Ok, you've done the hard work and selected the property that you like, so what's next?
The next step is to make a list and calculate the transactional costs, so you are prepared for negotiations and making an offer?
First of all, you have to decide what will be the Stamp Duty Land Tax (SDLT) as it can vary depending on who will become an owner of the property: an individual or a company. SDLT is charged at 15% on residential properties costing more than £500,000 bought by certain corporate bodies - or ‘non-natural persons.’ The 15% rate doesn’t apply to property bought by a company that is acting as a trustee of a settlement or bought by a company to be used for: a property rental business, property developers, and trader, property made available to the public, financial institutions acquiring, property in the course of lending, property occupied by employees, farmhouses. If the property is registered in the individual's name, the SDLT rate will depend on the property purchase price and can be between 0% and 12%. In some cases, there might be an additional 3% surcharge on residential properties bought as a second home. So, an experienced Buying Agent will be able to let you know and will always seek advice from a Tax Advisor to give you the right estimation if a more complex ownership structure is considered.
Another question is if the property has a short-lease and you want to extend the lease to increase the value of the property – how much it will cost? Moreover, what is the right time to ask for permission from the landowner to extend your lease? What is the process of lease extension and what might be the risks? If the property has a "short lease", meaning the purchaser will enjoy the right to live in it for a limited period – perhaps just a handful of years, you will need to know what is the value of this property at the moment of purchase before making the offer. Most residential flat owners have the right to extend their leases, so long as they meet the required criteria. For example, owners of apartment leases that were originally at least 21 years in length can apply for a 90-year extension after two years' ownership or if the Seller owns the property for at least two years'. They may even be able to acquire the freehold of their building, a process called collective enfranchisement. Lease extension premiums are calculated according to a complicated formula and subject to negotiation with the landlord.
Generally the shorter the lease, the more expensive it is to extend. Anyone with a lease approaching 81 years unexpired should seriously think of extending it. Under 80 years, marriage value is payable to the landlord, making it much more expensive to extend the term. You will need to instruct a solicitor who will start the process by serving an Initial Notice on the landlord, which will offer a premium for the lease extension. You will also need to instruct a valuator, probably a chartered surveyor, to put a value on the lease extension. Once the Initial Notice is served on the landlord, you will be responsible for his/ her reasonable valuation and conveyancing costs, as well as your own. Estimates for extending a 43-year lease on a two-bedroom apartment recently sold in Kensington ranged from £300,000 to £750,000. The experience of the Buyer’s Agent, Valuator, and Solicitors in this process is fundamental in this type of transactions, as professional team acting on your behalf will help you to reduce the cost of lease extension.
If you are looking to seek for finance from the lenders to fund your property purchase, you must understand how the valuation of the property influences the mortgage amount - LTV (Loan to Value)? Low valuations cause a problem for homebuyers, who discover that in the eye of their mortgage lender their prospective property is not worth what they offered. After years of overvaluing properties during the boom, lenders and surveyors suddenly became much more pessimistic as the slump hit and are continuing to give low valuations for those looking to renew mortgage deals. The mortgage valuation is for the benefit of the mortgage lender. It is designed to provide enough information for the lender to decide whether the property is safe to lend on, and up to what amount. Though you may pay for the report, you may not get a copy or even see what the bank’s surveyor has written. Newly built homes benefit from the National House Building Council (NHBC) 10-year guarantee for any significant faults or defects in construction or materials. However, there is a case for a survey even with a new build, as after ten years any defects would have to be remedied with your own money. If your survey includes a valuation, check that the surveyor is acceptable to your mortgage lender – otherwise you may have to pay for another mortgage valuation. If you think your home is being massively undervalued it may be worth paying a surveyor for an independent valuation. Although this will cost a few hundred pounds, it could save more than that on mortgage bills.
What will the broker and the bank's fee will be if you need to get a mortgage? How long will it take to get the mortgage and what will be the lending terms that the bank can offer? Since March 2016, mortgage lenders have to include any mortgage-related fees, such as redemption charges and valuation fees, as part of the annual interest calculation. This way of calculating the interest is called the Annual Percentage Rate of Charge or APRC. All mortgage product-related costs should be outlined in a mortgage Illustration document. It is sometimes called a European Standard Information Sheet (ESIS): Arrangement fee, Booking fee, Valuation fee, Telegraphic transfer fee, Mortgage account fee, Missed payments, Mortgage broker fee, Higher lending charge, Fee for own buildings insurance arrangements, Early repayment charge, Exit/Closure fee.
And last but not least, before making an offer, you must assess the strength of your price offer and whether you are competing with another prospective Buyer. Your understanding of the Seller's motivation to sell and their circumstances at the time together with the availability of similar properties in the area will also influence on the success of your offer being accepted.
UK Property Advisors is always here to help you during your property acquisition journey. Get in touch with us and will manage the acquisition process professionally. So, you can start enjoying your new home.