A Guide to Purchasing

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1 A Guide to Purchasing This article deals with the issues relating to buying a house. Buying a property is probably the biggest single purchase you will make. Even if you only put down a small part of the price yourself and borrow the rest all that money actually changes hands and you carry all the risks if the value of your new property falls. Because so much money is involved it is a complex business, involving estate agents, solicitors, banks and building societies, surveyors, and mortgage and financial advisors. Picking a Home Affordability Your budget will determine what and where you can buy. Your choice maybe for a smaller property in a highly desirable area or a larger property in a less popular area. Properties in a highly desirable area can prove to be a better investment as they increase in value more relative to properties of the same price in less desirable areas. From an investment perspective it is often a good compromise is to pick a location on "the way up". Location What are the most important factors for you: How good are the local amenities such as schools, transport, shops and parks? What leisure facilities such as restaurants, cinemas, sports or other recreational opportunities are adjacent? Which area has all these facilities but is not yet that fashionable and could be considered to be "on the way up"? New or Old? A new property requires less maintenance or upkeep or repairs, but often involves up front unexpected costs for such items as builder s extras, decoration and garden creation. On the other hand repairs and renovations to older properties such as extensions, conversions, new kitchens, bathrooms and windows will always cost more than you think. The plus for an older home is you can take your time to work through these improvements; the minus is the additional cost of heating and unexpected burdens such as hidden woodworm, damp, rot, crumbling plaster and old ineffective service mediums such as pipes and wires. Check out purchasers Have they really sold their own property? Are they really capable of raising the money? Which property? Speak to and leave your name with as many estate agents as possible in the location of your preference. Talking to these professionals will help you learn more about the process. View a number of houses, perhaps at, five, before making any offer as will then have made some and be in a better to judge. Pg 1

2 Visit a target property at least twice at different times, day and night, jot down a list of your pluses and. Remember location is the main factor valuation. Ask how long the property has been the market and be cautious about that has been on the market longer. Detailed Checklist Points Find out about the cost of the rates bill. Check the central heating boiler appears functional. Is the property on a main arterial route with fast traffic which may cause you concerns about your kids? Are there safe places for kids to play? Does the rear garden face south or southwest? Is there a nearby regular bus service or adequate off street car parking for your car? Is the property on a pedestrian route between pubs/clubs and transfer depots such as stations/taxi ranks making it more vulnerable to vandalism? If the property is an apartment or townhouse, particularly an older one, be aware and listen for possible neighbour noise problems. Making an Offer The offer should be made to the estate agent who is obligated by law to record it in writing and pass it on in writing to the seller. Here are some helpful pointers: Remember the three most important valuation factors are location, location and location! Normally the price of a property has a certain amount of leeway built into it so it is normal to initially offer less than the asking price unless the market is buoyant and you want to try and quickly agree a deal. Make sure it is clear your offer is made subject to survey and contract; this means you will not be legally obligated until your survey has been effected and you have signed the legal contract through your solicitors. You may be able to get some carpets, curtains, blinds, light fittings or other contents if you say your offer is to include these items. It will cost you more than you think to renovate so remember a property with recently fitted windows or kitchen or bathroom fittings may save you a lot. Sellers do not necessarily take the highest offer so it can help to build a relationship of friendship as some sellers like to be reassured their home is going to someone nice so also discuss your offer directly with the seller if possible. The seller and agent will be reassured if you are able to: confirm that your own house is sold; that you have 10%-20% or more of the price available as a deposit; that your mortgage arrangements have already been favourably considered subject to survey and you are thus someone the seller or agent should have confidence in. Once your offer has been accepted you will get a letter from the estate agent confirming the agreement reached on a "subject to contract" basis. This means the arrangement at this stage is not legally binding on either the seller or the buyer. At this point buyers need to incur expense by employing solicitors and surveyors and finalising mortgage arrangements. Buyers are at risk on these expenses if the deal does not proceed to a legal contract and then completion. Survey or Valuation? There are three main types of survey: Surveys are essential for the protection of purchasers and their lenders. Whilst sellers are obligated Pg 2

