Please note that different systems of real estate transaction apply in different parts of Great Britain. This article applies specifically to England and Wales. A different system operates in Scotland.
Buying property in England is not for the faint-hearted. The real estate laws, which seem to come from another era, permit both buyer and seller to re-negotiate or even walk away from deals even after offers have been made and accepted, virtually right up to the last minute.
Why Bother?
Given the warning above one might well ask why bother? Well, if you need to live in England you don’t have much choice.
But there might be another reason. According to government Land Registry figures, real estate prices have more than doubled in the past 6 years (to Oct 2006), and despite recent interest rate increases housing inflation shows no sign of abating.
This is because demand for housing continues to outstrip supply. The U.K. continues to be a high immigration country and more families are getting divorced (creating more households).
Additionally, as affordability becomes harder for first-time buyers coupled with insufficient affordable public-sector rental accommodation, demand is increasing for privately rented housing.
Types of Property The types of property available in England are not dissimilar to those in North America, though the naming differs. Here’s a brief guide to the most common types:
Detached – the house occupies an entire building. Semi-detached (duplex) – a single building consisting of two houses. Terraced (town house) – a number of houses in a row. Bungalow – a single-story house. Flat – apartment. The term apartment is also being used increasingly in England. Flats may be of two kinds: Purpose-built flats were built to be used as flats. Conversions – These exist within large houses that have been converted from single units to a number of flats.
Types of Tenure
Freehold – Mainly relates to houses. The owner owns both the structure and the land it occupies.
Leasehold – Mainly relates to flats. The owner “owns” the structure, but the land is owned by someone else, the “landlord”. Leasehold property is leased for a fixed period, often 99 years. At the end of the lease the property reverts to the landlord. Beware of buying leasehold property with less than 50years remaining on the lease. Often a charge for “ground rent” is payable.
Commonhold – A relatively new form of ownership in which owners of individual flats share the freehold of the entire building (and land). Commonhold properties may employ a professional management company, or may be self-managed by the individual owners. Self-managed properties usually have cheaper management fees, but owners may be expected to “volunteer” for gardening, painting etc, and this can cause friction between owners depending on the proportion of work they feel they undertake.
Arranging Finance
The UK has no shortage of choice of mortgage deals, including a wide variety of investor mortgages (known as “buy to let”). A properly qualified and licensed independent mortgage broker should be able to guide you through the maze.
Before consulting a broker it helps to make some decisions regarding the kind of mortgage you require, eg fixed or variable rate, special features like early repayment or overpayment facility etc.
Choosing a Property
Choosing a property in England is much the same as choosing a property anywhere else. First decide on location, type of property and budget. Create a prioritized list of desirable features. It may also help to get a mortgage agreement in principle (ie the lender will state how much they are prepared to lend you) to show sellers you have the available finance.
Approach all suitable estate agents (realtors) with your requirements. Realtor fees are paid by the seller, so there’s no restriction how many you contact. Many (but not all) agents publish their listings on the Web.
Consider also the growing number of “for sale by owner” Web sites used by sellers wishing to avoid agent’s fees.
Traditionally, the majority of transactions have been handled by agents, but with the growth of the Internet the “for sale by owner” route is set to become increasingly common.
Consider also property auctions. See below for more details on this option.
Take your time to get a feel for the market, particularly if you are unfamiliar with the locality. View several properties, comparing the price and what’s on offer for each. Most importantly check the prices that properties have actually recently sold for. This is a much more accurate indication of market value than the seller’s asking price.
The Purchase Process
The purchase process begins with the making of an offer to the seller. In England offers are often made orally via the estate agent and often don’t include the number of “subject to” statements common in North America, and significantly don’t usually include completion and possession dates!
There may well be some negotiation and counter offers before agreement is reached. In any case all offers to buy should be made “subject to inspection (survey) and contract”.
Inspection
Once an offer is accepted you will probably wish to arrange for a property inspection (survey). Different levels of inspection are available. If you are buying on a mortgage the lender will almost certainly require a valuation to be carried out to protect their capital in the event of default.
The lender’s inspector (surveyor) may also offer to carry out more detailed inspections (at extra cost) or you may wish to shop around or employ an inspector on personal recommendation. Be sure to check their qualifications and professional body memberships.
A valuation merely consists of the inspector’s opinion of the market value of the property. No details are included. A “Home Buyer’s Report” is the next level of inspection. The inspector will make a more detailed inspection of the property and provide a report of around 20 pages highlighting potential problems. The home buyer’s is usually based on a visual inspection coupled with the inspector’s experience and does not carry any guarantee in the event of problems that were not identified.
The most comprehensive inspection is the full structural survey. This does include certain tests and it is possible to sue the inspector in the case of problems found later that should have been identified but were not.
There may also be a need to obtain specialized inspections, eg for electrical or plumbing installations. This need may be highlighted in the general inspection, from information communicated by the seller, or your own observations.
In the light of the inspection(s) results you may decide to go ahead, walk away, or re-negotiate price taking account of necessary repairs.
Renovation (Fixer-Uppers) Be aware that builders and engineers in England don’t come cheap, and are of variable quality and efficiency. If you do decide on professional renovation be sure to get several detailed quotes for each task. Don’t necessarily take the cheapest, instead select the one that will do the best job for the money. Go for an established and experienced tradesman, preferably one that has been personally recommended. Don’t entertain unsolicited canvassers.
Unless you have an aptitude for DIY, or have had recommendations of competent, reputable, and AFFORDABLE professionals, fixer-uppers may be best avoided.
Conveyancing
Conveyancing is the legal process of transferring ownership from seller to buyer. It is conducted by a lawyer (solicitor) or licensed conveyancer.
