FAQS - Buying
ARTICLES AND FAQS
Some of the things people ask and problems they have, with our comments and answers.
Do I qualify as a First Time Buyer?
It depends for what purpose!
To avoid paying SDLT (Stamp Duty Land Tax) on transactions for no more than £250,000:
- The buyer must use it as his/her main home;
- Complete the purchase before 25 March 2012; and
- The buyer (or if more than one, any of them) must not have owned a property anywhere in the world.
Developers/Housing Associations selling property may have different criteria, and so will many mortgage lenders. They might say that you are a First Time Buyer for their purposes if you do not have a property involved in a related sale or have no mortgage at the moment. Just because you qualify for one of their special deals as a "First Time Buyer" doesn't mean that you will be exempt from SDLT!
In practice as 25th March 2012 is a Sunday, this really means Friday 23rd March. If you are buying a property involved in a chain of transactions , even though we may have done everything that we need to do in order to meet that date, the seller may be buying on and may not want to complete and move out by then. DO NOT JUST ACCEPT WHAT THE ESTATE AGENTS TELL YOU - check the position with the sellers themselves. Have they really thought it through? Are they really prepared to move out even if their onward purchase is not yet ready?
We can never guarantee that we can achieve the date, simply because we are reliant on what others do or don't do, but if we have to give your case high priority at a late stage to try to achieve this date then we may have to charge more!
When should I give notice on my rented?
Until contracts have been exchanged and you are committed to buy and your seller to sell, nothing is certain, so we can never advise you to do this until exchange has taken place. if you don't want to pay rent and mortgage for very long we can try to negotiate a longer than normal period (say 3-4 weeks) between exchange and completion, but we cannot guarantee to be successful in this.
There are lots of things we have to check and it is only when we get the results of the searches and answers to any questions we have had to raise with the seller's solicitors that we can tell you whether there are any outstanding points that will delay things. You also need a mortgage offer and any conditions of the mortgage need to be satisfied.
Even when everything is ready from your point of view, there could be a delay in any chain of transactions above your purchase, or your seller may simply change his mind and decide not to sell!
Can I avoid or reduce Stamp Duty Land Tax?
The Stamp Duty Land Tax (SDLT) Rates are:
- £0 to £125,000 (£150,000 in some "Disadvantaged" Areas) : Nil
- £125,001 (or £150,001 in "Disadvantaged" Areas) to £250,000: 1% or price
- £250,001 to £500,000: 3% of price
- £500,001 and over: 4% of price
There are special rules related to shared ownership leases and people who qualify as "First Time Buyers" do not have to pay on transactions for not more than £250,0000.
Bright ideas like buying the garden separately don't work because they will be treated as "linked transactions" and the prices added together to work out the SDLT.
The commonest way of not paying SDLT or paying a lower rate, e.g. 1% instead of 3% at the £250,000 threshold, is to pay a figure for chattels and fittings on top of the price. This is perfectly legitimate in that such items (but not fixtures - things permanently attached to the property) are not liable to SDLT - you don't pay SDLT on curtains and carpets when you buy them in a shop, do you?
Problem is some people try to be too clever and inflate the price of these items above what is a reasonable second hand value in order to disguise what is in effect a price over a threshold that they would otherwise be paying for the house or flat.. Some things such as white goods will have some sort of second hand market, others won't. As solicitors we cannot have anything to do with defrauding HMRC.
For instance, you are buying and seller wants £260,000 for his house and you offer £250,000 because you want only pay the lower rate of SDLT. Seller comes back with a counter-offer and suggests £250,000 for the house and £5,000 for various items of furniture, white goods, carpets and curtains. The question will then be whether they would be worth £5,000. They might be, but in a typical house this would be stretching credibility. You would need a detailed list of the items with their second hand values, showing the values which would have to be realistically what someone would pay for the items second hand. For some things there isn't much of market - second hand lumps of carpet cut to fit round fireplaces and recesses? Even with a reasonable amount of items anything over about £2,000 in the average house is going to be suspect. There would have to be something like high end Hi-Fi equipment to justify a figure like £5,000.
I am the one getting the mortgage, but we want to buy jointly. That's OK isn't it?