3 to disclose information, or at least not tell lies through the legal process, the basic underlying legal arrangement is that the buyer takes the property as it is (caveat emptor are the legal buzz words which mean "let the buyer beware"). There are no warranties or guarantees as to condition and no remedies available if the property turns out to have damp, wet rot, dry rot, woodworm, electrical, plumbing, heating, weathering, structural or other problems. The seller cannot be sued on any of these matters unless deliberate deception or misinformation has occurred. Occasionally some warranties are available, such as the National House Builders Council ten year scheme if the property has been recently built, but these should not be completely relied upon without question. A Valuation Report required by the lender to ensure that if a buyer defaults on their mortgage payments the property could be sold for enough money to pay off the mortgage. A member of the Royal Institution of Chartered Surveyors or the Incorporated Society of Valuers and Auctioneers will be instructed to visit and report on the property. The valuer's job is to compare the price with the value of other property in the area and check for any obvious repair or structural problems. Valuation visits usually take less than half an hour and give little protection to the buyer who has to pay the fee to the lenders. The fee could be anything from 100 to 250. Some lenders may offer free valuation reports as part of mortgage packages. A Home Buyers Valuation Report prepared by a member of the Royal Institute of Chartered Surveyors and requires a thorough inspection of the property. The visit may be for between one and two hours and a detailed written report of perhaps up to fifteen pages will be produced. The interior and exterior condition and services, planning, building control and legal issues are reported on. A summary of both the present condition and recommendations concerning future maintenance are given. An assessment of the open market value and recommended insurance coverage figure (assuming full reinstatement) is given. However no assumption of risk or recommendation to purchase is made. Buyers are merely given better and more information upon which to make final judgement although further reports or estimates from electricians, plumbers, heating engineers, timber treatment companies, roofers or builders may still be necessary. The fee could be anything from 300 to 1000 depending on the value of the property and the time taken by the surveyor. A Structural Survey carried out by a structural engineer and is usually only commissioned to investigate specific problems identified in a valuation report such as cracking of external walls or unevenness in the roof. A report on a specific problem might cost and a full structural survey on an entire property between Problems If a valuation or survey reveals problems with the property, a buyer can either withdraw his offer and start to look elsewhere or, if the problems can be remedied for an estimated cost, can use the survey results to ask for a reduction in the price to cover the required work. Any renegotiation in a rising market of course runs the risk of the seller considering the gentleman's agreement is at an end and accepting the original or a higher price from someone else. Mortgages Most buyers buy property by borrowing money. A mortgage is a loan of money from a bank or building society. The mortgage is secured against the deeds (ownership documents) of the property. Pg 3

4 If the mortgage repayments are not made on time the lender can evict you (repossess the property) and sell the property to repay the mortgage loan. How much? How much you can borrow depends on your income and on the value of the property you are buying. First time borrowers can sometimes borrow up to 90% of the value of the property and many first time buyers do just that. Lenders often ask for larger deposits for the better deals. An average loan for those selling and moving up the market might be a loan of 80% of the property value. My income? Individuals can usually borrow up to three times their gross annual salary. Couples can borrow either three times the higher salary plus one time the lower or two and a half times the total of their joint gross annual income. Pay slips, or in the case of self-employed applicants an accountant's letter, will be required as proof of income. These are very rough figures as loans in excess of this can be available in strong property markets. Visit our mortgages page to use our Loan Cost calculators to give you a rough idea of how much you can borrow. From time to time some lenders offer first time buyers up to 4 times their salary to get them on the ladder. Term of Mortgage? Lenders have different lending policies and you should shop around to find out what is available. The length or term of your mortgage will normally be between 10 and 25 years and you will have to pay it each month. Think about your other current and possible future expenses and income. It is important not to overstretch your finances particularly when buying in a rising market. Remember a recession or property value collapse may be round the corner as happened in the early 1990s and in Which lender? There are lots of mortgage providers with hundreds of products on the market and you should shop around, or have a financial adviser or mortgage broker shop around for you, to find the scheme that suits you best. More details on your choices can be found in our article about mortgages. Choosing a Solicitor Solicitors Solicitors are practising lawyers and officers of the Courts who have had a legal education and, who have passed examinations. Under the Solicitors Northern Ireland order 1976 solicitors in Northern Ireland have a monopoly on the legal process involved in the transfer of land (conveyancing). Solicitors are regulated by this statute and the Law Society of Northern Ireland in relation to the fees they are allowed to charge and how they may advertise their services. They are also subject to spot checks by the Law Society on their management of client monies and have to undergo an annual independent audit of their accounts and disclosure is made to the Law Society of any accounting irregularities. Solicitors have to annually pay a contribution to a compensation fund which is used when solicitors commit fraud or become bankrupt. This fund has made sure no client in Northern Ireland has ever lost money as a result of a solicitor s fraud or insolvency. Pg 4

