BUYING A HOUSE IN ENGLAND AND WALES
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BUYING A HOUSE IN ENGLAND AND WALES
sleepyme123 Thu Nov 15, 2012 10:18 am
Introduction
You have decided to buy a home - but what next? The maze of legal work, negotiations, dealing with surveyors and solicitors, finding a good mortgage deal and worrying about your deal falling through, on top of actually hunting down the home of your dreams, is enough to make anyone's hair stand on end.
Buying a house is one of the biggest financial decisions that you will make in your life. It is a lengthy and complicated business, which while exciting is often fraught with stress and worry. But luckily there is a lot of good advice around helping you to make your home-buying experience as easy and problem-free as possible.
After finding a home you like, which can take anything from a few days to many months, the process from having your offer accepted to completion of the sale takes about 12 weeks. This is about twice as long as in many other countries - home-buying in Britain is a notoriously drawn-out business.
It is important to have a good understanding of the process as it will help you to avoid some of the most common hazards of home-buying. We have prepared an introduction to the home-buying process to help you to understand how it all works, how to plan it and what to watch out for. After reading this you should have a better idea of what to expect and how to set out to buy a home feeling prepared and ready to go!
The Buying Process: A Step-by-Step Guide
We will cover the main stages you will go through when buying a home.
1.Work Out How Much You Can Afford
2.Get a Mortgage Agreement in Principle
3.Choose Your Home
4.Hire a Solicitor
5.Make an Offer
6.Have a Survey and Valuation Done
7.Do Any Necessary Legal Work
8.Arrange for Life Assurance
9.Finalise Your Mortgage
10.Exchange Contracts
11.Organise Your Move
12.Finalise Your Contract Details
13.Move In!
Before You Begin...
Note that the information on this site applies to buying a house in England and Wales. The process is different in Scotland.
How Much Can You Afford?
You have decided that you are buying a property, but exactly how much can you afford? On top of the cost of the house itself, there are many other, one-off expenses involved in buying a home and moving which can tot up to between £2,000 - £5,000. In order to get a good idea of what sort of homes you can realistically hope to buy, you also need to take these extra costs into account. To help you do your sums, here is a guide to working out how much money you have to spend and what the costs are. Take particular care with stamp duty land tax as, with the recent inflation of property prices, for properties over £250,000 this has become a major consideration.
Calculating Your Price Range
You need to work out:
1.The amount you will get from the sale of any current home
2.The amount you can borrow
3.The amount you have in savings or investments which you can use
4.Once you have done this, work out how much the other one-off costs of buying and moving will add up to
5.Deduct this sum (4) from the total sum of 1, 2 and 3 and you will have a rough estimate of the kind of price range you are looking at
How Much Should You Borrow
Before looking at properties, you should consult a lender or mortgage adviser as to what your maximum possible loan would be. This will be based on the size of your deposit and how much you earn.
All buyers need to put down a deposit on the property - a mortgage lender will rarely pay the whole price of the property. You should try to put down at least 5 per cent of the value of the home as a deposit, and more if possible. The smaller the deposit you put down, the more your lender will charge you for the extra risk. Most mortgage lenders charge a 'mortgage indemnity guarantee fee' (MIG), or a fee for loaning a higher percentage of the value, on bigger loans. If you do not have enough money for the deposit, for example if your house is not sold yet, it is possible to get a 'bridging loan' from your bank, which will be repayable on the sale of your house.
Lenders will usually lend up to three times the size of your annual income, though some will lend up to four times your income. If you are buying as a couple, this increases to either three times the first income plus one year of the second income, or two-and-a-half times your joint income. Work out which way would allow you a higher loan and find a mortgage with which you can get a joint income allowance which suits you. Your lender may contact your employer to confirm your income, or if you are self-employed and taking out a self-cert deal you may have to supply proof of your income.
The credit crunch that started in 2007 changed the face of mortgage lending. This squeezed the amount banks and lenders could borrow and made them less likely to take risks.
Deals for those with small deposits, such as 100 per cent mortgages, were commonplace prior to 2007 but have become increasingly rare.
The key to successfully gaining a mortgage approval is not only having a large deposit but also being a low risk level in the eyes of lenders. Check your credit score through credit referencing agencies. Make sure any missed payments you may have forgotten about are addressed.
The One Off Costs
Arrangement Fee
A fee charged by lenders to cover the cost of setting up the mortgage. Some lenders waive this fee.
Lender's Valuation (Basic Valuation)
All lenders require a valuation of the property to check that it is worth the price being paid for it. This is commissioned by the mortgage lender but you must cover the cost. The cost of the valuation depends on the value of the property - for example, allow about £125 for a property worth £50,000, £165 for a £100,000 house and so on. Some lenders do not charge this fee, as an incentive for you to take out a mortgage with them.
Survey
It is strongly advised that you have your own independent, more detailed survey carried out to check for any defects. There are three types of survey: the Valuation usually carried out for the Lender (see above); the Homebuyer's Report which costs between £250 and £500; and the more comprehensive Building Survey (Structural Survey) which can cost anything up to £1,000 plus VAT, depending on the value of the house. You should also consider having newly built properties surveyed, although the condition of new properties is guaranteed by the builder, it is much safer to get any snagging carried out before you move in, or while you can retain money against outstanding works. The alternative of claiming from the builder afterwards can be a painful experience.
Legal/Conveyancing Fees
You will need to hire a solicitor to deal with the legal aspects of buying a property. There is no standard fee so it is a good idea to shop around for the best rate. Some solicitors charge a flat rate while others charge a percentage of the property price, normally up to half a percent. As well as the price of your house, the fee will take into account factors such as the amount of paperwork involved, how much skill is required and how complicated the transaction is.
You will also have to pay for the legal work done by your lender's solicitor. Again, prices vary so ask your lender how much they charge. If you use the same solicitor as the lender to do your conveyancing this may save you money, but compare charges with other firms.
Stamp Duty
Stamp duty is a tax, charged for properties above £125,000. If your new home is priced between £125,000 and £250,000, you will pay 1% of the property price. From £250,000 to £500,000, it will be 3% and over £500,000 it will be 4%. So, for example, if you are paying £200,000 for your home you pay £2,000 in stamp duty. For a £300,000 property the stamp duty at 3% is much higher in proportion to the purchase cost (£9,000).
Stamp Duty Land Tax Exemption in 'Disadvantaged Areas'
If you're buying a residential property in an area designated by the government as 'disadvantaged', you don't pay any Stamp Duty Land Tax if the purchase price is £150,000 or less. To find out more about Stamp Duty Land Tax and how you pay it, please see the HM Revenue & Customs article Tax on Buying Property.
Land Registry Fee
The Land Registry is a government department which looks after the registers of all registered properties in England and Wales. It charges a fee for transferring the register to the new owner. This fee is charged according to property price.
Price (£) Fee (£)
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
Local Authority Search Fees
Local searches will be carried out by your solicitor/conveyancer to ensure that there are no potential problems such as planning permission on neighbouring properties or plans for new roads nearby. Allow at least £60, or more in London boroughs.
Other Search Fees and Disbursements
These include index map, commons, the coal authority, land charge, company searches, bank transfer fees. Allow about £70 to cover an average house purchase.
Estate Agent's Commission
If you're selling your property as well as buying one, the sum charged by your estate agent has to be taken into account. Usually this is charged as a percentage of the property price, around 1.5 - 2 per cent on average. If you are selling it yourself, you will need to pay for advertisements.
House-hunting Expenses
House-hunting itself can be a costly business - allow money for eating out, travel and telephone calls, and hotels if you are buying in a different area. Consider whether you will need time off work.
Removal Fees
Ask for quotes from at least 3 different removal firms, as prices vary. Remember you will need to give tips. You can do the removal yourself, but this is much more time-consuming and inconvenient. If you are DIY-ing it, costs will include van hire (+VAT and insurance), petrol, and return travel from the van hire company when you return it. You will also need about £25 for insurance.
MIG Fees (mortgage indemnity guarantee)
This is an insurance premium charged by some lenders where your loan amount is more than 75% of the price of the property - in other words, where the loan to value (LTV) is greater than 75%. Other lenders do not charge an MIG, while some only charge when the LTV is more than 80 or 90%.
This is charged in case you default on your mortgage repayments and the mortgage lender cannot recover its money. Note that this protects the lender, not you.
Costs vary from lender to lender but typical MIG premiums are:
4 per cent of the amount borrowed above 75 per cent on a loan of up to 90 per cent of the purchase price
6 per cent of the amount borrowed above 75 per cent on a loan of up to 90-95 per cent of the purchase price
8 per cent of the amount borrowed above 75 per cent on a loan of up to 95-100 per cent of the purchase price
Other Costs
A few more to bear in mind:
Buildings insurance premiums
Contents insurance premiums
Additional removal insurance
Disconnection of services (water, gas, electricity, telephone)
Reconnection of services
Installation of new equipment
Carpet laying
Kennelling of pets
Mail redirection
Change of address notice
Contingency Fund
Leave a decent-sized contingency fund for emergencies. You do not want to be left completely penniless in case you have unexpected extra costs.