Most lenders (HSBC/First Direct are the main exception) won't lend to just one person if two or more are buying the property. There is a common misconception that as perhaps only one is earning and the loan will be based on his/her earning then he/she alone can be the borrower.
With most lenders they will only lend to the same people who buy (or with a remortgage) already own the property. So if you have an offer for only one of you it would then be necessary to make a fresh application in joint names, with a delay involved, and might mean that a particular mortgage "deal" would no longer be available.
Unless the other person has a bad credit record with County Court judgements etc., most lenders are happy to add other people as borrowers - they may work in the future! So if you want to buy together always apply for a mortgage in joint names.
There are also a lot of things to think about when two or more people buy together and these are explored further on a page about Joint Purchasers.
There is work needed at the property - can I negotiate the price down?
Of course you can, but you need to understand it could affect any mortgage offer. Even if the price on the legal documents stays the same and the seller makes you an "allowance" on completion, we will still have to tell your lender about it as it affects the value of their security. We have to do this as the lender is our client as well as you.
If you are at or near the maximum Loan to Value Ratio for your particular mortgage "deal" your lender may reduce the amount it will lend you. Sometimes we can make it a term of the contract that the seller carries out the required work and you pay the originally agreed price for the property.
My seller is prepared to gift me a 5% deposit. Is this OK?
Unless your lender says it will agree to this, most of the time they will reduce what they lend to a percentage of the price less the "gift", so this is not usually much help to anyone. We have a legal duty to tell the lender about such "gifts". If you do not want us to tell the lender then we have to cease to act both for you and for the lender. Not telling the lender is mortgage fraud.
What is an Energy Performance Certificate?
This is a general assessment of how well a property uses energy. A seller has to commission one for a sale. The graphs, rather like those you might see for a new freezer or other appliance that you might buy, give a general indication as to the efficiency of the heating systems and the ability of the building to retain heat.
At the moment most buyers do not take any real notice of them - they can make common sense conclusions such as that an older house with no double glazing and no central heating will be less efficient than a newer one with these features.
The certificate will take no account of the actual efficiency of some of the appliances as the inspectors cannot check how well they actually work. Boilers, for instance, will be rated in accordance with their type and features, rather than whether or not they work!
Predicted savings by improving things are for an average household with average use, and so are normally quite meaningless.
We've no chain...the sellers are buying but they said they would move out so we could complete quickly... that's OK isn't it?
Where did you get that from? Was this what the estate agents told you or did the sellers say themselves that they would definitely move out to enable you to be in quickly?
It is dangerous to believe what an estate agent tells you about the seller moving out without checking personally with the sellers themselves. Typically the Estate Agent says to the seller something like: "Would you be prepared to move out to enable the sale to go through? Seller thinks for a bit and then says something like "Well,,,,I suppose we might be able to go and stay with my mum for a few weeks...if it really came to it."
Agent hears none of the qualifications and tells buyer sellers definitely moving out when buyer wants. Sellers don't feel any moral obligation to move out because they never said they would in clear terms.
Until contracts are exchanged there is no legal obligation and sellers are within their rights to change their minds. However you should go and see the sellers and ask them to think through the implications of moving out. If they then go into it and come back and say that they definitely can move out if they aren't able to exchange on their purchase by a certain date, then they are more likely to feel a strong moral commitment to do what they said. Try and make sure if there is more than one seller, that you talk to all of them and they agree, and are not saying different things.
Not everyone is trustworthy, and you will have to make your own assessment of that. However, people are much more likely to keep to their word when you have gone through it all with them, than in a situation where they didn't really ever say that and felt they were bamboozled by the Estate Agent.
You need to make sure that the sellers have worked through where they would stay - a lot of people happily think they can rent somewhere and then realise that landlords are not at all keen on taking tenants just for a few weeks.
Why have you sent me out of date plans?
We often find that clients telephone us on receipt of these plans with comments such as they can’t see the conservatory on the plan or that there is only one shed in the garden whereas the plan sent shows two. The next paragraph explains this point. Our chief concern at this point is establishing that the boundaries are correct.