5 Conveyancing In Northern Ireland estate agents find the buyer and agree price details; solicitors do the paperwork. Contracts for the sale and purchase of land must be in writing. For this reason and because the process involves so much money solicitors act for sellers and buyers to advise and protect their respective interests. This process is called conveyancing. Conveyancing procedures involve the preparation of a contract by the seller s solicitor and the examination of the contract and the title (ownership) documents by the buyer s solicitor prior to signature. The seller is obligated to disclose all his knowledge about the property but the buyer carries responsibility for buying the property in its current physical condition. The process is complicated and will take longer than you think. Which firm to use? Conveyancing is complex legal work. In Northern Ireland fees charged for the conveyancing of residential property are subject to a competitive marketplace. Some tips are: Solicitors' conveyancing fees vary considerably between firms and there are lots of firms. Some firms adhere closely to traditional fee scale rates (1% of the price + an hourly charge for time) and refuse to quote for business. Others are keen to give competitive quotations. Some solicitors have achieved and maintain Lexcel practice management standards audited on behalf of the Law Society of Northern Ireland. Some firms give competitive verbal fee quotations over the phone. Do not instruct a firm on the basis of a verbal quotation over the phone. Only consider instructing a firm which has provided you with a detailed written quotation. Solicitors are obligated by Law Society of Northern Ireland regulations to provide you with written terms of business detailing pricing arrangements in a specific detailed form. Check the written quotation details not only the firms proposed fees but also all the tax, registration, search and other expenses involved. The additional expenses should be similar for all firms although some firms identify these costs more clearly. Very often the presentation of the quotation information is a good guide to how organised and efficient the firm is. Most of your business will be transacted over the phone, or by post so a local firm is not essential. All your business can be effected over the phone, or post if you want. Does the firm: Advertise it clearly wants this type of work? Do the staff have pleasant and friendly telephone manners? Have you been given good detailed written quotation information? If a firm passes the above tests don't quibble if the professional fees are a few pounds (rather than hundreds of pounds!) more. Lenders A solicitor is responsible not only to his seller client but also to the seller s lender who must be paid off the entirety of the existing loan. Similarly a solicitor for a buyer is also legally responsible to the lender providing the new mortgage money and has to report to that lender on behalf of and at the expense of the buyer. Pg 5

6 Home Charter and Lexcel Schemes The Law Society of Northern Ireland have a compulsory kite mark quality scheme to set standards of quality of work by solicitors in Conveyancing matters. Some firms also comply with the higher Lexcel quality management standards. Whilst the Home Charter scheme does not measure how quickly or efficiently solicitors do their work it does set minimum standards and tasks which are expected to be adhered to by all Solicitors in all residential conveyancing matters. Some firms provide better standards and speed of service at more competitive rates than others. The Home Charter scheme provides a benchmark against which complaints can be measured. Buyer's Solicitors Job A quick list of tasks for the buyer's Solicitor in Northern Ireland are: Examination of ownership documents Examination of contract Making disclosure requests from the sellers Solicitor Requesting and on receipt examining all necessary reports on: Planning status Building control issues Roads Sewers Water Energy performance certificate Rights of way, access and usage Bankruptcy and court judgement details against the seller Searches in Land Registers against the property and the seller Reporting to the buyer and settling details on: valuation, timber and structural survey reports, fixtures, fittings and contents proposals, title details, contract proposals Drafting and preparing for signature: transfer documents, mortgage deeds Stamp duty land tax self assessment tax returns Having the buyer sign the mortgage deed, contract, fixtures, fittings and contents lists, stamp duty land tax return (and possibly associated Power of Attorney) Protecting lenders interests by checking: the buyers identity, the buyer's life insurance protection is on risk, reporting to the lender on title details, reporting any adverse problems to the lender Requesting: the deposit from the buyer and paying to the seller's solicitor Mortgage funds from the lender, the balance funds from the buyer Effecting completion Paying the funds over on completion Paying the stamp duty land tax to the Inland Revenue Key arrangements Registering in the Land Registry ownership transfer documents and lenders mortgage documents Finalising closing searches on completion of registrations, collating all ownership documents and sending to lender to keep as security, closing the Solicitor's file and storing it for twelve years in case of future disputes Buying a New Property Have a surveyor inspect the property before contract and again before completion Attend the property regularly during construction to make sure work is proceeding as you Pg 6