Choose Your Home
Looking for a new home is a time-consuming process, and it is tempting just to rush into buying the first one you like the look of. But watch out, as it will not be so easy to take back to the shop if you decide you don't like it after you have moved in. Once you have decided to buy a house and found out how much you can afford, it is worth sitting down and thinking hard about what you want from your new home and what your needs are. We have made a list of some of the things you should consider when house hunting.
Choose A Neighbourhood
Location, location, location
It is important to research a particular area before viewing lots of homes or making an offer on a house there. If you decide it is not the kind of neighbourhood you would enjoy living in, then you could save yourself a lot of time and effort by doing so early on in the process. Even if you can get a bigger home for your money in an area which isn't so nice, make sure you really are doing the right thing. Remember that you can always make changes to a house but not to the neighbourhood.
What is the neighbourhood like? Is it the kind of place you can imagine yourself feeling comfortable in? Who lives there?
What kind of amenities are there locally? Check out the leisure facilities, activities for kids, shops, public transport and so on.
If you have children, look at the local schools. Do they have a good reputation? Where do they stand in the league tables?
What is the level of crime in the neighbourhood? Check crime reports in the local newspaper or crime statistics online, such as those supplied by the Home Office.
How easy is it to reach your workplace?
What council tax band will you be in?
Will you have enough car parking space?
What kind of condition are the other houses in your street in? If they are in a state of disrepair, or look as if they are falling into one, it could bring down the value of your property.
Simply touring the area can give you a good idea of what it is like. There are also some good sites on the internet where you can research different areas and what is available there. Gentrification is a key indicator of an area which is improving and where house prices are more likely to go up. Key signs of gentrification include an abundance of cafes and trendy home design shops. Another sign of a good area to invest in is one with a lot of interest from property developers. Find out if any new flats and homes are being built. Local newspapers and council websites are a good source of information about planning activity, as well as information about local schools.
Choose A House
Do you want a new or an older house? If you are buying a very old one make sure you have looked into what this can entail. Old houses can look lovely but cost a lot to keep up in terms of maintenance and heating bills. Newly-built homes can also have drawbacks, such as higher prices than 'second-hand' ones, and the requirement to buy before they are fully built, but advantages include less maintenance and decoration costs, and often complimentary extras thrown in by the builders such as carpets, curtains and fitted kitchens (though you will not necessarily get to choose your own decorations). Remember new builds can be poorly built too, and you should consider a proper survey. There are additional guarantees for newly built homes under the NHBC guarantee scheme, but you do not want to have to call on these guarantees. It is far better to have any outstanding works (or 'snagging') dealt with before you move in.
Do you want a terraced, semi-detached or detached house, or a flat? If you want a flat, do you want a purpose-built one or a conversion? All have their advantages and disadvantages: consider space, privacy, noise, parking and character. How much does each one matter to you?
How much decorating or improvement do you wish to make to a property?
Do you want a leasehold or freehold property?
Viewing The Property
Key Tips
Once you have found a property you feel you like, make sure you learn as much as possible about it. Even if it seems perfect at first glance, try to think about it from all angles. And write everything down - the best house-hunters take notes on each property they view which they can compare later. Make at least two visits. View the house in the daylight and at night. Come at rush hour, as you could get a nasty surprise - is the road used as a short-cut by motorists?
General Condition
Check what fixtures and fittings will be left by the previous owner
Consider the layout of the house - are there any unusual shaped rooms that it would be difficult to fit furniture or appliances into? Are there are enough power points?
Don't be put off by the seller's choice of décor - try to imagine the house with your own furniture and style
State of Repair
Insulation: is the roof well-insulated? Go into the loft and turn off the light - you shouldn't be able to see any patches of day-light. Is there wall-cavity insulation?
Central Heating: is the central heating system efficient? How old is it? Is it gas or electricity-powered? Ask to see a winter heating bill as this can help give an idea about the quality of insulation
Plumbing: Are the pipes and the boiler lagged? How old is the piping? Lead piping will need replacing
Plug sockets: How old are they? If they are the old-fashioned, round-pin type, re-wiring will probably be required
Structural Problems - Inside
Subsidence: look for cracks in ceilings and walls, doors that stick or don't hang correctly
Damp: You can smell damp, so use your nose. Mould, walls which are damp to the touch, flaking paintwork or wallpaper which is peeling off are also signs of damp. Be wary of new paint or wallpaper which could be hiding problems underneath
Condensation problems: rotting window frames can be a sign of this. If they are very soft to the touch this means they are rotten. Make sure the bathrooms and kitchen are well ventilated
Woodworm: indicates by holes in woodwork
Structural Problems - Outside
Subsidence: look for big cracks in the walls, a bent chimney stack, or an uneven roofline
Damp: examine for missing roof tiles, and check the brickwork and mortar as cracks can let in damp
Root damage to foundations: if there are any big trees nearby this could cause problems
NB: Inspecting the property yourself does NOT avoid the need for a professional survey
Freehold or Leasehold
All properties in England and Wales are either freehold or leasehold.
Freehold
This means that you fully own the property. As a freeholder you will have full responsibility for the maintenance and repairs of the property.
Leasehold
This means that you own the property for as long as is specified in the lease; you are granted the right to live there by the freeholder. At the end of the lease the property again becomes the possession of the freeholder. Many leases are originally granted for up to 999 years, but existing leases on properties are usually shorter. The majority of leasehold properties are flats, although some houses are leasehold.
The lease stipulates who is responsible for maintaining and repairing different parts of the property and any conditions you must meet as a resident. Check these if you are considering buying a leasehold. You must also pay a ground rent to the owner of the land (the freeholder), usually a small amount paid each year. Your solicitor should check that the seller is up to date with ground rent payments before you sign the contract.
You should not buy a property with a lease of less than 60 years, and anyway mortgage lenders are very unlikely to lend for a lease as a short as this. Lenders normally want at least 20 years left on the lease after the end of the mortgage term. As a leaseholder you have the right to extend the lease for 90 years or even to buy the freehold if certain criteria are met, though the application process is expensive and takes a long time. Contact the Leasehold Enfranchisement Advisory Service for more information.
Registered or Unregistered Property
In England and Wales, property can either be 'registered' or 'unregistered'.
If property is registered, the title to the property is registered at the Land Registry and is guaranteed by the state. The owner has a 'Land Certificate' instead of the usual title deeds. Buying registered property is more straightforward than buying unregistered property.
If property is unregistered, ownership is not guaranteed by the state. The title can only be proved by a copy of the title deeds, and your solicitor will check back the property's documentation over at least 15 years to certify it. With unregistered property, disputes over title are not uncommon.
When you buy unregistered property, it must now be registered for the first time with the Land Registry. This will take some time so the buying process will take longer than if you are buying registered property. Your solicitor/conveyancer's fees will probably also be higher.
Buying At Auction
Buying a home at an auction can be cheaper than other traditional routes. The types of properties that come up at auction include those that have been repossessed, are in need of renovation or left empty due to death. They are likely to need a lot of work, but even though a substantial investment is needed to renovate, the low sale cost could mean buying at an auction is cheaper in the long run. There should also be a sales pack full of information about the property, which you will need to pass on to your solicitor a few weeks before the auction. This can be a little expensive as the solicitor will want to make sure the property has no major legal defects before you start bidding and there is no guarantee that you will end up actually securing the winning bid. So it is possible you will have to get a solicitor to investigate a number of properties.
As well as the lower cost another advantage of buying a home at an auction is the transparency of the process. At an auction the other bids are public, so you do not end up bidding more than is necessary.
It is particularly important to make sure when you are buying at auction that you will definitely get any lending required from your mortgage company, so make sure your solicitor and mortgage company are talking to each other before you go along to the auction.
At the end of the auction you will be expected to hand over a 10% deposit with a completion date usually 28 days later (although it may be possible to agree a longer date with the auctioneer beforehand). If you cannot get hold of the remaining sum in time for completion you risk losing your deposit.
Buying At Auction: Step By Step Guide
If you want to buy a property at auction you should follow the following steps.
Get on local auctioneers' mailing lists. Auctioneers can be found through either online searches, or local business directories. They will then send out catalogues of properties, including a guide price and floor plan. Auctioneers also advertise in local newspapers and property websites.
Viewing a property. Call the auctioneers, arrange a viewing and take detailed notes about the scale of renovation that needs to be done before you decide to bid. Contact local builders to get estimates of the work involved.
