This article explains the basics of buying property in the UK. It’s based on our personal experiences of buying a home in London – and certainly is not any type of legal guidance! Hopefully it will help others better understand the property purchase steps. Where appropriate, I’ve also made comparisons to buying property in the United States.
Freehold (including “share of”) versus Leasehold: this concept was strange for us to understand. “Freehold” indicates that the property and land are sold fully and with complete ownership of the house and property transferring to the new owner. This would typically be what you’d expect when buying in the US.
“Share of Freehold” simply means that you are sharing the ultimate ownership with one or more additional parties, such as your neighbors. I would imagine this would be the case when there’s one large building and the ownership of the actual structure and land is split between the owners of each individual unit. This is also similar to something like
you’d expect in the US when purchasing a unit of a townhome, or something similar. However, “Leasehold” is a strange concept to me. In a leasehold purchase, the purchaser owns the property and land for a fixed period of time (the leasehold time) but at the expiration of the time period, the ownership reverts back to the true owner (often the Queen, a
Duke, or other feudal figure from the past) upon expiration of the lease term. Leases vary wildly in length of terms – for example, some leasehold properties had leases of 999 years, which for most intents and purposes would be the exact same as purchasing the property outright as a freehold property. However, other homes had leasehold terms of only
49 years left. In these cases, the resale value of the property will DECREASE over time as it gets closer and closer towards the expiration date of the lease! There are some rules concerning how the end of the lease needs to happen and supposedly (although I haven’t confirmed it), the current occupier has first right of refusal to renew the lease.
But in any case, if you’re buying property it’s not clear to me why you’d ever want to buy a leasehold instead of a freehold property. Wikipedia has some additional information available about
Leasehold and Freehold properties.
There are a couple of miscellaneous pieces of knowledge that are useful to know:
- Selling Estate Agents: When selling property, the seller lists the house with one or more Estate Agents (real estate agent). There is no equivalent to the MLS (Multiple Listing Service) system in the US. This means that ONLY the agent(s) you’re listed with can show your property (or their companies).
- Buying and Estate Agents: Because there is no MLS, a buyer has to work with many individual Estate Agents. In the US, we would select a buyer’s agent and this real estate agent would research property on our behalf and show us any property that we wanted to see. They would get paid by splitting the selling commission
with the seller’s agent (in the US, a seller usually pays 6 percent of the selling price to the selling agent, who usually splits it 50/50 with the buyer’s agent). Dealing with a bunch of individual agents is time consuming and frustrating because each one wants to sell you property, of course, but is limited to only showing property that’s listed
through their agency. My advice would be to only deal with small agencies if you’ve done internet research yourself and select specific homes you want to view. Otherwise, it’s to your advantage to deal with a large agency that has a wide range of properties listed through them.
- Mortgage: the typical mortgage in the UK seems to be a 25-year term instead of a 30-year term like it is in the US. It also is less common to have a fixed interest rate for the entire duration of the loan. We took out a 25 year loan that has a fixed rate for 5 years and then adjusts yearly after that. From what I can tell,
most people will continue to refinance every 5 years or so. It also is less common in the UK to get a mortgage that lets you repay it sooner than the length of the fixed rate period. For example, we can only pay up to £500 extra per month until our 5 year fixed rate expires, and then we could repay the full mortgage if desired.
- Seller’s purchase price: yes.. quite interesting to know this info. You can buy a copy of public records that shows the actual price the seller paid when they bought the property. As long as you know the exact address and post code, you can use the UK’s Land Registry site to purchase (about £3) a copy
of the property’s sale history. This is nice to know if you contemplate making an offer on a house. Of course, it does not show the costs of any improvements the sellers might have done. You can access the site by visiting the online site for the UK’s
- Stamp Duty (purchase tax): When you PURCHASE property in the UK, you pay “stamp duty” at the time of purchase. This is basically a tax based on the purchase price of the property. In the US, there is no cost for the purchaser up front, but when you sell the house, you pay taxes based on any profit you have made. In the UK, you pay a flat tax based on the purchase price, but then there are no tax implications when you SELL the house. As of 2007, the sliding tax rate for most purchases are 3% for under £500,000 and 4% for over £500,000. The government has an online Stamp Tax Calculator where you can confirm the latest rates.
- Property Tax / Council Tax: For property you occupy (yes, even applies to renters), there is a council-imposed Council Tax. The “council” is basically the local government, so in London proper there are multiple Councils, determined by geographic areas. This yearly council tax is based on the assessed value of the property, and is similar in concept to the US’s Property Tax, which homeowners pay. The big difference is that in the US, property tax is owed by the owner of the property, while in the UK, the tax is paid (and is the responsibility of) the occupier. You can use an online search to find which Council is responsible for a specific post code or address. As an example, our place is in Ealing and you can view the Ealing 2008-09 Council Tax rates.