7 envisage (windows, plugs, doors, etc. in the right place) Inspect the property yourself and prepare a list of defects for remedying before completion Agree any outstanding items to be remedied by the developer during the post completion two year warranty period covered by the National House Builders Council (NHBC). Legals Your solicitor will ensure: There is planning approval There is building control approval A Road Bond covers the road, footpath and service installations (the developer is required to have his bank or NHBC guarantee to the Department of the Environment that the road will be finished to the appropriate standard in the event of the default or bankruptcy of the developer) A Water Consent is in place confirming the approval of sewers, drains and water supply layouts by the Department of the Environment An NHBC or other 10 year guarantee certificate is provided (giving a 2 year warranty against minor defects and 10 year cover in respect of major structural matters such as roofs, foundations and walls); alternatively an architect should supervise the work and upon completion certify that the building has been constructed in accordance with all relevant statutory requirements A building control completion certificate and builders warranty is provided after completion Buying to Rent All the above information on buying property also applies to properties bought to rent out. In addition note: Properties in areas of high demand such as properties adjacent to colleges or universities or the River Lagan give the best rental returns Have a specialist agent or solicitor prepare a proper letting agreement if this is your first time to let Employing a management or letting agency is best if this is your first let A property is often much more attractive to a tenant if it is completely furnished Make sure you have full insurance cover of all contents to a suitable value Phone tenants referees or present or previous landlords to see if they exist Obtain bank references for any prospective tenants Insist on a minimum of one month's rent (preferably) to hold as a security deposit against damage to your property or non payment of future rent Ask for the signature of a wealthy guarantor from tenants as security for damage caused or non payment of future rent It can take a considerable time to evict non-paying tenants through the Northern Ireland legal process If your property is owned subject to a mortgage you will need your lender's consent to the rental agreement You can offset the cost of your mortgage and repairs against the income you receive for tax purposes (keep detailed records for your tax returns) Ensure your solicitor checks that the property is not affected by a restricted rent - they can do this by checking details held on the Rent Register. If you rent a property which is found to be unfit for human habitation the rent you will be able to recover irrespective of any written agreement your tenant has signed will be subject to statutory control Pg 7

8 Your tenant has rights and must be given a statement of terms and a rent book. Removal Firms A move can be hard work. There is much to organise. You will need to book a removal firm in advance once you know the completion date. You should leave plenty of time to sort out your things and decide what is going where. Label as many boxes and crates with what is inside them and which room they will be going into in your new home. What we can do for you? Wilson Nesbitt Solicitors aim to keep things transparent and as simple as possible for our clients. We don't want you to worry at any point about the legal complexities or technicalities of your transaction. You'll be kept informed throughout the process. We offer price transparency and deliver by whatever combination of telephone, , post or direct consultations suits you best. We can conduct transactions entirely electronically or by post if you wish. Our property team members are experts in managing the process of buying and selling property smoothly and seamlessly. To make immediate use of our services simply complete your details and we'll give you our free, instant, no obligation legal expense quotation. Once you have instructed us, you will be able to follow the progress of your transaction through our Online Case Tracking System. Should you wish to obtain further information on our services then please either contact one of our experienced team members profiled on the right of this web page, telephone property@wilson-nesbitt.com Pg 8