Finding the money. Due to the speed of the buying process at an auction, you need to ensure you have the money in place before the auction takes place. A successful bid is legally binding the moment the hammer drops. Around 10% of the price is required up front at the auction, with the rest within 28 days. You should not bid at an auction if you have not yet received a mortgage offer or the sale of a home has not been completed. When approaching mortgage lenders it is vital you let them know you intend to buy at an auction.
Get a survey. Your mortgage lender will require a valuation or survey before the auction to verify its guide price. It is advisable to commission a full structural survey for properties in need of a lot of renovation work. Occasionally auctioneers will produce their own pack of information, including a survey, but it is still advisable to commission your own.
Consult with a solicitor before the auction. When buying at an auction much of the conveyancing work takes place before the auction. This includes carrying out checks, such as any legal problems with ownership and planning applications in the area.
Work out how much to bid. It is important to take into account a number of other costs when deciding how much to bid, including building work, solicitors fees, stamp duty and moving costs. Sometimes a bid can be accepted before an auction takes place. This happens when a property is listed as up for auction, "unless previously sold". Selling at an auction incurs fees for the seller and they may prefer to sell beforehand.
Be prepared. Many experts will advise attending a few auctions as a spectator before considering buying at an auction. This will help to familiarise you with the bidding process. When you feel confident to attend an auction to make a bid you will need to make sure you bring: the house details, two documents proving your identity and a banker's draft or building society cheque for 10% of your top price. The auction house will refund any difference if the property sells for less.
The bidding process. When arriving you need to register. Some auctioneers will give a number to hold when making a bid, but in most cases holding up a hand or catalogue is acceptable. Bidding can also take place by telephone, by your solicitor in person and online. Check with the auction house for details about alternative ways to bid. Bidding will start below the guide price and move usually in multiples of £5,000, or £1,000 if bidding slows down. A reserve price will be fixed and if the property fails to meet this it will not be sold. It may be possible to contact the seller directly if this happens to see if you can negotiate a sale afterwards.
Making a successful bid. You will be successful if you are the highest bidder when the auctioneer's hammer falls. Then you will be required to hand over your deposit, proof of identity and solicitor's details and will be given a legally binding contract, with the remaining sum due within 28 days.
Buying At Auction Pitfalls
Buying a repossessed home can present problems. The previous owner may have had bad credit, which by mistake could show up on your records as you are moving into the same address. For a small fee it is worth checking to see if this is the case with a credit referencing agency so that any such mistakes can be corrected.
Make sure any major renovations have planning approval. Many unusual investment opportunities crop up at auctions, such as church or barn conversions. To avoid disappointment it is vital to check the planning status of a property and whether there is planning permission for planned changes. Many properties will already have planning permission, but for those without it is best to check with a planning consultant to see if your plans to create a dream home are likely to be approved.
Dirty tricks, including dummy bids. Beware of malpractice by both the seller and auctioneer. One practice to watch out for is 'bidding against the wall'. Bidding against the wall is where an auctioneer uses the chaos of a packed auction room to invent a bidder so that the price increases. Another dirty trick is for the seller to use a friend to make a 'dummy bid', to inflate the price.
Negotiating
When you have found a home you are happy with, you are nearly ready to make an offer.
Pre-Offer Checklist
Before making an offer, there are a few things you should check:
Keep an eye on the local and national housing market. Check that the house is worth the price you are willing to pay. Have a look at Land Registry reports for houses that have sold in the same area and compare asking prices with actual sale prices. The direction asking prices are heading is a good indicator of the local and national market.
When making comparisons between houses, bear in mind that its value can be increased by factors such as extensions, loft conversions, fitted kitchens, being in a good location, or being a brand new house. Similarly, the value can decrease, for example, because of extensions that fill the whole garden or being in a bad location.
Check whether the property is freehold or leasehold.
Agree what fixtures and fittings will be included. Draw up a list of all items with the seller as this will avoid later confusion.
You can also check things like planning permission, whether there are plans for new developments nearby (roads, new houses etc), and covenants, though these should be looked at by your solicitor later on during conveyancing.
How Much Should I Offer
Remember that properties do not have fixed price tags - you can make substantial savings with a little skilled haggling over the price. It is important to get the opening offer right, as this will play a big part in determining the amount you eventually pay. Normally, the opening is offer is about 5-10% lower than the asking price, and the two parties take this as a starting point for further offers and reductions in asking price until an agreement is reached. Be aware that the asking price is often set high in order to encourage a higher opening offer than would be given with a lower asking price, and you are expected to negotiate.
The negotiation will be affected by various factors, and you will do better if you take these into account:
How many other people are interested in the same property. If you are the only one, you are in a strong negotiating position and the seller is likely to accept a lower price. If there are two or more parties making offers, the seller and their agent will be far tougher during negotiations and you may be sensible to offer the asking price.
How quickly the seller needs to sell. If they need to sell quickly, they will be more likely to accept a lower sum than the asking price.
How long the house has been on the market. If the seller is having difficulty selling the house, they are more likely to accept a lower price. Check whether the asking price has dropped since it went on the market.
What season it is. Demand for houses is higher in spring and summer so prices will be slightly higher at these times of year.
Your own position will also affect the negotiation. A couple of factors could be to your advantage:
Are you part of a chain of sales? If not, the seller can be more certain that everything will be completed on time. First time buyers, people who have already sold or exchanged contracts on their own property and people who have nothing to sell all have this advantage.
Can you show the seller that you can borrow enough money to buy the property? It is a good idea to get a written agreement in principle from a mortgage lender to show the seller that you will have enough money to pay them. This demonstrates that you are serious about buying and that the process will be able to take place quickly once you have both agreed on the sale.
Remember, if you don't think the property is worth as much as is being asked, you can introduce this into negotiations. For example, if some repair work is needed and you think this should bring the price down, you can try to persuade the seller that the property is overpriced.
Negotiating Tips
Negotiation is a skill which pays. Here are a few ways you can become a better negotiator:
Make sure you know what you are talking about and show you know it. Let everybody know that you have viewed plenty of homes, and that you understand the property market and how much the home should be worth. Asking well-informed questions is one way of showing you are not a customer who can be easily conned.
Keep cool and don't look overly keen. If the seller sees how much you are in love with a home, they know you will be willing to pay more. Play a bit hard to get, and make sure they know you have seen a lot of houses. Don't rush into making an offer; take the time to think about it.
Stay polite, however stressed or angry you feel. Aggression will not get you anywhere. Remember that if a seller has two equal offers, they will probably go for the buyers with whom they are on good terms.
It is best to negotiate in person, not over the phone. This way you can better gauge the other person's reactions to what you say and respond accordingly.
Estate agents are hard-nosed professional negotiators - be prepared for their ruthless bargaining tactics and don't let yourself be bullied. Take what they say with a pinch of salt, and try to look and feel confident.
It can be worth contacting the seller directly, and there is nothing to stop you from doing so. Just remember they might be even tougher than the agent.
While it is good to play it cool, don't be overly cautious or evasive, especially if you know the seller has received other offers or needs to sell very quickly. Assess your own and the seller's positions and act accordingly - if your position is not that strong, worrying over a relatively small sum of money could lose you your dream home.
If you are buying a new build, the site sales agents are often commission driven. You may find that they are receptive to lower offers or requirements of a superior fit-out at the end of the month, when they are particularly keen to close deals.
Negotiating In A House Pricing Slump
Home buyers are in a prime position when house prices are tumbling or when there is a property market crash. Sellers are prepared to take lower offers and there is a greater choice of properties. These top tips will help ensure buyers take advantage of a buyers' market.
Do your homework. Find out as much as possible about the property and the sellers. At viewings ask questions. Why are the owners selling? What are their timescales? Do they need to sell quickly? Perhaps also ask other estate agents about the property. There may be hidden stories surrounding the reasons for the sale that can significantly enhance your chances of getting a lower price.
Don't get too attached to one property. Desperately wanting one property puts negotiating power back in the hands of the seller. Have a handful of properties in mind and make sure the seller and their agent knows you have a number of options.
Find out more about the price. Asking prices can be way above the amount a seller will accept when house prices are tumbling nationwide. Ask the agent and the seller to justify the price. How is it based? Probing questions can undermine the seller's confidence in their asking price.
Time is on your side. Don't be bullied into making a decision. In a house price slump or property market crash, buyers have the chance to play the long game. Make a number of viewings before making an offer. This builds a relationship and makes the seller want you more. Negotiating begins as soon as you view a property not when the first offer is made.
Look for discounts. If the seller still wants more than your offer consider asking for discounts or other incentives. These could include paying stamp duty or for new carpets and fittings.
