conveyancers are happy with the agreement, they exchange contracts and the buyer will transfer their deposit. Assuming all parts of the contract are fulfilled, the process will complete on an agreed date and the total funds transferred through the conveyancers.

A conveyancer can be found by contacting the Law Society, (Tel: 0870 606 255) or the Council for Licensed Conveyancers, (Tel: 01245 349 599) for a list of local services. Conveyancing typically can take 8 to 12 weeks. Leasehold properties involve more work as the lease has to be checked thoroughly and this will affect the cost.

Surveys and valuation reports

The mortgage lender will arrange a basic valuation of the property. This inspection is purely for the lender's benefit, even though the buyer has to pay for it, and it reassures the lender that the property is worth the price they have offered. It may be worthwhile for the buyer to commission a more detailed survey themselves, which will uncover any problems. There are two other types of surveys that can be undertaken: a homebuyer's report and a building survey.

RICs HomeBuyer's Report

A homebuyer's report is much more detailed than a basic valuation. It will reveal any problems with the property that may cost the buyer money to rectify, either immediately or in the long term. The surveyor will recommend further investigation if he/she discovers a potential problem. This will help the buyer to decide whether the property is worth what they are offering. The homebuyer's report is particularly suitable for properties built in the last 50 years or so. For older properties, or those with obvious problems, it might be worth arranging a building survey.

Building survey

Building surveys can be arranged for any type of property, although it is more suitable for older buildings, those with structural defects, those made of timber or other unusual materials, or any property that the buyer is planning to renovate. The surveyor will conduct a very detailed survey of the building, listing all major and minor faults. It takes a few days to complete the survey and prepare the report. The surveyor must list all existing and potential problems, however small. The survey will also give a list of recommended work and approximate costs.

The Royal Institute of Chartered Surveyors (RICS) website has contact details of hundreds of chartered surveyors in the UK and worldwide.

Working with Property Agents

When deciding which agent, or agents, are going to sell the property, the seller will agree to the agents' written terms and conditions. There are four types of agreements:

Sole agency: The services of one agent are employed to market the property for an agreed period (typically 12 weeks). If the property is sold through another agent before the agreement with the original one has ended, the seller will still have to pay the original agent their fee. Likewise, the original agent must give the seller the service they have agreed.

Joint sole agency: This is when two agents are employed to sell the property. The agents agree to split the fee on the sale of the property. The agent that sells the property usually gets a higher percentage of the fee. The percentages are pre-agreed with the seller and written into the agreement.

Sole selling rights: This means that the appointed selling agent will be due the agreed fee, even if the property is sold privately or through another agent.

Multiple agency: This is when the services of several agents are employed. The agent that sells the property takes the whole fee.

Energy Performance Certificates (EPCs)

When selling property, an Energy Performance Certificate (EPC) must be commissioned. The estate agent may be able to organise this for the seller. An EPC tells the seller and the prospective buyer how energy efficient the property is, the impact the property has on the environment and includes recommendations on ways to improve its efficiency.

The EPC must be ordered by the time the property hits the market. Copies should be given to all potential buyers at the earliest opportunity and certainly before an offer is accepted and contracts exchanged. Only accredited Domestic Energy Assessors can prepare an EPC.

The costs involved in buying and selling a property depend on many factors, such as the value of the property and the complexity of the transaction. The following is a checklist of potential costs for both buyers and sellers. The costs include those that apply to the buying and selling process, plus some others that may arise. For every potential cost listed, different providers will charge different fees, so it is always best to get a range of quotes.

Sellers

• Estate agents' fees
• Conveyancing fees
• EPC costs
• Removal costs
• Contingency fund

Buyers

• Mortgage arrangement fee
• Mortgage indemnity guarantee
• Lender's valuation fee
• Conveyancing fees
• Land registry fee
• Surveys
• Removal costs
• Contingency fund
• Home insurance
• Contents insurance
• Stamp duty land tax:
  • 0% paid on properties costing up to £125,000
  • 1% paid on properties costing between £125,001 and £250,000
  • 3% paid on properties costing between £250,001 and £500,000
  • 4% paid on properties costing more than £500,001

For first-time buyers, the stamp duty threshold is £250,000. This only applies if you have never owned a property in the UK or overseas. And, if you're buying with another person, they too must be a first-time buyer.

Note that any changes to the UK tax system may affect stamp-duty charges, these can be checked online on the government website Directgov.

Property Contacts in the UK

If further information is required regarding buying or selling property, the following resources can be contacted to provide further guidance:

• The Royal Institute of Chartered Surveyors (RICS)
  At: RICS Contact Centre, Surveyor Court, Westwood Way, Coventry CV4 8JE
  Tel: +44 (0)870 333 1600
  Fax: +44 (0)20 7334 3811
  e-mail
• Council for Licensed Conveyancers
  At: 16 Glebe Road, Chelmsford, Essex CM1 1QG
  Tel: 01245 349 599
  Fax: 01245 341 300
• The Association of British Insurers
  At: 51 Gresham Street, London, EC2V 7HQ
  Tel: 020 7600 3333
  Fax: 020 7696 8999
  e-mail
• Leasehold Advisory Service (LEASE)
  At: 31 Worship Street, London, EC2A 2DX
  Tel: 020 7374 5380
  Fax: 020 7374 5373
  e-mail
• The Law Society
  Tel: 0870 606 2555
• The National Association of Estate Agents (NAEA)
  At: Arbon House, 6 Tournament Court, Edgehill Drive, Warwick CV34 6LG
  Tel: 01926 496 800
  Fax: 01926 417 788
  e-mail
  
• The Property Ombudsman
  At: Beckett House, 4 Bridge Street, Salisbury, Wiltshire SP1 2LX
  Tel: 01722 333 306
  Fax: 01722 332 296
  e-mail