How to Buy a Property in London

Despite the recent slowdown, buying a residence in London is still very much a licence to print money in the long-term

Take time to learn the procedures involved when buying to avoid costly mistakes and delays

This blog explains what is involved in buying a house in the leading world city, as a home or to rent out, and is primarily aimed at ex-pats and foreign nationals – but is good too for first time buyers and UK residents unfamiliar with the intricacies of buying.

You must follow these procedures to make the house-buying process a pleasant, smooth and efficient experience.

Here are the main things you must do when buying a property in London:

1. Learn the legal fundamentals

2. Work out if you are entitled to buy

3. Work out your budget

4. Decide the type of property

5. Do your full due diligence

6. Sort out the financials

7. Find a property

8. Carry out a building survey/valuation

9. Instruct a conveyancer

10. Ask questions about the property

11. Approve and sign the contract

12. Sign the purchase deed

13. Sign the mortgage deed (if there is a mortgage)

14. Pay the balance to legally complete the purchase

15. Wait for legal completion

16. Receive the keys and move in or rent out

17. Check you are registered as the new owner. 

1. Learn the legal fundamentals

Land and buildings in the UK are usually referred to as “property” rather than the Americanised “real estate”.

When you buy property in London you will get either a freehold title or a leasehold title.

You normally get a freehold title when you buy a house. A freehold title allows you and your successors to use, occupy and enjoy the property in perpetuity, forever.

You normally get a leasehold title when you buy an apartment, more commonly known as a flat.

A leasehold title allows you and your successors to use, occupy and enjoy the property for the length of your lease, which is normally for 99 or 125 years, but can be as long as 999 years. 

As a leaseholder, you will normally pay an annual ground rent plus a maintenance or service charge to deal with building insurance and the cleaning, maintenance and repairs of internal and external communal areas.

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2. Work out if you are entitled to buy

If you are an adult UK citizen (18 or over) you are entitled to buy a property. You can also enter into a mortgage from the age of 18 – although you may find it easier to qualify for a mortgage if you are a few years older with a good credit record.

Generally you are not prevented from buying a property simply because you are a foreigner, non-resident or non-dom.

However, you should always check your own individual situation with a lawyer.

Obviously you are free to buy as an expat but, if you are hoping to do so with a mortgage, that may prove difficult for various reasons. You should consult a mortgage broker who specialises in obtaining expat mortgages.

3. Work out your budget

Wherever you are buying, a fundamental step is to work out your budget – what you can afford.

London property is famously expensive. According to the UK government the average prices of homes in London as at May 2018 were as follows:

Detached £906,154

Semi-detached £580,930

Terraced £495,066

Apartment £421,438

All £478,853

Averages can of course be a little misleading. There are countless properties priced above and below the averages. 

In fashionable parts of London, properties can cost millions of pounds. 

As at October 2018 the most expensive home in London was reported in the Guardian newspaper as a penthouse at the One Hyde Park development, Knightsbridge, costing £160 million.

At the other end of the scale, one bedroom apartments are available for “as little as £350,000” in some parts of the capital.

4. Decide the type of property

There is a very wide range of property available in London. The main types are terraced houses, detached houses, semi-detached houses, bungalows and apartments.

The central London districts or boroughs are usually the most expensive – areas like Kensington & Chelsea, Westminster and the City of London.

As a rule, the houses in a location are usually more expensive than the apartments.

Apartments are normally managed by a managing agent who will collect the ground rent and service charges due, usually in two payments in advance.

Because of the ground rent and service charges, apartments are more expensive to run as a rule. When you buy, it is normal practice to ask for service charge accounts going back at least three years, so that you can have a good idea of previous running costs. 

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5. Do your full due diligence

Once you are ready to proceed with your purchase, make sure you carry out full due diligence before going ahead.

Ideally, obtain personal recommendations from trustworthy people you know before appointing the key personnel that are going to help you with your purchase: property finder, mortgage broker, conveyancer, valuer and letting agent.

In any event, study their websites, check their qualifications and ensure that they are duly regulated by the appropriate regulatory authority.

Find out what redress you are entitled to if things go wrong.

If you are resident outside the UK, check that you are entitled to buy in the UK and will be able to transfer funds without raising issues or breaching rules relating to money laundering or personal identification.

6. Sort out the financials

You should decide whether you will be buying for cash (without a mortgage) or whether you will be putting down a deposit or down payment and borrowing the balance from a bank or other lender by taking out a mortgage or home loan.

Typically you will need to find a deposit of 10% of the purchase price if the property will be your home. If the property is for renting out, you will normally need a deposit of at least 25%.

You should, at this early stage, make enquiries about your eligibility for the mortgage you will require and the likely interest rate. You can approach a lender directly or you can proceed using an intermediary, a mortgage broker.

See if you can obtain “a mortgage in principle” – meaning that it will be a relative formality to get the home loan you need once you have found a property and agreed a price. 

You should also decide on the type of mortgage you will be going for  – typically interest only or repayment.

Remember to take into consideration the costs of purchase, which will normally include:

  • Stamp duty
  • Mortgage fees
  • Valuation fees
  • Legal fees.

If you are buying the property as a second home or an investment, you will be liable to an extra 3% stamp duty on account of the stamp duty surcharge.

If you are looking to let out the property after you have bought it, you will need to take into account the costs of:

  • Furnishing the property (if you intend to rent it out on a furnished basis)
  • Finding a tenant and agreeing the tenancy
  • Managing the property during the tenancy.