Negotiating In A Boom
When prices rocket so does the power of the home seller in the housing market. At its peak a house price boom can mean offers are accepted on properties within hours of coming onto the market. It is a time when asking prices are not just met but often exceeded in the best areas. It is a time buyers dread.
These tips will help buyers make the best of negotiating during a house price boom:
Analyse the local market. The house price boom could be mixed. While in some areas, certain properties could be flying off estate agents' shelves, in other areas buyers could still find trouble selling. Find out the areas where prices are still low. Perhaps there are too many flats for sale. If so consider a flat instead of a house.
Avoid sealed envelopes and bidding wars. During a sellers' market estate agents will try a number of tricks to make sure their clients gain the maximum benefit from a house price boom. These include joint viewings to heighten the atmosphere of competition. The worst case scenario is a sealed envelope process, where a number of buyers make an offer that they think will seal the deal. This can often end up way over the asking price.
Build relationships. In a sellers' market a buyer has to stand out. Not just in terms of being able to meet an asking price, but to appear more favourable to the seller. First time buyers and those who have already sold a home are attractive to a seller. They speed up a sale and by not being in a chain the risk of a deal falling through is reduced.
Be prepared for disappointment. It is important not to pin your hopes on one property.
Stick to your guns. Don't be tempted to borrow more than you can afford. Set yourself a maximum figure you can go to and stick to it. During a house price boom many people can take on too much debt.
Consider buying at an auction, where prices can be cheaper. However Be prepared to carry out a good deal of work on a home bought at an auction, as homes that come up are often in need of renovation.
Remember, prices will not go up forever.
The Offer
Once your offer has been accepted, it must be made formally, in writing, and subject to certain terms and conditions. Ensure that the agent and seller understand the terms of your offer.
Your offer must be "subject to contract and to survey". This means that you are not legally bound to proceed until a survey has been satisfactorily completed and signed contracts have been exchanged. This is very important.
Specify what fixtures and fittings you want to be included, and what work on the property you want to be undertaken before the sale has gone through.
It is a good idea to demand that the property be taken off the market as soon as your offer has been accepted, to avoid the danger of gazumping. Putting down a deposit as an act of good will can help to show your good intentions.
Valuations and Surveys
Both you and your mortgage lender need to know whether the property is actually worth the amount of money you have agreed to fork out for it. As well as what is known as the basic valuation, there are two main types of survey: the homebuyer's report and the buildings survey (also known as the full structural survey). All lenders require a basic valuation, but is strongly advised that you also have an independent, more detailed survey carried out as the basic valuation will only show up any obvious problems that you will probably have noticed yourself. The level of survey you need depends a lot on the individual property you are buying.
Is a Survey Really Necessary?
Surveys are expensive. You already have to pay for a basic valuation for your lender, and you may be tempted to risk not to bother with any closer examination of the property by professionals. Certainly you can look it over yourself and this can give you some idea of its condition, but there is no doubt that a trained eye will show you all the problems which you would not pick up on. A survey might seem to cost a lot at the time, but you will kick yourself if you have to pay out thousands of pounds later on for major repairs of faults you didn't know about when you bought it. If major defects are uncovered you might even think again about your purchase, or you could be in a position to renegotiate the price. A home is a massive investment and it is worth paying a few hundred pounds for a survey at this stage as it could save you much bigger sums, and lots of hassle, later on. If problems do appear later on which the surveyor did not point out, you may be able to claim compensation.
Basic Valuation
All lenders require a basic valuation. They need to know that they are not lending you more than the property is worth, and that if you sell it off you will get at least as much money back as you paid for it. Although this is often referred to as a survey, it is really too superficial to merit this title.
The valuer arrives at a value by comparing the property with similar ones, taking factors such as age, condition and location into account. The valuation also points out any very obvious major faults which could affect the property's value, but is very brief and is not nearly as detailed as a real survey.
The basic valuation is commissioned by your mortgage lender, and is for their benefit, but unfortunately it is you who must pay for it. If the house is valued lower than the purchase price then your mortgage offer may be withdrawn, or offered on the condition that specified work is carried out on it first. If it does reveal that the house is worth less than the price you have agreed to pay for it, you may be able to renegotiate the price, but first double-check with the surveyor how the value given was reached, and that he or she is certain you are paying too much.
The basic valuation takes about half an hour, and costs between around £100 and £300, depending on the price of the house. Some mortgage lenders waive the fee for the basic valuation as part of a package to attract your custom.
RICS Homebuyer Report
The RICS (Royal Institution of Chartered Surveyors) introduced the new RICS HomeBuyer Report (HBR) in July 2009. Initially this ran alongside the previous RICS Homebuyer Survey and Valuation (HSV) which had been in use for a number of years. The HSV was phased out in March 2010 and the new HomeBuyer Report became the only one that was licensed by the RICS.
The report was quite a radical departure from earlier formats and was developed following considerable market research and feedback from the general public. It was designed to be a user-friendly report with the minimum of technical jargon. The most significant change was the introduction of colour coded Condition Ratings usually referred to as the 'Traffic Lights System'. The surveyor must rate each element of the property using one of the following Condition Ratings.
Condition Rating 1 (green) - No repair is currently needed. The property must be maintained in the normal way.
Condition Rating 2 (amber) - Defects that need repairing or replacing but are not considered to be either serious or urgent. The property must be maintained in the normal way.
Condition Rating 3 (red) - Defects that are serious and/or need to be repaired, replaced or investigated urgently.
The report is now quite lengthy, usually in the region of 25 pages, but it is divided into easily readable and logical sections as follows:-
A. Introduction to the report
B. About the inspection
C. Overall opinion and summary of the condition ratings
D. About the property
E. Outside the property
F. Inside the property
G. Services
H. Grounds (including shared areas for flats)
I. Issues for your legal advisers
J. Risks
K. Valuation
L. Surveyor's declaration
The report will also include a number of appendices which provide useful information about what the purchaser needs to do next and, particularly in the case of leasehold properties, any enquiries that legal advisers need to make prior to exchange of contracts. The new format also allows the surveyor to add photographs to the report.
Section C is particularly useful to the buyer as it gives an overview of the Condition Ratings for each element of the building and includes a fairly concise section giving the surveyor's overall opinion of the property. This will include a comment as to whether or not the surveyor considers the agreed purchase price to be reasonable. Normally this will be the section that the client turns to first.
Section D includes a brief section related to energy efficiency and will include reference to the Energy Performance Certificate that must be prepared before a property is marketed.
Section G will give an overview of the condition of the services based on a visual inspection. However, the surveyor will not test the services. If the property is vacant the services may have been turned off or disconnected. The surveyor will generally not be able to turn services on unless the vendor is present and is able to turn them on for him/her. The surveyor will recommend further investigations if these are considered appropriate. Often it will be necessary to have the gas, electric and central heating systems tested in older properties.
Section J is a new element of the report and is used to identify risks to the building, grounds or occupants. This could cover such problems as potential flooding, the presence of asbestos based materials, an unprotected pond that could be a danger to small children or lack of safety glazing to doors.
The feedback received to date indicates that the new Homebuyer Report has been well received by the general public and that the Condition Rating System, in particular, is considered to be very helpful to potential purchasers.
The RICS also offer a product called a 'Condition Report'. This is a simplified version of the Homebuyer Report and includes many of the elements discussed above, including the 'Traffic Lights System' for flagging up defects. The Condition Report does not, however, include a Valuation or advice on future repairs and maintenance. The Condition Report can be commissioned by vendors, prior to putting their property on the market, to prevent unforeseen issues cropping up when their potential purchaser has a mortgage valuation or survey carried out.
Building Survey
This is the most comprehensive - and the most costly - type of survey. It is suitable for any building, but is especially recommended for older buildings (75 years and upwards); those constructed out of unconventional materials such as timber or thatch; and properties which have had lots of alterations or extensions, or which you intend to alter or renovate.
The surveyor will check the property thoroughly, looking at everything that is visible or easily accessible to examine the soundness of the structure, its general condition and all major or minor faults. More specialist surveys can also be carried out on aspects such as foundations, damp proofing, or tree roots, either by a specialist within the firm of surveyors or by an independent specialist surveyor.
The report you receive will be extremely thorough and very long, as surveyors are legally obliged to inform you of all the findings of the survey. Don't necessarily be put off if it seems that endless defects are listed - every house has some defects and surveyors tend to show the worst-case scenario for anything they discover. You should be provided with a list of prices for repairs and maintenance work, which will also tend to over- rather than under-estimate prices.
A full structural survey normally takes much longer than the one or two hours required for the homebuyer's report. The survey report can also take a long time to produce, so this is a much lengthier process than for a homebuyer's report. You will probably have to wait up to two weeks after the inspection for the report, for which there is no standardised reporting format. A buildings survey costs anything up to £1,000, again, depending on the price of the house.