Most High Street solicitors should be able to carry out this work, but quality of service can vary enormously. Get quotes from several, including details of what they will do fro their fee. As always, personal recommendation is a useful guide.
Many conveyancers work on a fixed fee plus costs of the various “searches” they undertake.
Searches will invariably include a local authority search, which will reveal if any building works are planned that might affect the property concerned. Other searches may be requested as necessary according to the type of property and location.
At some point in the conveyancing process you will receive a report from your lawyer, been completed by the seller, which details all fixtures and fittings that are being included in the purchase (and those which are not) as well as other important information about the property. This form will eventually form part of the contract of sale, so check it carefully.
It helps to choose a local conveyancer so you can call into their office frequently in the event things do not move as quickly as you would like. One disadvantage of the fixed fee system is that lawyers may be inclined to do the bare minimum (since they get paid no more for extras). Keep hassling them until completion is reached.
Once the inspection, searches etc have been completed satisfactorily a draft contract will be issued to buyer and seller formally stating details of the sale. Buyer and seller both sigh identical copies of the same document and return these to their respective lawyers. The lawyers then agree to “exchange contracts”. A deposit (usually 10%) is also payable. It is only at this stage that the completion date will be fixed! It is also only at exchange of contracts that buyer and seller pass the point of no return, or at least leave themselves liable to legal action should they attempt to back out of the deal.
Buying at Auction
Buying at auction can be a means of achieving a quick purchase, and also getting a bargain to boot.
A successful bid at auction constitutes a contract to purchase with no going back by either side, so it is essential to carry out any inspections / legal searches etc ahead of the auction itself. This means of course that unsuccessful bidders will probably have spent significant time and money for no purpose.
Take time to peruse the list of properties coming up for auction, these are published by auctioneers and estate agents or see the Web sites listed below. Make arrangements to view those that seem most likely, then proceed to get an inspection and legal checks done on those you want to bid for.
Tip: visit a few auctions beforehand for a dry run before bidding for a property just to see how things work.
It’s possible that the seller may just want a quick sale, but beware that it’s most often problem properties that end up at auction. These may include re-possessions that have been trashed by evicted former owners, properties in very poor states of repair etc. Be sure to do your homework, and if you intend to bid on a property set a maximum figure to which you will go – and stick to it!
Costs of Purchase
The costs of purchase include the following:
Stamp Duty (tax):
for properties up to £125,000, stamp duty = 0%;
for properties over £125,000 and up to to £250,000, stamp duty = 1%;
for properties over £250,000 to £500,000, stamp duty = 3%;
for properties over £500,000; stamp duty = 4%. Bizarrely the rate quoted is payable on the ENTIRE purchase price, eg a house priced £251,000 is liable for £7,530 stamp duty, whereas one at £250,000 is liable only for £2,500. It follows that it is very well worth negotiating a reduction to take a property just below a stamp duty threshold.
Legal fees – generally consisting of lawyer’s fee plus those of any searches carried out
Land registry fees
Valuation/inspection (survey) fees
Mortgage “arrangement” fees (essentially points, an up-front payment in return for better rates)
Chains
A chain is where you wish to buy a house from Mr A, but Mr A is waiting to buy a house from Mr B, and Mr B is waiting to buy a house from Mr C etc. In view of the late stage of fixing a completion date chains occur all too frequently in English real estate transactions.
The only way to avoid getting caught in a chain is to limit your search to properties listed as “no chain” or “vacant possession” (unoccupied). It is also worth getting your lawyer to confirm this as part of the conveyancing process.
Gazumping and Gazundering
As we’ve already said the English real estate system is fraught with frustration as buyers and sellers may change minds or walk away right up to the last minute. Two common reasons for doing so are “gazumping” and “gazundering”. Though it’s hopes that readers will never encounter them it’s worth defining them here.
Gazumping is where a seller accepts one offer but keeps marketing the property and eventually accepts a higher offer. The maker of the first offer is left out of pocket to the tune of inspections, legal fees, and mortgage fees incurred to date.
Gazundering is where a buyer, having had one offer accepted, subsequently makes a lower offer. This may be genuine, in the light of faults identified on inspection, or may be based upon pure greed arising from the seller’s need to sell quickly.
Home Information Packs
In an attempt to partially address the inefficiencies of the English real estate system the U.K. government has introduced “Home Information Packs” on larger properties from August 2007, with all properties set to follow some time in the future. This means potential sellers have to compile a set of documents providing certain information about the property.
Since Home Information Packs are paid for by the seller it seems likely they will deter those who simply market their home to ascertain its market value. They also give the buyer more information than was previously available before s/he decides to make an offer.
However, since reports are compiled by someone working for the seller, can buyers and their lenders trust the impartiality of the information? Additionally, last minute gazumping, gazundering or other changes of heart will still be permissible.
Costs of Ownership
As well as the costs of purchase it is also necessary to consider the ongoing costs of ownership in assessing the affordability / profitability of a property.
Every property in the U.K. is liable for Council Tax. Each property is allocated to a band (A-H) according to its value in 1991 (this is estimated for newer properties). The amount of council tax is set by each local authority for each band each year. Reductions are available for certain categories of people, eg a 25% discount for single householders, and benefits for those on low incomes.
Flat owners usually have to pay some kind of maintenance / management / service costs. These cover shared expenses eg buildings insurance, communal lighting, gardening etc. These should be identified before agreeing to buy.
Although freehold properties do not attract maintenance changes, the prudent owner will put a sum aside weekly or monthly to cover repairs and maintenance as necessary.
A mortgage lender will generally insist the building is adequately insured to protect their security. Depending on the loan and lender they may also insist upon life insurance, payment protection insurance etc. It is usually advisable to take out contents insurance alongside buildings insurance.