Buying UK Residential Property

 

 

There is a lot to think about when buying property in another country. This is a brief guide to some key points:-

Identifying the correct location and property

There are a number of considerations including:

  • What is your budget?
  • What are you looking for?- somewhere to live, an income, capital growth?
  • How many bedrooms?
  • New, off-plan or second hand?
  • How long will you own it for?
  • What do you need from the property and what are you willing to sacrifice?
  • Are you willing to renovate?

Our website contains guides to some prime areas of London.

Being specialists, we are experts in discussing these issues with you and using them to find the right property for you.

Agreeing a deal

For the best properties there is often a lot of competition. Even after you agree a deal there is a real risk it will not complete. Until a formal contract is signed by both parties- called “exchanging- neither party is legally bound so the seller can sell the property to someone else.

There are various ways that you can make your offer look more appealing to the owner. As an experienced negotiation team, Property Inside London works with clients to present offers in the best possible way to get the best deal and increase the chance of it completing.

After a deal is agreed, it may be possible to provide additional security that the deal will progress through the payment/ receipt of a “reservation payment”. The terms of the reservation should be clearly set out and agreed so that it is clear upon which basis the reservation has been paid. It is Property Inside London’s policy that reservation payments are not paid to it preferring that they are held by the legal teams working for the seller.

The buying process

All due diligence needs to be carried out prior entering into a binding contract. Due diligence may include:

  • checking the title of the property;
  • a survey of the property;
  • carrying out searches of the local and other authorities;
  • obtaining information from the buyer;
  • if the property is leasehold, obtaining information from the freeholder/managing agent;
  • agreeing the terms of the contract; and
  • agreeing the terms of the finance used to purchase the property;

When both parties are ready to proceed, each signs a separate but identical contract. The solicitors for each party agree that contracts are binding- this is called “exchange of contracts”. At this point a deposit is paid by the buyer, which is traditionally 10% of the purchase price but it can be a different amount.

Completion of the purchase can take place on the same day as exchange, but usually there is an intervening period which is relatively short- 7 to 28 days. On completion, the balance of the price is paid, title is transferred to the buyer and possession of the property is obtained.

All money transfers and transactions will take place between the buyer’s lawyer and the seller’s lawyer. These parties should have appropriate processes, regulation and insurance in place. At no point will Property Inside London seek to hold significant sums of money for either the buyer or seller of the property.

Property Inside London helps clients select quality advisers and works with them to make the process as smooth as possible.

Funding

Typically loans to buy UK property will be secured by the lender taking a charge (mortgage) against it. This charge is registered at the Land Registry.

Mortgages in the UK are ‘recourse’, in other words if the borrower makes default and the lender forecloses, the borrower (and any guarantor of the loan) is liable for any shortfall if the sale price is not sufficient to pay the loan interest and costs.

When lending to overseas buyers a specialist bank or lender is usually required, particularly where there is to be an offshore company. Normally a sophisticated investor will use a private bank or the private banking arm of a major bank. Often this is best done via the UK branch of the persons existing local bank.

Property Inside London is happy to assist clients through the process athough we will not provide any advice regarding which is the most suitable mortgage, lender or similar.

Ownership Structure

The most typical structures are:

  • Owning in your personal name;
  • Owning via a nominee;
  • The property being held in a UK company; or
  • The property being held by a non-UK company.

For most people the key issues are tax and confidentiality.

Tax is complex and the best solution will depend on your particular circumstances. We will work with your tax advisers (helping you select them if you do not have any).

The UK Land Registry holds the name of the owner of the property and the price paid. This is open to the public and can be seen by anyone through the Land Registry’s website.

Key UK Property Taxes

This is not a full guide to UK property taxes. You are recommended to seek expert advice. Property Inside London would be delighted to assist you in selecting a leading adviser.

Property taxes that you may need to consider include Inheritance Tax, Capital Gains Tax, Income Tax, Council Tax, SDLT and any Annual Charge.

SDLT is a transfer tax due on the purchase price of the property. It is paid when you purchase the property. The rate depends on the purchase price.

Adding Value

There is often the potential to add value to the property.

To do so may require consents from a range of parties depending on the type of work.

If the property is leasehold it may be possible, in the case of a house, to buy the freehold or extend the lease, and in the case of a flat, to extend the lease.

If the property is a flat it may be possible, together with the owners of other flats in the building, to acquire the freehold.

In each case, Property Inside London will be able to assist you assess the benefit of the work and find experts to conduct the work.

Flats

If you buy a flat in the UK it will almost always be held under a lease.

Sometimes a flat will come with ownership of a share in the freehold.

It may be possible to acquire the freehold compulsorily by getting together with owners of flats in the same building.

The lease

The value of the flat will be partly dependent upon the length of the lease. Ideally you should be looking for a lease of 85 years or more but in prime London locations shorter leases still have considerable value.

Generally, for mortgage purposes lenders are looking for leases of 60 years or more.

Once a flat has been owned for more than 2 years there is a right to extend the lease. The price to be paid to the freeholder for that extension is based on a number of factors, including the length of the lease. It is important to note that if the lease has less than 80 years remaining and the right to a new lease is exercised, an additional sum is payable to the freeholder which is called a ‘marriage value’.

Rent is paid to the freeholder, called Ground Rent. This can range from nothing to a meaningful sum of money.

Service charges and management

All flats are subject to a service charge. The building in which they are contained is, or should be, managed by the freeholder or a managing agent on the freeholder’s behalf. Each flat within the building is liable for a certain percentage of the costs for providing the services.

If the freeholder does not manage the property well it can have a considerable effect on the property price.