CONTINUE READING ON 'BUYING A HOUSE IN ENGLAND AND WALES - PART 2'
You have decided to buy a home - but what next? The maze of legal work, negotiations, dealing with surveyors and solicitors, finding a good mortgage deal and worrying about your deal falling through, on top of actually hunting down the home of your dreams, is enough to make anyone's hair stand on end.
Buying a house is one of the biggest financial decisions that you will make in your life. It is a lengthy and complicated business, which while exciting is often fraught with stress and worry. But luckily there is a lot of good advice around helping you to make your home-buying experience as easy and problem-free as possible.
After finding a home you like, which can take anything from a few days to many months, the process from having your offer accepted to completion of the sale takes about 12 weeks. This is about twice as long as in many other countries - home-buying in Britain is a notoriously drawn-out business.
It is important to have a good understanding of the process as it will help you to avoid some of the most common hazards of home-buying. We have prepared an introduction to the home-buying process to help you to understand how it all works, how to plan it and what to watch out for. After reading this you should have a better idea of what to expect and how to set out to buy a home feeling prepared and ready to go!
The Buying Process: A Step-by-Step Guide
We will cover the main stages you will go through when buying a home.
1.Work Out How Much You Can Afford
2.Get a Mortgage Agreement in Principle
3.Choose Your Home
4.Hire a Solicitor
5.Make an Offer
6.Have a Survey and Valuation Done
7.Do Any Necessary Legal Work
8.Arrange for Life Assurance
9.Finalise Your Mortgage
10.Exchange Contracts
11.Organise Your Move
12.Finalise Your Contract Details
13.Move In!
Before You Begin...
Note that the information on this site applies to buying a house in England and Wales. The process is different in Scotland.
How Much Can You Afford?
You have decided that you are buying a property, but exactly how much can you afford? On top of the cost of the house itself, there are many other, one-off expenses involved in buying a home and moving which can tot up to between £2,000 - £5,000. In order to get a good idea of what sort of homes you can realistically hope to buy, you also need to take these extra costs into account. To help you do your sums, here is a guide to working out how much money you have to spend and what the costs are. Take particular care with stamp duty land tax as, with the recent inflation of property prices, for properties over £250,000 this has become a major consideration.
Calculating Your Price Range
You need to work out:
1.The amount you will get from the sale of any current home
2.The amount you can borrow
3.The amount you have in savings or investments which you can use
4.Once you have done this, work out how much the other one-off costs of buying and moving will add up to
5.Deduct this sum (4) from the total sum of 1, 2 and 3 and you will have a rough estimate of the kind of price range you are looking at
How Much Should You Borrow
Before looking at properties, you should consult a lender or mortgage adviser as to what your maximum possible loan would be. This will be based on the size of your deposit and how much you earn.
All buyers need to put down a deposit on the property - a mortgage lender will rarely pay the whole price of the property. You should try to put down at least 5 per cent of the value of the home as a deposit, and more if possible. The smaller the deposit you put down, the more your lender will charge you for the extra risk. Most mortgage lenders charge a 'mortgage indemnity guarantee fee' (MIG), or a fee for loaning a higher percentage of the value, on bigger loans. If you do not have enough money for the deposit, for example if your house is not sold yet, it is possible to get a 'bridging loan' from your bank, which will be repayable on the sale of your house.
Lenders will usually lend up to three times the size of your annual income, though some will lend up to four times your income. If you are buying as a couple, this increases to either three times the first income plus one year of the second income, or two-and-a-half times your joint income. Work out which way would allow you a higher loan and find a mortgage with which you can get a joint income allowance which suits you. Your lender may contact your employer to confirm your income, or if you are self-employed and taking out a self-cert deal you may have to supply proof of your income.
The credit crunch that started in 2007 changed the face of mortgage lending. This squeezed the amount banks and lenders could borrow and made them less likely to take risks.
Deals for those with small deposits, such as 100 per cent mortgages, were commonplace prior to 2007 but have become increasingly rare.
The key to successfully gaining a mortgage approval is not only having a large deposit but also being a low risk level in the eyes of lenders. Check your credit score through credit referencing agencies. Make sure any missed payments you may have forgotten about are addressed.
The One Off Costs
Arrangement Fee
A fee charged by lenders to cover the cost of setting up the mortgage. Some lenders waive this fee.
Lender's Valuation (Basic Valuation)
All lenders require a valuation of the property to check that it is worth the price being paid for it. This is commissioned by the mortgage lender but you must cover the cost. The cost of the valuation depends on the value of the property - for example, allow about £125 for a property worth £50,000, £165 for a £100,000 house and so on. Some lenders do not charge this fee, as an incentive for you to take out a mortgage with them.
Survey
It is strongly advised that you have your own independent, more detailed survey carried out to check for any defects. There are three types of survey: the Valuation usually carried out for the Lender (see above); the Homebuyer's Report which costs between £250 and £500; and the more comprehensive Building Survey (Structural Survey) which can cost anything up to £1,000 plus VAT, depending on the value of the house. You should also consider having newly built properties surveyed, although the condition of new properties is guaranteed by the builder, it is much safer to get any snagging carried out before you move in, or while you can retain money against outstanding works. The alternative of claiming from the builder afterwards can be a painful experience.
Legal/Conveyancing Fees
You will need to hire a solicitor to deal with the legal aspects of buying a property. There is no standard fee so it is a good idea to shop around for the best rate. Some solicitors charge a flat rate while others charge a percentage of the property price, normally up to half a percent. As well as the price of your house, the fee will take into account factors such as the amount of paperwork involved, how much skill is required and how complicated the transaction is.
You will also have to pay for the legal work done by your lender's solicitor. Again, prices vary so ask your lender how much they charge. If you use the same solicitor as the lender to do your conveyancing this may save you money, but compare charges with other firms.
Stamp Duty
Stamp duty is a tax, charged for properties above £125,000. If your new home is priced between £125,000 and £250,000, you will pay 1% of the property price. From £250,000 to £500,000, it will be 3% and over £500,000 it will be 4%. So, for example, if you are paying £200,000 for your home you pay £2,000 in stamp duty. For a £300,000 property the stamp duty at 3% is much higher in proportion to the purchase cost (£9,000).
Stamp Duty Land Tax Exemption in 'Disadvantaged Areas'
If you're buying a residential property in an area designated by the government as 'disadvantaged', you don't pay any Stamp Duty Land Tax if the purchase price is £150,000 or less. To find out more about Stamp Duty Land Tax and how you pay it, please see the HM Revenue & Customs article Tax on Buying Property.
Land Registry Fee
The Land Registry is a government department which looks after the registers of all registered properties in England and Wales. It charges a fee for transferring the register to the new owner. This fee is charged according to property price.
Price (£) Fee (£)
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
Local Authority Search Fees
Local searches will be carried out by your solicitor/conveyancer to ensure that there are no potential problems such as planning permission on neighbouring properties or plans for new roads nearby. Allow at least £60, or more in London boroughs.
Other Search Fees and Disbursements
These include index map, commons, the coal authority, land charge, company searches, bank transfer fees. Allow about £70 to cover an average house purchase.
Estate Agent's Commission
If you're selling your property as well as buying one, the sum charged by your estate agent has to be taken into account. Usually this is charged as a percentage of the property price, around 1.5 - 2 per cent on average. If you are selling it yourself, you will need to pay for advertisements.
House-hunting Expenses
House-hunting itself can be a costly business - allow money for eating out, travel and telephone calls, and hotels if you are buying in a different area. Consider whether you will need time off work.
Removal Fees
Ask for quotes from at least 3 different removal firms, as prices vary. Remember you will need to give tips. You can do the removal yourself, but this is much more time-consuming and inconvenient. If you are DIY-ing it, costs will include van hire (+VAT and insurance), petrol, and return travel from the van hire company when you return it. You will also need about £25 for insurance.
MIG Fees (mortgage indemnity guarantee)
This is an insurance premium charged by some lenders where your loan amount is more than 75% of the price of the property - in other words, where the loan to value (LTV) is greater than 75%. Other lenders do not charge an MIG, while some only charge when the LTV is more than 80 or 90%.
This is charged in case you default on your mortgage repayments and the mortgage lender cannot recover its money. Note that this protects the lender, not you.
Costs vary from lender to lender but typical MIG premiums are:
4 per cent of the amount borrowed above 75 per cent on a loan of up to 90 per cent of the purchase price
6 per cent of the amount borrowed above 75 per cent on a loan of up to 90-95 per cent of the purchase price
8 per cent of the amount borrowed above 75 per cent on a loan of up to 95-100 per cent of the purchase price
Other Costs
A few more to bear in mind:
Buildings insurance premiums
Contents insurance premiums
Additional removal insurance
Disconnection of services (water, gas, electricity, telephone)
Reconnection of services
Installation of new equipment
Carpet laying
Kennelling of pets
Mail redirection
Change of address notice
Contingency Fund
Leave a decent-sized contingency fund for emergencies. You do not want to be left completely penniless in case you have unexpected extra costs.
