This article is intended to provide a brief guide to the main legal and financial elements involved in buying a domestic property of any size. We hope it will be a useful guide to the main steps involved.
The Mortgage – Before you go house hunting you need to know how much you can afford. Most purchases are completed with a loan from a bank or building society. The range of mortgage products is wide, eg. repayment, endowment, pension or PEP. In addition to a wide range of types of mortgage available through most lenders there is a wide range of deals available through different lenders, eg fixed rate, capped rate, cashbacks and so on. We can refer you to an independent mortgage advisor who will assist in securing the best loan for your needs and circumstances.
The amount you can borrow will usually be based on two main factors; (1) a multiple of your (and possibly your partner’s) income, and (2) a percentage of the value of (rather than the price paid for) the property. The loan available to you will be the lower of these two figures. Care should also be taken to identify other possible costs such as arrangement fees.
The Deposit – Part of the price will most likely be coming from your own funds, perhaps from savings or from the sale proceeds of another property. Where you are relying on sale proceeds remember to get a reasonably accurate figure from your lender for the amount needed to pay off your current mortgage – this must be done on sale and is sometimes higher than expected. You should also make provision for estate agency or legal costs.
Legal Fees and Expenses – We can provide an accurate estimate not only of our fees but also the other anticipated expenses which we will have to pay for you. In some transactions the amount we have to pay out to third parties will in fact be much higher than our own fees. This is particularly true if you are buying and have to pay Land and Buildings Transaction Tax (effectively what used to be called Stamp Duty). Depending on your circumstances, you might also have to pay the “second homes tax”, called the Additional Dwelling Supplement. These are government taxes payable on the transaction and have to be paid immediately the transaction settles. Your title can not be registered without paying it. Please ask if you would like more information from us on this tax liability.
Armed with the knowledge of how much you are likely to be able to afford you can now begin househunting in earnest. Once you have seen a property you like there are several steps that can be taken to protect your interest, even if you are not quite in a position to submit an offer.
Noting interest – If you are interested in a particular property let us know and we will note your interest with the selling agent. If that is done the selling agent should tell us if another offer is received or if a closing date is to be fixed and so on. Noting interest does not mean you are obliged to proceed further, or that you will be penalised if you do not, but it does mean we should be kept advised of developments.
The Home Report – All properties marketed for sale must have a home report. The report must be made available to a potential buyer. This is usually available on-line, or if you do not have internet access a printed copy should be available.
The Home Report comprises three elements; a valuation and survey, an information section and an energy certificate. If you buy the property the surveyor who carried out the home report is liable to you for any erroneous statements even although the report was instructed by the Seller. The Surveyor must also act impartially in the preparation of the report.
The purpose of the Home Report is to provide potential buyers with more relevant information about the property than was previously the case and for that information to be freely available. Most Lenders will accept the terms of the Home Report for the purpose of their mortgage, although some may not. Also, if the report is more than 3 months old a lender may require the report to be updated.
Offering for a property
Unless you have still to sell your existing property you should now be in a position to submit an offer. If you have still to sell, but are keen to offer anyway, it is important to check with your lender or bank whether bridging finance would be made available to enable you to complete the purchase if your present property remains unsold at settlement date for your new property. If bridging finance is not available and you are unable to pay the price, you will be in breach of contract and the seller will usually be entitled, under the contract, to charge interest at a high penalty rate for late settlement or, after a period of time, withdraw from the deal and hold you liable in damages, which can be substantial.
Items to be included in the offer – Before we prepare the offer for you it is important that we know of any particular points which need to be taken into account. This includes details of any moveable items you expect to be included in the sale such as carpets, curtains, appliances and the like. If you will be using the property for any specific purpose other than just as a home you should let us know. Similarly if you plan to alter or extend the property let us know so that we can ensure that nothing in the title restricts your planned use. If the property is served by private roads or paths, or private services it is better for us to deal with that in the offer as we need to ensure that the title contains the appropriate rights for these private services. If the Home report indicates that there should be guarantees available, for example for woodworm or damp treatments, let us know so we can ensure these do in fact exist and are valid. If we do not know about such matters we cannot ensure that your interests are protected.
The offer and contract “missives” – If the sellers agent is not fixing a closing date the parties are free to negotiate on the offer. After discussing the offer with you our negotiations on your behalf with the seller’s solicitor or estate agent can proceed, verbally or in writing. A verbal offer is not binding but in some cases the negotiations will be carried out verbally with the written offer only being submitted once agreement on price is reached.
In most cases where a written offer is to be accepted the acceptance will contain some further conditions ( this is referred to as a qualified acceptance). If these qualifications are acceptable a letter accepting them is issued and the bargain will be concluded at that stage and is then binding on both parties. Only once the point has been reached where neither party has any further qualifications and the last set of qualifications has been accepted is there a binding contract – up to that point either party can withdraw without penalty.
The letters forming the contract are also referred to as the missives. Until recently a valid offer for property had to be in writing and signed in accordance with various legal requirements. Now, any signed letter can form the basis of the contract . You should therefore take care not to commit any discussions in writing to either the seller or selling agents as that could end up being accepted and forming part of the contract.
What happens next – between contract and settlement
Much of the subsequent work involved in the transaction will be carried out between the two firms of solicitors and if the transaction is reasonably trouble free there may be little of substance to report until nearer settlement.
