Buying a property in the UK is definitely worth considering as a long-term investment. In particular, this applies to the purchase of a house or apartment in London. This is not just a city or a capital, but a world brand with an incomparable status.
In this article, you will find out the basic information you need to know before buying a home in London. To be truthful, most of the nuances are hidden in terminology, so read with required attention!
Types of residential real estate in London
Detached house – a stand-alone residential building. It is sometimes referred to as a single-family home and usually has a garden.
Semi-detached house – a single-family duplex that shares one common wall with the next house. May have a small garden.
Terraced house – built as part of a continuous row of attached dwellings which share sidewalls. A fairly typical type of Victorian architecture building for UK homes. Sometimes has a garage or a garden.
Flat – includes all apartment type buildings from studios to penthouses.
Maisonette – is a small apartment that is usually part of a larger building with two levels and that has its own entrance. This type of a residential home is not as popular as it once was, say back in the 90s.
Forms of homeownership
There are two fundamentally different forms of legal homeownership in the UK:
- Freehold – means that you own the building and the land it stands on outright, in perpetuity. It is your name in the land registry as “freeholder”, holding the “title absolute”. Freehold is pretty much always the preferred option: you can’t go wrong with it. A typical form of ownership of a house;
- Leasehold – means that you have a lease from the freeholder (sometimes called the landlord) to use the home for a number of years. A typical form of ownership of a flat. The leases are usually long term – from 95 years and not more than 999 years. After 2 years of leasehold ownership, the owner has the right to extend the lease for another 90 years; however, this doesn’t come cheap. Any lease of fewer than 80 years can significantly affect the value of the house and should be approached warily. Fewer people will likely want to buy it when you resell, and not many mortgage companies will be ready to lend on it.
If you’re buying a home in England costing more than £125,000, you’ll have to pay Stamp Duty Land Tax (SDLT) on your purchase. The tax is calculated on the part of the property purchase price falling within each band:
- From £125,000 to £250,000 – 2%
- From £250,000 to £925,000 – 5%
- From £925,000 to £1,500,000 – 10%
- More than £1,500,000 – 12%
Buyers of additional residential properties, such as second homes and buy-to-let properties, will have to pay an extra 3% in Stamp Duty on top of current rates for each band.
Buyers of residential properties through a company will have to pay a 15% tax rate if the property is more than £500,000.
A properly structured transaction can reduce taxes, hence why it is advised to consult with a tax specialist beforehand.
After purchasing a residential property, the only tax the owner will have to pay is the Council Tax, which includes local services like rubbish collection and libraries. The amount varies from £1,070 to £3,210 (2020/21 info) per year depending on the estimated value of the property, and it’s location.
In the UK, it is customary to ensure any type of real estate, while the cost of insurance services is considered affordable for the majority of the population. On average, the insurance payment per year is from £200 to £650. To a large extent, the amount depends on the location, type and condition of the property.
Of course, the number stated on the utility bill depends on the amount of resources consumed. Typically, electricity, gas and water meters are installed in all UK residential homes. As of 2019, mandatory annual expenses include:
- Payments for gas and electricity – approx. £1,254 per annum;
- Water supply – approx. £405 per annum;
- Ground rent (in case of leasehold) – approx. £350 - £925. The exact figure depends on the size of the property;
- Service charge – approx. £1,350 - £19,800 per annum. This is paid to the management company of the apartment block for the upkeep of an area that communally benefits the contributing units and/or for luxury facilities for residents such as concierge services, gym, pool and cinema.
Why is it worth buying a home in London?
- There is the legal protection of the property rights system in place;
- Stable return on invested capital;
- London is the financial centre of Europe;
- High standard of living compared to many countries;
- The most exceptional education system in the world;
- Developed and reliable transport infrastructure;
- Rich cultural life;
- Despite all the changes and difficulties in the world, the UK provides substantial financial assistance to residents and businesses to maintain jobs while surviving the situation caused by the coronavirus.