Choose Your Home
Looking for a new home is a time-consuming process, and it is tempting just to rush into buying the first one you like the look of. But watch out, as it will not be so easy to take back to the shop if you decide you don't like it after you have moved in. Once you have decided to buy a house and found out how much you can afford, it is worth sitting down and thinking hard about what you want from your new home and what your needs are. We have made a list of some of the things you should consider when house hunting.
Choose A Neighbourhood
Location, location, location
It is important to research a particular area before viewing lots of homes or making an offer on a house there. If you decide it is not the kind of neighbourhood you would enjoy living in, then you could save yourself a lot of time and effort by doing so early on in the process. Even if you can get a bigger home for your money in an area which isn't so nice, make sure you really are doing the right thing. Remember that you can always make changes to a house but not to the neighbourhood.
What is the neighbourhood like? Is it the kind of place you can imagine yourself feeling comfortable in? Who lives there?
What kind of amenities are there locally? Check out the leisure facilities, activities for kids, shops, public transport and so on.
If you have children, look at the local schools. Do they have a good reputation? Where do they stand in the league tables?
What is the level of crime in the neighbourhood? Check crime reports in the local newspaper or crime statistics online, such as those supplied by the Home Office.
How easy is it to reach your workplace?
What council tax band will you be in?
Will you have enough car parking space?
What kind of condition are the other houses in your street in? If they are in a state of disrepair, or look as if they are falling into one, it could bring down the value of your property.
Simply touring the area can give you a good idea of what it is like. There are also some good sites on the internet where you can research different areas and what is available there. Gentrification is a key indicator of an area which is improving and where house prices are more likely to go up. Key signs of gentrification include an abundance of cafes and trendy home design shops. Another sign of a good area to invest in is one with a lot of interest from property developers. Find out if any new flats and homes are being built. Local newspapers and council websites are a good source of information about planning activity, as well as information about local schools.
Choose A House
Do you want a new or an older house? If you are buying a very old one make sure you have looked into what this can entail. Old houses can look lovely but cost a lot to keep up in terms of maintenance and heating bills. Newly-built homes can also have drawbacks, such as higher prices than 'second-hand' ones, and the requirement to buy before they are fully built, but advantages include less maintenance and decoration costs, and often complimentary extras thrown in by the builders such as carpets, curtains and fitted kitchens (though you will not necessarily get to choose your own decorations). Remember new builds can be poorly built too, and you should consider a proper survey. There are additional guarantees for newly built homes under the NHBC guarantee scheme, but you do not want to have to call on these guarantees. It is far better to have any outstanding works (or 'snagging') dealt with before you move in.
Do you want a terraced, semi-detached or detached house, or a flat? If you want a flat, do you want a purpose-built one or a conversion? All have their advantages and disadvantages: consider space, privacy, noise, parking and character. How much does each one matter to you?
How much decorating or improvement do you wish to make to a property?
Do you want a leasehold or freehold property?
Viewing The Property
Key Tips
Once you have found a property you feel you like, make sure you learn as much as possible about it. Even if it seems perfect at first glance, try to think about it from all angles. And write everything down - the best house-hunters take notes on each property they view which they can compare later. Make at least two visits. View the house in the daylight and at night. Come at rush hour, as you could get a nasty surprise - is the road used as a short-cut by motorists?
General Condition
Check what fixtures and fittings will be left by the previous owner
Consider the layout of the house - are there any unusual shaped rooms that it would be difficult to fit furniture or appliances into? Are there are enough power points?
Don't be put off by the seller's choice of décor - try to imagine the house with your own furniture and style
State of Repair
Insulation: is the roof well-insulated? Go into the loft and turn off the light - you shouldn't be able to see any patches of day-light. Is there wall-cavity insulation?
Central Heating: is the central heating system efficient? How old is it? Is it gas or electricity-powered? Ask to see a winter heating bill as this can help give an idea about the quality of insulation
Plumbing: Are the pipes and the boiler lagged? How old is the piping? Lead piping will need replacing
Plug sockets: How old are they? If they are the old-fashioned, round-pin type, re-wiring will probably be required
Structural Problems - Inside
Subsidence: look for cracks in ceilings and walls, doors that stick or don't hang correctly
Damp: You can smell damp, so use your nose. Mould, walls which are damp to the touch, flaking paintwork or wallpaper which is peeling off are also signs of damp. Be wary of new paint or wallpaper which could be hiding problems underneath
Condensation problems: rotting window frames can be a sign of this. If they are very soft to the touch this means they are rotten. Make sure the bathrooms and kitchen are well ventilated
Woodworm: indicates by holes in woodwork
Structural Problems - Outside
Subsidence: look for big cracks in the walls, a bent chimney stack, or an uneven roofline
Damp: examine for missing roof tiles, and check the brickwork and mortar as cracks can let in damp
Root damage to foundations: if there are any big trees nearby this could cause problems
NB: Inspecting the property yourself does NOT avoid the need for a professional survey
Freehold or Leasehold
All properties in England and Wales are either freehold or leasehold.
Freehold
This means that you fully own the property. As a freeholder you will have full responsibility for the maintenance and repairs of the property.
Leasehold
This means that you own the property for as long as is specified in the lease; you are granted the right to live there by the freeholder. At the end of the lease the property again becomes the possession of the freeholder. Many leases are originally granted for up to 999 years, but existing leases on properties are usually shorter. The majority of leasehold properties are flats, although some houses are leasehold.
The lease stipulates who is responsible for maintaining and repairing different parts of the property and any conditions you must meet as a resident. Check these if you are considering buying a leasehold. You must also pay a ground rent to the owner of the land (the freeholder), usually a small amount paid each year. Your solicitor should check that the seller is up to date with ground rent payments before you sign the contract.
You should not buy a property with a lease of less than 60 years, and anyway mortgage lenders are very unlikely to lend for a lease as a short as this. Lenders normally want at least 20 years left on the lease after the end of the mortgage term. As a leaseholder you have the right to extend the lease for 90 years or even to buy the freehold if certain criteria are met, though the application process is expensive and takes a long time. Contact the Leasehold Enfranchisement Advisory Service for more information.
Registered or Unregistered Property
In England and Wales, property can either be 'registered' or 'unregistered'.
If property is registered, the title to the property is registered at the Land Registry and is guaranteed by the state. The owner has a 'Land Certificate' instead of the usual title deeds. Buying registered property is more straightforward than buying unregistered property.
If property is unregistered, ownership is not guaranteed by the state. The title can only be proved by a copy of the title deeds, and your solicitor will check back the property's documentation over at least 15 years to certify it. With unregistered property, disputes over title are not uncommon.
When you buy unregistered property, it must now be registered for the first time with the Land Registry. This will take some time so the buying process will take longer than if you are buying registered property. Your solicitor/conveyancer's fees will probably also be higher.
Buying At Auction
Buying a home at an auction can be cheaper than other traditional routes. The types of properties that come up at auction include those that have been repossessed, are in need of renovation or left empty due to death. They are likely to need a lot of work, but even though a substantial investment is needed to renovate, the low sale cost could mean buying at an auction is cheaper in the long run. There should also be a sales pack full of information about the property, which you will need to pass on to your solicitor a few weeks before the auction. This can be a little expensive as the solicitor will want to make sure the property has no major legal defects before you start bidding and there is no guarantee that you will end up actually securing the winning bid. So it is possible you will have to get a solicitor to investigate a number of properties.
As well as the lower cost another advantage of buying a home at an auction is the transparency of the process. At an auction the other bids are public, so you do not end up bidding more than is necessary.
It is particularly important to make sure when you are buying at auction that you will definitely get any lending required from your mortgage company, so make sure your solicitor and mortgage company are talking to each other before you go along to the auction.
At the end of the auction you will be expected to hand over a 10% deposit with a completion date usually 28 days later (although it may be possible to agree a longer date with the auctioneer beforehand). If you cannot get hold of the remaining sum in time for completion you risk losing your deposit.
Buying At Auction: Step By Step Guide
If you want to buy a property at auction you should follow the following steps.
Get on local auctioneers' mailing lists. Auctioneers can be found through either online searches, or local business directories. They will then send out catalogues of properties, including a guide price and floor plan. Auctioneers also advertise in local newspapers and property websites.
Viewing a property. Call the auctioneers, arrange a viewing and take detailed notes about the scale of renovation that needs to be done before you decide to bid. Contact local builders to get estimates of the work involved.
