Are you considering buying your first property in London? Our guide covers 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
These are common ownership terms you'll see and it's helpful to know the difference.
If you own the freehold, the property is yours outright. With this, you will be responsible for all upkeep and maintenance as long as you are the owner, but there are many positives as well.
If you own the leasehold, you are allowed to live in the property 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 how much ground rent is to be paid to the freeholder.
If the lease is less than 60 years, it is not recommended to go ahead with the purchase - extending it can be costly. Your solicitor will be able to give you more information on the property you are buying and the lease.Obtaining a mortgage
Independent mortgage brokers can help you work within your budget. We would recommend doing some comparative research as there are some attractive packages not only for first-time buyers but all buyers. Try to stay within the budget you have set to make ownership a little easier for yourself.Making an offer on a property
If the property is being advertised by an estate agent, offers must be made through the agent. You can submit offers over the phone, in writing or in person. Until contracts are exchanged, an offer will not be legally binding. If a building survey detects work that needs to be done, the asking price may have to be renegotiated a bit.How much will it cost to buy a property?
There are a number of one-time costs to consider when buying a property. From agency fees to instructing a surveyor, there are some expenses you may have thought about yet. This guide is just a reference, so also consult with a trusted advisor to come fully prepared with an offer.
Have an independent survey done to check for defects of the property. 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: Most expensive but the most thorough and can save you money down the line.
Standard fee charged by the lender for setting up the mortgage. This 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 over £300,000 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 £300,000 or less. Ask your lender for more details or search 'buying in disadvantaged areas' on the internet.
Solicitors may charge a flat rate or a percentage of the property price up to 1/2%. A complex transaction, or one that takes longer, may equal a higher fee. In addition, you'll be 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
On 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 a contract, copies are signed and sent to each other. This is now a legally binding contract and compensation will need to be paid if either party decides to pull out of the transaction.
3. Between exchanging and completing
The conveyancers will make all necessary checks. When everything is ok, the money will be paid to the seller.
If everything in the offer was in good order, the process has completed. The property now belongs to the buyer, keys are handed over, and you can book those removal vans.
5. After completion
Change of ownership is now registered by the buyer’s conveyancer. The buyer informs their insurer that completion has been reached and will 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 downtime 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
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.