The general stages of purchasing a specific property:
- Make an offer on the property: in the US, one would make an offer on a home through a “P+S” (Purchase + Sale agreement). This formal offer is accompanied by a significant deposit from the buyer, usually something like 5 or 10 percent of the purchase price. The buyer can attach stipulations to the P+S if desired – for example, I could make an offer on
a house, contingent upon something like a successful inspection or financing approval. In tight markets, the buyer often makes an offer with no contingencies. Regardless, if the terms are acceptable to the seller, they accept the P+S and this becomes a legally binding contract, with the buyer losing his deposit if he backs out, and the seller unable to back out without being legally liable for costs and maybe also penalties. Since this is the first
stage in the process, a buyer knows almost immediately if the house purchase will complete. In the UK, a buyer makes an offer on the property but there is no legally binding aspect, no deposit, and absolutely nothing short of an informal “yeah, that sounds okay” agreement from the seller. Of course, in tight markets this is very scary because there’s nothing that prevents the seller in the future from changing his mind or asking for more money!
Likewise, the seller may have the honest intention to sell the house to the buyer, but another buyer may come along and offer more money. Once the buyer makes an offer that is accepted (but not binding), he needs to start the process of engaging with a solicitor to research the property, perform the necessary title searches, land boundary searches, etc. So almost immediately the buyer needs to start spending money without assurance he actually
will GET the property!
- Exchange: when the buyer’s solicitor has completed all the investigations and provided them all to the buyer, a signed contract is “exchanged” (similar to the P+S). This is a short document (1-2 pages) that basically states the purchase price, any additional things included in the purchase (furniture, etc) and the date for the actual completion (the closing). The buyer and seller both sign, and now the purchase is
assured. Although this didn’t happen to us, there would have been nothing preventing the seller from calling us a day before exchanging to say “you know what? I just got a really good offer of £20,000 more. Would you like to match that? If not, I’ve decided to sell to the other buyer for £20k more.” Since the buyer has already gone through all the research, costs with solicitors and inspections, and probably has also given notice to his
current place, and become emotionally invested – it’s a really tough position to be in. Unfair? Perhaps. But nothing that prevents in. If that does happen, the term “gazoomped” is often used to describe another buyer sweeping in at the last minute and “gazoomping” the house from under you.
Of course, if the seller is calling your bluff and you say no, they’re taking the risk that you’ll walk away. The other perspective on this is that the buyer can do a similar thing – basically say right before signing that they’ve done more market research and realized that the house isn’t quite worth what
they first offered. Again, nothing that prevents that. However, once the Exchange takes place and the contracts exchanged, it’s locked in stone. Everyone in the UK buying property has told us not to get excited until the Exchange is completed.
- Completion: When the Exchange takes place, a date is set as part of the contract for when the whole transaction will complete. This date of completion represents the point in time where the money exchanges hands, the seller verifies all is done, and the buyer gets the keys to the house. The time is negotiable, but it sounds like it’s typically 2-3 weeks from the Exchange until the Completion date. The only thing we did during this time
was to sign the mortgage papers, transfer our down payment to our solicitor (who acts as escrow) and wait.
This was our first time purchasing property in the UK. We dealt with several specific people and companies that we were happy with and would be happy to recommend. The most interesting to us was that we dealt with Foxtons (which has a poor reputation) and were extremely happy with our agent.
- Estate Agent: remember that there is no buyer’s agent, so we acted on our own for finding property to purchase. The agent we worked with the most and wound up buying the house through is Kor from Foxton’s Ealing. We actually were quite nervous initially dealing with Foxtons, since there is a lot of bad press about them. But Kor was very professional, responsive and pretty much everything
you’d hope for in an estate agent. Kor’s phone number is 020 8799 4554 and his email address is email@example.com.
- Mortgage: because we aren’t UK citizens and only had been in the UK for 14 months, we knew it would be a little harder to qualify for a mortgage. So, we decided to go through a mortgage broker (instead of directly approaching banks ourselves). We did talk with NatWest (who we have our bank accounts through) and that was an option, but we still opted for going through a broker to get a better
range of options. The brokers do charge fees (ours was something like £499 plus he got a commission from the bank if we did take out a mortgage through him). Since we had the NatWest details as a baseline, we were pretty clear on whether we were getting a good deal or not. Anyway, we got several options and chose the one that made the most sense for us. It was a better deal overall that the NatWest option we had looked
into on our own. The mortgage broker we used was through Alexander Hall (www.AlexanderHall.co.uk) and his name was Anthony. His phone number is 020 7893 6473 and email is firstname.lastname@example.org. We have no complaints with him, although he wasn’t so amazing that I’d demand friends use him. The only specific frustration was that immediately after meeting with him and hearing how he’s always available,
I emailed him and his admin and didn’t hear back for 2 days. The reason supposedly was that he suddenly became sick and his admin was on holiday. After that, though, they were responsive, although we didn’t have to deal too much with them once the mortgage was lined up. He’d get a 3.5 out of 5 stars if he were a restaurant.
- Solicitor: we used Elizabeth Martin through Streathers Solicitors. Elizabeth was thorough, friendly, and patient in explaining to us all the ins and outs of buying the property. She also coordinated everything with the mortgage company, inspections, etc. She can be reached in email at email@example.com and on the phone at 020 7034 4200.
I’m sure there are some additional questions and things that aren’t clear enough. We’re happy to update this page with any additional questions – please just note them in the comments section below. thanks!