Finding the money. Due to the speed of the buying process at an auction, you need to ensure you have the money in place before the auction takes place. A successful bid is legally binding the moment the hammer drops. Around 10% of the price is required up front at the auction, with the rest within 28 days. You should not bid at an auction if you have not yet received a mortgage offer or the sale of a home has not been completed. When approaching mortgage lenders it is vital you let them know you intend to buy at an auction.
Get a survey. Your mortgage lender will require a valuation or survey before the auction to verify its guide price. It is advisable to commission a full structural survey for properties in need of a lot of renovation work. Occasionally auctioneers will produce their own pack of information, including a survey, but it is still advisable to commission your own.
Consult with a solicitor before the auction. When buying at an auction much of the conveyancing work takes place before the auction. This includes carrying out checks, such as any legal problems with ownership and planning applications in the area.
Work out how much to bid. It is important to take into account a number of other costs when deciding how much to bid, including building work, solicitors fees, stamp duty and moving costs. Sometimes a bid can be accepted before an auction takes place. This happens when a property is listed as up for auction, "unless previously sold". Selling at an auction incurs fees for the seller and they may prefer to sell beforehand.
Be prepared. Many experts will advise attending a few auctions as a spectator before considering buying at an auction. This will help to familiarise you with the bidding process. When you feel confident to attend an auction to make a bid you will need to make sure you bring: the house details, two documents proving your identity and a banker's draft or building society cheque for 10% of your top price. The auction house will refund any difference if the property sells for less.
The bidding process. When arriving you need to register. Some auctioneers will give a number to hold when making a bid, but in most cases holding up a hand or catalogue is acceptable. Bidding can also take place by telephone, by your solicitor in person and online. Check with the auction house for details about alternative ways to bid. Bidding will start below the guide price and move usually in multiples of £5,000, or £1,000 if bidding slows down. A reserve price will be fixed and if the property fails to meet this it will not be sold. It may be possible to contact the seller directly if this happens to see if you can negotiate a sale afterwards.
Making a successful bid. You will be successful if you are the highest bidder when the auctioneer's hammer falls. Then you will be required to hand over your deposit, proof of identity and solicitor's details and will be given a legally binding contract, with the remaining sum due within 28 days.
Buying At Auction Pitfalls
Buying a repossessed home can present problems. The previous owner may have had bad credit, which by mistake could show up on your records as you are moving into the same address. For a small fee it is worth checking to see if this is the case with a credit referencing agency so that any such mistakes can be corrected.
Make sure any major renovations have planning approval. Many unusual investment opportunities crop up at auctions, such as church or barn conversions. To avoid disappointment it is vital to check the planning status of a property and whether there is planning permission for planned changes. Many properties will already have planning permission, but for those without it is best to check with a planning consultant to see if your plans to create a dream home are likely to be approved.
Dirty tricks, including dummy bids. Beware of malpractice by both the seller and auctioneer. One practice to watch out for is 'bidding against the wall'. Bidding against the wall is where an auctioneer uses the chaos of a packed auction room to invent a bidder so that the price increases. Another dirty trick is for the seller to use a friend to make a 'dummy bid', to inflate the price.
Negotiating
When you have found a home you are happy with, you are nearly ready to make an offer.
Pre-Offer Checklist
Before making an offer, there are a few things you should check:
Keep an eye on the local and national housing market. Check that the house is worth the price you are willing to pay. Have a look at Land Registry reports for houses that have sold in the same area and compare asking prices with actual sale prices. The direction asking prices are heading is a good indicator of the local and national market.
When making comparisons between houses, bear in mind that its value can be increased by factors such as extensions, loft conversions, fitted kitchens, being in a good location, or being a brand new house. Similarly, the value can decrease, for example, because of extensions that fill the whole garden or being in a bad location.
Check whether the property is freehold or leasehold.
Agree what fixtures and fittings will be included. Draw up a list of all items with the seller as this will avoid later confusion.
You can also check things like planning permission, whether there are plans for new developments nearby (roads, new houses etc), and covenants, though these should be looked at by your solicitor later on during conveyancing.
How Much Should I Offer
Remember that properties do not have fixed price tags - you can make substantial savings with a little skilled haggling over the price. It is important to get the opening offer right, as this will play a big part in determining the amount you eventually pay. Normally, the opening is offer is about 5-10% lower than the asking price, and the two parties take this as a starting point for further offers and reductions in asking price until an agreement is reached. Be aware that the asking price is often set high in order to encourage a higher opening offer than would be given with a lower asking price, and you are expected to negotiate.
The negotiation will be affected by various factors, and you will do better if you take these into account:
How many other people are interested in the same property. If you are the only one, you are in a strong negotiating position and the seller is likely to accept a lower price. If there are two or more parties making offers, the seller and their agent will be far tougher during negotiations and you may be sensible to offer the asking price.
How quickly the seller needs to sell. If they need to sell quickly, they will be more likely to accept a lower sum than the asking price.
How long the house has been on the market. If the seller is having difficulty selling the house, they are more likely to accept a lower price. Check whether the asking price has dropped since it went on the market.
What season it is. Demand for houses is higher in spring and summer so prices will be slightly higher at these times of year.
Your own position will also affect the negotiation. A couple of factors could be to your advantage:
Are you part of a chain of sales? If not, the seller can be more certain that everything will be completed on time. First time buyers, people who have already sold or exchanged contracts on their own property and people who have nothing to sell all have this advantage.
Can you show the seller that you can borrow enough money to buy the property? It is a good idea to get a written agreement in principle from a mortgage lender to show the seller that you will have enough money to pay them. This demonstrates that you are serious about buying and that the process will be able to take place quickly once you have both agreed on the sale.
Remember, if you don't think the property is worth as much as is being asked, you can introduce this into negotiations. For example, if some repair work is needed and you think this should bring the price down, you can try to persuade the seller that the property is overpriced.
Negotiating Tips
Negotiation is a skill which pays. Here are a few ways you can become a better negotiator:
Make sure you know what you are talking about and show you know it. Let everybody know that you have viewed plenty of homes, and that you understand the property market and how much the home should be worth. Asking well-informed questions is one way of showing you are not a customer who can be easily conned.
Keep cool and don't look overly keen. If the seller sees how much you are in love with a home, they know you will be willing to pay more. Play a bit hard to get, and make sure they know you have seen a lot of houses. Don't rush into making an offer; take the time to think about it.
Stay polite, however stressed or angry you feel. Aggression will not get you anywhere. Remember that if a seller has two equal offers, they will probably go for the buyers with whom they are on good terms.
It is best to negotiate in person, not over the phone. This way you can better gauge the other person's reactions to what you say and respond accordingly.
Estate agents are hard-nosed professional negotiators - be prepared for their ruthless bargaining tactics and don't let yourself be bullied. Take what they say with a pinch of salt, and try to look and feel confident.
It can be worth contacting the seller directly, and there is nothing to stop you from doing so. Just remember they might be even tougher than the agent.
While it is good to play it cool, don't be overly cautious or evasive, especially if you know the seller has received other offers or needs to sell very quickly. Assess your own and the seller's positions and act accordingly - if your position is not that strong, worrying over a relatively small sum of money could lose you your dream home.
If you are buying a new build, the site sales agents are often commission driven. You may find that they are receptive to lower offers or requirements of a superior fit-out at the end of the month, when they are particularly keen to close deals.
Negotiating In A House Pricing Slump
Home buyers are in a prime position when house prices are tumbling or when there is a property market crash. Sellers are prepared to take lower offers and there is a greater choice of properties. These top tips will help ensure buyers take advantage of a buyers' market.
Do your homework. Find out as much as possible about the property and the sellers. At viewings ask questions. Why are the owners selling? What are their timescales? Do they need to sell quickly? Perhaps also ask other estate agents about the property. There may be hidden stories surrounding the reasons for the sale that can significantly enhance your chances of getting a lower price.
Don't get too attached to one property. Desperately wanting one property puts negotiating power back in the hands of the seller. Have a handful of properties in mind and make sure the seller and their agent knows you have a number of options.
Find out more about the price. Asking prices can be way above the amount a seller will accept when house prices are tumbling nationwide. Ask the agent and the seller to justify the price. How is it based? Probing questions can undermine the seller's confidence in their asking price.
Time is on your side. Don't be bullied into making a decision. In a house price slump or property market crash, buyers have the chance to play the long game. Make a number of viewings before making an offer. This builds a relationship and makes the seller want you more. Negotiating begins as soon as you view a property not when the first offer is made.
Look for discounts. If the seller still wants more than your offer consider asking for discounts or other incentives. These could include paying stamp duty or for new carpets and fittings.
Negotiating In A Boom
When prices rocket so does the power of the home seller in the housing market. At its peak a house price boom can mean offers are accepted on properties within hours of coming onto the market. It is a time when asking prices are not just met but often exceeded in the best areas. It is a time buyers dread.
