A brief guide to buying a home
Date: February 06, 2019 by idu-net
Through IDU Legal, union members have access to one of the largest law firms to be accredited under the Law Society’s Conveyancing Quality Scheme. A firm that has helped more people move home throughout Great Britain than any conveyancing solicitors and has been the preferred conveyancing partner of consumer organisation Which? since 2016.
So they know a thing or two about buying and selling property – often described as one of the most stressful things you can experience – alongside divorce and bereavement! Here’s a brief guide to the process based on the questions they get asked most often.
What is conveyancing?
Conveyancing is an essential component in the process of buying and selling a house – in essence it is the process of buying or selling a house. To many people, it’s an arcane and black art that just means they get a bill at the end of the day but the truth is that conveyancing is at the heart of making sure your property purchase is smooth and legal.
One lawyer cannot act for both parties as this would cause a conflict of interest, so both the buyer and seller must have their own legal representation. Essentially the conveyancer is acting on behalf of either the buyer or seller and representing their interests in the property purchase or sale. What they actually do differs, depending on whether they are acting for the buyer or the seller.
Why do you need to know where the money is coming from?
If you are buying, your conveyancing solicitor will also in effect be acting for the bank or other lender willing to lend you money in the form of a mortgage. They are legally obliged to look after the interests of both the client (you) and your lender – as well as ensuring that their own actions conform to the high professional standards and legal obligations required of a professional conveyancing firm.
That means they will need formal proof of your own identity and may well need to see evidence for the provenance of all the funds being put into the pot for a transaction. If you are getting some cash from parents of other sources to enable a sale or purchase for example your conveyancer will need to know where that money is coming from and whose money it is in order to comply with stringent money laundering regulations.
What’s the difference between freehold and leasehold?
Properties in England and Wales will either be freehold or leasehold. Detached or semi-detached houses or stand-alone properties all tend to be freehold, while flats, maisonettes or properties in complexes tend to be leasehold. Scotland has its own version of freehold, called ‘feuhold’, but the main types of property tenure in England and Wales are:
- Freehold – means the occupier/purchaser owns the property and usually the land on which it stands for an unlimited period of time – freehold confers the absolute right to ownership of property and land to the owner of the property.
- Leasehold – means a person owns a property (but not the land on which that property stands) for a set period of time, usually in return for a rent of some kind. At the end of that period (the length of the lease) the property reverts back to the freehold owner (who may also be referred to as the landlord).
Should I get a Survey?
An alarmingly high percentage of people purchase their home without commissioning any kind of survey on the assumption that the valuation survey carried out by their lender has given the property a clean bill of health. Your lender’s valuation survey will not highlight any structural problems with the property itself. You should never rely solely on this report to give any indication of the property’s condition.
There are two levels of survey you would be well advised to commission as a matter of course, depending on the age and condition of the property:
- Homebuyer’s report: usually done on relatively recently built properties in good condition to identify any major faults in accessible parts of the building and give you a valuation for mortgage and insurance purposes.
- Full structural survey: more expensive than the homebuyer’s report, but it does go into much greater detail. Essential for older proprieties since it reviews structural problems and gives recommendations for immediate and future work that may be required.
The survey can provide reassurance or evidence that can be used to negotiate a reduction in price should the report highlight problems like dry rot, subsidence or other major faults that will be costly to rectify. If major or obvious faults come to light after you move in and were not highlighted in your survey report it may be possible to seek compensation from a negligent surveyor.
What does ‘Exchange of Contracts’ mean?
Once your conveyancing solicitor has all the details they need, they’ll send you a pre-contract report and a copy of the registered title. If you are happy with everything, you need to sign and return the contract. When the buyer’s conveyancer has the signed contract and the seller’s conveyancer has the seller’s signed contract, the two solicitors will ‘exchange’ these documents.
When this happens, the agreement to sell and buy is legally binding. Neither party can now pull out without paying compensation to the other.
It is usual for a deposit to be paid on exchange of contracts partly to discourage the parties from pulling out after exchange. If they do so, their deposit will be forfeited. The deposit asked for is typically 10% of the purchase price, but however much it may be, it will have to come from your own funds (not the mortgage).
If you are a first time buyer or have no property of your own to sell, make sure you have enough available to cover it. If you are selling your current property and are buying another, you can use the deposit from your buyer as the deposit on exchange for the seller of the house you intend to purchase.
When do I need to look at insurance?
Once you have exchanged contracts, you are not only committed to the transaction, you are also legally responsible for the property. It may therefore be prudent to have any buildings insurance on your new property commence from the date of exchange to cover you in case anything happens before completion.
The position is different for a brand new home as these are typically insured from completion or for a leasehold property where buildings cover is usually arranged by the freeholder (you’ll still need your own contents insurance though). It’s also wise to look at life insurance to cover the mortgage and protect your dependants. Any life insurance policy you do take out should also go ‘on risk’ as from the date of exchange.
Once you exchange contracts and deal with any remaining checks the buyer has requested, the mortgage money is transferred from the buyer’s solicitor to the seller’s solicitor or conveyancer on the agreed completion date. The buyer will need to provide the difference and pay any outstanding remaining sum (less the amount already paid as deposit on exchange) which will also come from their own funds.
The seller’s solicitor will then arrange to pay off any outstanding amount remaining on the seller’s existing mortgage, pay the agreed estate agent’s fees and deduct their own fees and costs. The buyer’s solicitor will likewise arrange to pay any fees due and also complete a tax return to pay the Stamp Duty Land Tax, if it applies.
The legal documents needed to transfer ownership are handed over to the buyer. The seller moves out and leaves the property in the state agreed in the contract. The seller hands over the keys to the buyer (usually through the estate agent). The property now legally belongs to the buyer.
If the seller is not purchasing another property, the balance of the proceeds of sale will be paid into their account. If they do intend to buy another house, the proceeds of sale may be used towards that purchase.
Sounds complex? It should be straightforward, but if a transaction falls through for any reason, the buyer does not get any money they’ve spent on surveys and fees back (although some solicitors do offer a No-Move-No-Fee service).
If you or someone you know is planning to buy or sell a house or flat, check out the IDU Legal website or call the FREE legal helpline on 0333 305 4357 to be put in touch with the experts in conveyancing.