Whilst you should be certain by this stage that your loan will be granted by the Lender, you should ensure at this stage that your loan application has been completed and that the lender does not need any further information from you to enable the loan to be processed. The lender will then issue a formal offer of loan to you. Loan instructions will also be issued to us.
We complete a certificate of title to the lender and request the loan cheque. The loan funds are sent direct to us. We will also prepare the main document securing the loan to the lender – the standard security. This document must be signed by you before the loan cheque is cashed. If you are single, or an unmarried couple we will also require to obtain an affidavit to confirm that you have no spouse, this being required under the terms of the Matrimonial Homes (Family Protection) (Scotland) Act.
Prior to completion it is also our job to ensure that there are no problems with the property. These checks fall into 4 main categories:-
1) Title – The title is checked to ensure that there are no defects and that you will receive good title to what you are buying, together with any separate rights you may need such as access rights for example. We will also check that there are no unusual conditions in the title which would unreasonably restrict your ownership or use of the property. We will generally report the relevant title conditions to you.
2) Local authority searches – the property certificate – The seller obtains a certificate from the local authority or a private search company which confirms various matters affecting the property . These include whether the road is adopted or private, whether there are mains services, whether there are any planning notices, orders or applications affecting the property, outstanding matters relating to building control, environmental health and so on. The contract is usually conditional on this certificate being clear of any problems.
3) Title searches – These are separate searches again instructed by the seller, in terms agreed with us, to ensure that there are no legal impediments to the sale. Clear searches must be exhibited to us before we can settle the transaction.
4) Alterations – If we are aware of the existence of internal or external alterations to the property we need to check whether these had the necessary local authority consents. If these are not available the seller may need to apply to the local authority for either a retrospective building warrant and completion certificate or alternatively a “Letter of Comfort”. A Letter of Comfort is a letter issued by the Local Authority confirming that they are aware work has been carried out to the property without the necessary warrants, but that they intend to take no action. In some cases the title deeds also specify that further consents are needed.
Whilst your surveyor will usually mention any relevant alterations if you are aware of any alterations please mention these to us, as we cannot protect your interest unless we know there may be a problem.
The Land Register
Title to property is now registered in the Land Register of Scotland.
Once title is registered the purchaser receives a title sheet, which is a title guaranteed by the State. As part of the process the boundaries of the property as defined by the current title deeds are compared with the Ordnance Survey map. If there are no discrepancies between the two, and there are no other problems with the seller’s title the registration should proceed without difficulty. However, if there are discrepancies this may cause problems with the registration of the title.
Where a property has not previously been registered in the Land Register a report, referred to as a Plans report, is usually obtained by the seller at an early stage in the transaction. This report compares the seller’s title with the OS map. Any discrepancies shown at that stage may involve the seller in obtaining a corrective deed from a neighbour to remove any discrepancies between the ground being sold and the ground actually owned by the seller. This process only applies in relation to the first registration in The Land Register.
Your title and survivorship clauses
Title to the property is transferred to you in a deed called a disposition, which is drafted by us. Where the title is to be taken in joint names there are different ways in which the title can be completed. A title in joint names often contains a survivorship clause, particularly where the parties are husband and wife. This means the title is held equally by the parties and on the death of either party the deceased’s share of the property will pass automatically to the survivor. The advantage of this is that on death no further steps need to be taken to transfer the title. The disadvantage is that the survivorship clause cannot be cancelled once it is in the title unless both parties complete a further deed to that effect.
If no survivorship clause is included each party has a separate share in the property. On death the deceased’s share would pass either in accordance with the deceased’s Will or under the laws of intestacy and a deed or deeds would need to be drawn up to complete the transfer. In most cases involving a husband and wife a survivorship clause may be appropriate, but in other circumstances thought should be given as to how you wish the title to be drawn.
Settlement – the date of entry
Settlement will occur on the date of entry specified in the contract unless all the conveyancing matters have not been concluded. You will be made aware in advance if anything is likely to delay you moving into your new home. At settlement the full price is paid to the seller in exchange for the title deeds, signed disposition in your favour and of course, most importantly from your point of view, the keys. There is no specific time by which this must happen. If you are likely to need the keys by a specific time on the date of entry let us know as soon as possible so that we can liaise with the seller’s solicitor to endeavour to ensure the keys will be available when you need them.
Prior to settlement we will need funds from you for the part of the price being paid from your own funds (unless of course this is coming from a sale we are also dealing with). As the Land and Buildings Transaction Tax and registration dues of the Disposition and Standard Security have to be paid immediately after settlement, we will need funds in advance to cover these items too. We will also need funds from you before settlement to meet our fees and any other outlays unless we are also dealing with your sale and these will be met from your sale proceeds. Where you are providing us with a cheque we need to cash that at least five working days before the settlement date.
After settlement a lengthy Land and Buildings Transaction Tax return must be submitted on your behalf to Revenue Scotland, even if no tax is payable for the transaction. After the transaction has been approved by Revenue Scotland, and any appropriate duty is paid, the disposition and standard security are registered in the Land Register. When registration is completed the deeds will be sent to the lender, or placed in our strongroom if there is no loan.
As stated, the purpose of this article is to provide some background information on the main points which often crop up during a normal transaction. Each individual transaction is different however and we will guide our clients through each stage, ensuring attention to their own individual requirements as we go.