These tips will help buyers make the best of negotiating during a house price boom:
Analyse the local market. The house price boom could be mixed. While in some areas, certain properties could be flying off estate agents' shelves, in other areas buyers could still find trouble selling. Find out the areas where prices are still low. Perhaps there are too many flats for sale. If so consider a flat instead of a house.
Avoid sealed envelopes and bidding wars. During a sellers' market estate agents will try a number of tricks to make sure their clients gain the maximum benefit from a house price boom. These include joint viewings to heighten the atmosphere of competition. The worst case scenario is a sealed envelope process, where a number of buyers make an offer that they think will seal the deal. This can often end up way over the asking price.
Build relationships. In a sellers' market a buyer has to stand out. Not just in terms of being able to meet an asking price, but to appear more favourable to the seller. First time buyers and those who have already sold a home are attractive to a seller. They speed up a sale and by not being in a chain the risk of a deal falling through is reduced.
Be prepared for disappointment. It is important not to pin your hopes on one property.
Stick to your guns. Don't be tempted to borrow more than you can afford. Set yourself a maximum figure you can go to and stick to it. During a house price boom many people can take on too much debt.
Consider buying at an auction, where prices can be cheaper. However Be prepared to carry out a good deal of work on a home bought at an auction, as homes that come up are often in need of renovation.
Remember, prices will not go up forever.
The Offer
Once your offer has been accepted, it must be made formally, in writing, and subject to certain terms and conditions. Ensure that the agent and seller understand the terms of your offer.
Your offer must be "subject to contract and to survey". This means that you are not legally bound to proceed until a survey has been satisfactorily completed and signed contracts have been exchanged. This is very important.
Specify what fixtures and fittings you want to be included, and what work on the property you want to be undertaken before the sale has gone through.
It is a good idea to demand that the property be taken off the market as soon as your offer has been accepted, to avoid the danger of gazumping. Putting down a deposit as an act of good will can help to show your good intentions.
Valuations and Surveys
Both you and your mortgage lender need to know whether the property is actually worth the amount of money you have agreed to fork out for it. As well as what is known as the basic valuation, there are two main types of survey: the homebuyer's report and the buildings survey (also known as the full structural survey). All lenders require a basic valuation, but is strongly advised that you also have an independent, more detailed survey carried out as the basic valuation will only show up any obvious problems that you will probably have noticed yourself. The level of survey you need depends a lot on the individual property you are buying.
Is a Survey Really Necessary?
Surveys are expensive. You already have to pay for a basic valuation for your lender, and you may be tempted to risk not to bother with any closer examination of the property by professionals. Certainly you can look it over yourself and this can give you some idea of its condition, but there is no doubt that a trained eye will show you all the problems which you would not pick up on. A survey might seem to cost a lot at the time, but you will kick yourself if you have to pay out thousands of pounds later on for major repairs of faults you didn't know about when you bought it. If major defects are uncovered you might even think again about your purchase, or you could be in a position to renegotiate the price. A home is a massive investment and it is worth paying a few hundred pounds for a survey at this stage as it could save you much bigger sums, and lots of hassle, later on. If problems do appear later on which the surveyor did not point out, you may be able to claim compensation.
Basic Valuation
All lenders require a basic valuation. They need to know that they are not lending you more than the property is worth, and that if you sell it off you will get at least as much money back as you paid for it. Although this is often referred to as a survey, it is really too superficial to merit this title.
The valuer arrives at a value by comparing the property with similar ones, taking factors such as age, condition and location into account. The valuation also points out any very obvious major faults which could affect the property's value, but is very brief and is not nearly as detailed as a real survey.
The basic valuation is commissioned by your mortgage lender, and is for their benefit, but unfortunately it is you who must pay for it. If the house is valued lower than the purchase price then your mortgage offer may be withdrawn, or offered on the condition that specified work is carried out on it first. If it does reveal that the house is worth less than the price you have agreed to pay for it, you may be able to renegotiate the price, but first double-check with the surveyor how the value given was reached, and that he or she is certain you are paying too much.
The basic valuation takes about half an hour, and costs between around £100 and £300, depending on the price of the house. Some mortgage lenders waive the fee for the basic valuation as part of a package to attract your custom.
RICS Homebuyer Report
The RICS (Royal Institution of Chartered Surveyors) introduced the new RICS HomeBuyer Report (HBR) in July 2009. Initially this ran alongside the previous RICS Homebuyer Survey and Valuation (HSV) which had been in use for a number of years. The HSV was phased out in March 2010 and the new HomeBuyer Report became the only one that was licensed by the RICS.
The report was quite a radical departure from earlier formats and was developed following considerable market research and feedback from the general public. It was designed to be a user-friendly report with the minimum of technical jargon. The most significant change was the introduction of colour coded Condition Ratings usually referred to as the 'Traffic Lights System'. The surveyor must rate each element of the property using one of the following Condition Ratings.
Condition Rating 1 (green) - No repair is currently needed. The property must be maintained in the normal way.
Condition Rating 2 (amber) - Defects that need repairing or replacing but are not considered to be either serious or urgent. The property must be maintained in the normal way.
Condition Rating 3 (red) - Defects that are serious and/or need to be repaired, replaced or investigated urgently.
The report is now quite lengthy, usually in the region of 25 pages, but it is divided into easily readable and logical sections as follows:-
A. Introduction to the report
B. About the inspection
C. Overall opinion and summary of the condition ratings
D. About the property
E. Outside the property
F. Inside the property
G. Services
H. Grounds (including shared areas for flats)
I. Issues for your legal advisers
J. Risks
K. Valuation
L. Surveyor's declaration
The report will also include a number of appendices which provide useful information about what the purchaser needs to do next and, particularly in the case of leasehold properties, any enquiries that legal advisers need to make prior to exchange of contracts. The new format also allows the surveyor to add photographs to the report.
Section C is particularly useful to the buyer as it gives an overview of the Condition Ratings for each element of the building and includes a fairly concise section giving the surveyor's overall opinion of the property. This will include a comment as to whether or not the surveyor considers the agreed purchase price to be reasonable. Normally this will be the section that the client turns to first.
Section D includes a brief section related to energy efficiency and will include reference to the Energy Performance Certificate that must be prepared before a property is marketed.
Section G will give an overview of the condition of the services based on a visual inspection. However, the surveyor will not test the services. If the property is vacant the services may have been turned off or disconnected. The surveyor will generally not be able to turn services on unless the vendor is present and is able to turn them on for him/her. The surveyor will recommend further investigations if these are considered appropriate. Often it will be necessary to have the gas, electric and central heating systems tested in older properties.
Section J is a new element of the report and is used to identify risks to the building, grounds or occupants. This could cover such problems as potential flooding, the presence of asbestos based materials, an unprotected pond that could be a danger to small children or lack of safety glazing to doors.
The feedback received to date indicates that the new Homebuyer Report has been well received by the general public and that the Condition Rating System, in particular, is considered to be very helpful to potential purchasers.
The RICS also offer a product called a 'Condition Report'. This is a simplified version of the Homebuyer Report and includes many of the elements discussed above, including the 'Traffic Lights System' for flagging up defects. The Condition Report does not, however, include a Valuation or advice on future repairs and maintenance. The Condition Report can be commissioned by vendors, prior to putting their property on the market, to prevent unforeseen issues cropping up when their potential purchaser has a mortgage valuation or survey carried out.
Building Survey
This is the most comprehensive - and the most costly - type of survey. It is suitable for any building, but is especially recommended for older buildings (75 years and upwards); those constructed out of unconventional materials such as timber or thatch; and properties which have had lots of alterations or extensions, or which you intend to alter or renovate.
The surveyor will check the property thoroughly, looking at everything that is visible or easily accessible to examine the soundness of the structure, its general condition and all major or minor faults. More specialist surveys can also be carried out on aspects such as foundations, damp proofing, or tree roots, either by a specialist within the firm of surveyors or by an independent specialist surveyor.
The report you receive will be extremely thorough and very long, as surveyors are legally obliged to inform you of all the findings of the survey. Don't necessarily be put off if it seems that endless defects are listed - every house has some defects and surveyors tend to show the worst-case scenario for anything they discover. You should be provided with a list of prices for repairs and maintenance work, which will also tend to over- rather than under-estimate prices.
A full structural survey normally takes much longer than the one or two hours required for the homebuyer's report. The survey report can also take a long time to produce, so this is a much lengthier process than for a homebuyer's report. You will probably have to wait up to two weeks after the inspection for the report, for which there is no standardised reporting format. A buildings survey costs anything up to £1,000, again, depending on the price of the house.
CONTINUE READING ON 'BUYING A HOUSE IN ENGLAND AND WALES - PART 2'
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