You can engage a letting or managing agent to help you with these tasks. 

7. Find a property

You can find a property yourself by spending time in London and visiting high street estate agents (selling agents) in the locations you wish to buy.

You can make the choice remotely by identifying suitable properties by spending time on the main property portals – Rightmove, Zoopla and On TheMarket – and by looking at the website of estate agents who operate in your chosen locations.

Once you find a suitable property, it is best to view the property before putting in an offer to buy. However, you could employ an agent to view on your behalf, especially if the property is not for you to live in but to rent out to a tenant.

Once you have agreed a price with the seller or seller’s agent, that is not a formal binding contract. As a consequence the seller is free to accept a higher offer at any point until you formally “exchange contracts” – at which point a binding legal contract is formed.

8. Carry out a building survey/valuation

Immediately a price has been agreed, speak to your lender or mortgage broker to arrange a survey/valuation of the property (to assess its physical state and condition) and to express an expert opinion as to its value or worth. 

Clearly if the value comes in below the price you have agreed, you will need to go back to the seller/their agent to see if you can reduce the price.

9. Instruct a conveyancer

At the same time as arranging for the survey/valuation, you should instruct a lawyer, called a conveyancer, who deals with the legal procedures for transferring a property from a seller to a buyer.

Your conveyancer will ask you to prove your identify and the source of your purchase funds – in line with their money laundering duties.

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10. Ask questions about the property

Your conveyancer will carry out property searches and put a range of standard enquiries or questions (known as “enquiries before contract”) to the seller’s conveyancer.

You should look to ask any questions you have about the property at this pre-contract stage, whilst you still have a legal right to raise enquiries.

If you have any specific plans for the property – such as to rent it out or to carry out changes to the its physical layout, it is vital that they are raised at this point.

If you are buying a leasehold property, you will want to know about the:

  • Ground rent and how it may increase in the future
  • Service or maintenance charges paid in the last three years
  • Likelihood of any large or expensive works to the property or communal areas in the foreseeable future, leading to a significant increase in service charges. 

11. Approve and sign the contract

Once you are entirely satisfied with all aspects of your purchase, you will be ready to give your conveyancer the go-ahead to exchange contracts and legally commit you to proceed to legal completion of your purchase.

Your conveyancer will normally provide you with a “Report on Title” before asking you to sign the contract.

Only if you fully understand and accept everything in the Report on Title should you sign the contract and authorise your conveyancer to proceed to completion.

You will normally be asked to pay over your deposit or down payment to your conveyancer at this juncture. The deposit will be paid to the seller’s conveyancer on exchange of contracts.

Normally responsibility for the property or risk will fall on you from exchange of contracts. You should make sure you have suitable insurance in place by that date. 

12. Sign the purchase deed

At the same time as you are asked to sign the contract, you will normally be asked to sign the purchase deed – usually a Transfer or a Lease

As it is a deed, your signature will need to be witnessed. 

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13. Sign the mortgage deed (if there is a mortgage)

If you are buying with the aid of a mortgage, you will typically be asked to sign the mortgage deed at the same time as you sign the purchase deed.

The traditional way to sign important legal documents is for you to attend the office of the conveyancer and to sign there, with your conveyancer witnessing your signature where necessary. 

If you live abroad, other alternatives may be possible.

14. Pay the balance to legally complete your purchase 

Before completion, your conveyancer should send you a “Completion Statement” showing the amount of money needed from you to complete your purchase – taking into account any mortgage funds and the deposit.

You should of course pay the amount due by the date requested. Failure to do so could result in completion being late and financial penalties against you.

15. Wait for legal completion

Before completing your purchase, your conveyancer will usually carry out “pre-completion searches”.

Legal completion takes place when the seller’s conveyancer receives the balance of purchase price on the completion date, which is decided on exchange of contracts. 

16. Receive the keys and move in or rent out

The keys will be released to you or your agent when legal completion has taken place.

That is the point at which you or your tenant can move into the property.

17. Check you are registered as the new owner. 

After completion, your conveyancer has a very important job to do – to register you as the new owner of the property, after paying any stamp duty due.

If within four or five weeks of legal completion, you do not hear from your conveyancer that you have been officially registered at HM Land Registry as the new owner of the property, contact them for an update.

You should be sent a copy of a letter from the Land Registry confirming you as the new owner.

Conclusion

London real estate is a top-performing asset class for homeowners and investors alike. 

There is ample evidence to suggest that house values in the world city double every 10 years on average.

However, according to the Office for National Statistics, ONS, house prices have been falling in London as a whole since March 2016.

Brexit has clearly contributed to the fall in prices, but it seems only a matter of time before London prices start to rise again.   

If you can afford to buy in London, why wouldn’t you do so?

Other blogs you may find helpful:

Top 5 tips for first time homeowners the world over (essential general information) Legal title when buying in the UK (the property legal titles applying to the UK)
Why become a homeowner (the many benefits enjoyed by homeowners)
Why renting is super stupid (rock solid reasons why you should buy not rent)
Moving in checklist (things to check when moving into a property)

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Are you think of buying a house or flat in London? What worries, concerns or issues do you have?  Please leave your questions, observations or comments below.

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Dalton Barrett
Rebel Property Coach

Please follow me on Twitter @Dalton1London
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My website is: www.rebelpropertycoach.com


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