How Does the Purchase and Sale Process of A Property Work

The legal system of buying and selling property in England and Wales differs from Scotland. In Scotland, there is more of a tie-in process meaning it's more difficult for either party to back out, but in England and Wales, either buyer or seller can pull out at any time prior to the exchange of contracts.  

Steps Involved in Buying & Selling a Property

The first step is for an offer to be accepted from the property buyer to the seller. Then solicitors get instructed to manage the process. The buyer’s solicitor confirms with the seller’s solicitor that the price has been agreed upon through a memorandum of sale. The actual legal process then begins.   If the buyer is taking a mortgage, then they have to instruct a mortgage broker to find the best financing option for them. It is necessary that the buyer has what is called a “Decision In Principal” in place from a bank. This confirms that the bank is happy to lend to the buyer following a credit check and other submitted information.   The buyer must then submit all required information to their appointed solicitor, which will include proof of income, proof of at least three years resident address, bills paid, any outstanding debts, personal bank statements and any other related financial information.   The solicitor will then communicate with the broker to make sure that all is in place.  

What Are Legal Searches?

An important part of the legal process is “searches”. This is where solicitors essentially search for information related to the property, such as if the property is near a mining area or if there is a sewage issue.   Once all the searches are clear and all other information has been collected, the sale process continues. It usually takes between 8 to 12 weeks in total but can be longer, depending on if any issues have cropped up. The bank will always instruct a Royal Institute of Chartered Surveyors (RICS) report to be undertaken – this will not only confirm the value of the property but will also identify if there are any issues. In particular, if there are any structural issues.  

Final Steps in Completion of Property Purchase

Once everything is ready, there are two steps to finishing everything. The first step is to exchange contracts where everything becomes secure and after which, no party can back out. Quite often, a 10% deposit is offered as part of the legal exchange. Then the second and final step is completion, where total monies are transferred and the property changes ownership. The ownership change is registered at Land Registry as an official record.  

Is There A Difference Between Buying A House or A Flat?

Overall, the purchase process remains the same, but there are some important differences:  

What are the Key Differences Between Purchases of Different Types of Property?

Firstly, when you buy a flat/apartment, you do not own the building. What happens is you lease the property, which means you rent it for a very long period of time. It is extremely important that you understand what length of the lease is left on the property as well as the cost to extend. Some leases are referred to as peppercorn rents because they last for 999 years and only require a nominal rent.   When you own an apartment, you will need to pay Ground Rent annually as well as a Service Charge.  

What is Ground Rent?

Ground rent – as a legal term – specifically refers to regular payments made by a holder of a leasehold property to the freeholder or a superior leaseholder, as required under a lease. In this sense, ground rent is created when a freehold piece of land is sold on a long lease or leases.  

What is a Service Charge?

A Service Charge is exactly as it sounds – you pay for services to the building such as management and maintenance. It can be more than you expect so be careful.   When you buy a house you almost always buy the freehold, which means you own the building outright. It’s yours. There is no rent to pay so the legal process is more straightforward. When you buy a flat, the acting solicitor needs to obtain a Management Pack so that all legal elements – such as lease, searches, etc – are clearly understood. This can take longer but the total purchase process is still 8 to 12 weeks.  

Is There A Risk If I Buy A Flat with A Short Lease?

The length of a lease when you buy a flat is extremely important. If you buy a flat with a short lease, then you run the risk that you will be exposed to a significantly high cost in order to renew the lease.   If a lease length drops below 80 years, it will also be very difficult to obtain a mortgage – usually, it won’t be possible. Therefore, before you buy a flat, you must understand the length of the lease and if the lease is less than 80 years, you must have your solicitor confirm how much it will cost to extend the lease.   Landlords can be notorious for charging astronomical fees to extend a lease so make sure and tread carefully, as well as get good legal advice. In London, for example, it can cost more than £50,000 to extend the length of a lease on a flat.   Once the length of a lease is confirmed as well as the cost to extend, that is when you do your sums. If you were planning on buying a flat with £250,000, for example, then this price should be adjusted if the lease is short. Simple maths – if the confirmed cost of the lease extension is £25,000 then you will make a revised offer of £225,000.  

What Is the Difference Between A Capital Repayment Mortgage and Interest Only?

When you apply for a mortgage, a good mortgage broker will present you with a number of options. The interest rate will vary and will accord to what is available on the market at that time. The interest rate is the amount of extra money you have to pay to the bank in order to borrow money from them to buy a property. That is one key element, and your mortgage broker will confirm whether you can afford such a mortgage according to your earnings.   The other key element is whether you take a capital repayment mortgage or interest only. If you opt for a capital repayment mortgage, then you slowly pay down the actual amount you owe over time. So, for example, if the length of your mortgage is 25 years and you choose a capital repayment mortgage then at the end of the 25 years, you will owe the bank nothing. You will own the property outright.   If you opt for an interest only mortgage, then after 25 years you will still owe the bank the total amount you originally borrowed. So, let’s say you borrowed £200,000 that will mean you still owe £200,000 to the bank after 25 years. This can still be ok because your property will most likely have risen substantially in value. So, you may have bought the property for £300,000 and after 25 years it is worth £900,000. That will mean you have still made a substantial profit.   With that considered, although taking an interest only mortgage means paying a lower monthly sum, many people choose to pay down the debt each month with the aim of owning the property outright.  

How Is It Possible That Serene Can Buy Property So Quickly?

The legal process when selling to a property buying company is the same as when selling on the open market. The main difference is speed. It doesn’t mean that solicitors can work any faster – or that the management pack details can be avoided when buying a flat – but rather it means that there is no finance involved. Obtaining a mortgage is the key element that requires extra time.   If the property is a house, then the sale process can be done in days – the freehold of the property is being bought and is simpler. If the property being bought is a flat then it will take longer because all information – including the lease, searches, ground rent, and service charge – will need to be clearly understood.   At Serene, we have completed the purchase of a house in as little as 3 days and with a flat in as little as 7 days. Regarding a flat, it will heavily depend on the efficiency of the management company in place who manage the building. But overall, as an average, we complete on properties within 2 weeks from point of contact.  

Find out how Serene Can Sell Your House for Cash

With Serene Homes, we provide a hassle-free and friendly service to those looking to sell their property. Find out how the process works and how you can get cash for selling your house or for more information get in touch with our team today.