The plans would have been produced using information available at the time of their production. An old conveyance plan, for instance, will typically only show an approximate outline of the house as it was originally built, perhaps without later garages or extensions. Plans based upon Ordnance Survey extracts would only be accurate as to features on the ground, e.g. fence lines, garages, sheds, greenhouses, extensions, etc at the time when the Ordnance Survey prepared the plan. The Land Registry would then (often a few years later) have used these plans as a basis for their title plans. Although they do get updated from time to time, it is not uncommon for the Ordnance extract used to be 30 or more years old. From the Land Registry’s point of view the main issue is usually getting the boundaries right, and therefore unless they are relevant to a precise boundary location, they are not going to go and look to see if an extension has been built or how many sheds there are in the garden.
When do I need to arrange Buildings Insurance?
Unless your lender is arranging the buildings insurance or it is a leasehold property and the freeholder arranges it, you will need to have insurance for the buildings in place when contracts are exchanged. This means obtaining quotes, completing on-line forms etc beforehand so that it be started as soon as we tell you that exchange has taken place.
The property should be covered for the full rebuilding cost, which is not necessarily the same as the market value. An old terrace house in a cheaper area could cost a lot more to rebuild than its value, whereas at the other extreme a newish bungalow in Sandbanks or in some parts of London would probably cost a small fraction of the market value to rebuild because the location makes the land so valuable.
If you are obtaining a mortgage the valuation report (if you get a copy) will give the minimum rebuild cost that the lender requires covered. Some insurers now provide unlimited cover of for a large amount such as £400,00 or £500,000 which is enough to cover most properties.
Why is the contract I have to sign such a mess?
The seller's solicitor supplied the draft in his own format and we amended their wording in manuscript to seek to protect your interests. If the seller's solicitor did not then send us a fair copy incorporating the amendments for you to sign we could only send you a copy that we had amended.
I am selling and buying. Do I have to provide a deposit on my purchase?
A deposit is needed on exchange of contracts and in theory should be 10% of the price. In most cases this is negotiable and we can use the deposit provided by your buyer on your onward purchase. If there is a big difference between your sale and purchase prices then you might have to add some money in so if you have any savings it is best not to spend them as they might be needed at this point.
The deposit paid on exchange is to bind you to the deal, and is not directly connected to the difference between the price being paid and your mortgage loan.
All this is explained further on a special page about Deposits when Buying and Selling
The Contract says that the seller is selling with "Limited Title Guarantee". Should I be concerned about this?
The general rule when buying a property is "Caveat Emptor" - "Let the Buyer Beware", and that is still the case. There are some very obscure situations where these guarantees can be relevant, but most of the time as they do not guarantee very much at all, guaranteeing a little bit less won't make much difference! Limited title guarantee tends to be used by personal representatives of deceased property owners and trustees who may not know much about the property in question. It does not affect the quality of title at the Land Registry which should be the same - Absolute or Good Leasehold - as the seller has at the moment.
We're buying a top floor flat so we get the loft included don't we? The estate agent said so.
Please don't take for granted what agents tell you about things like this. They are not lawyers and will not have have looked at the lease which wills ay whether or not he loft in actually included. Leases can be quite technical and even if the seller has a copy of his lease he will not necessarily understand it, and so could tell the agent the wrong thing or the agent might misunderstand.
Please tell us at the earliest opportunity that you have been told things like the loft is included so we can check this out. Don't assume things like that and be ever so disappointed when we send you a report about the property later on in the process.
This principle applies to other issues like location of parking spaces and whether they are exclusively yours, or shared.
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The place we're buying is empty. The owner died, so it'll be quick won't it?
If the family have a grant of probate (or letters of administration if there was no will) then it could be quick. Unfortunately some people jump the gun and put houses on the market long before such a grant has been obtained. Particularly if there is inheritance tax to pay it can take some months to get this and without it the property can't be sold. So if estate agents tell you it is a probate sale because someone has died, the first question is whether there is actually is a grant of probate and, if not, how long it will take to get it. Do not accept vague assurances from the agent. Ask him to contact the seller's solicitors for a realistic estimate of the timescale.
Copyright: Richard Webster & Co 2012
Richard Webster & Co 30 Leigh Road Eastleigh Hampshire SO50 9DT
Conveyancing Frequently Asked Questions - Solicitors for the Southampton area, South Hampshire and Wiltshire.
Page Last Revised 06/02/12