The aim of these notes is to help you understand the various terms you will hear during the course of your transaction and to explain the procedures involved. We believe that a few minutes spent reading through these notes now will give you an overview of the conveyancing process and will help you to make strategic decisions to plan your move and keep the process as stress free as possible.
Please note that we will make certain assumptions on your behalf as part of the house buying process. These assumptions are explained in these notes and are highlighted in bold italic type.
When you first agree to buy or sell property there is no legally binding commitment to go ahead with the deal. After exchange of contracts there are potentially severe financial penalties if you withdraw from the deal.
Before we can advise a buyer to exchange contracts various key stages need to be completed. These are:
Approval of the draft contract – to ensure that it correctly reflects the agreement made between the seller and buyer
Approval of the title
Searches need to be carried out and the results checked
Property forms and title issues need to be checked
Consideration ought to be given to carrying out a survey
Finance needs to be organised and in place
The chain needs to be checked to ensure that everyone is ready to proceed
The deposit needs to be collected from the buyer
Generally, it takes around 6 weeks to get to exchange of contracts on a freehold purchase from the point we receive the draft contract from the Seller’s Solicitors, but it is very difficult to predict the timescale precisely – factors such as the length of any chain, delays in receiving mortgage offers and searches can all influence the time needed to arrive at the point of exchange of contracts. This is why we recommend that a moving date should not be agreed at the outset of the transaction as it is impossible to know what might happen as the matter progresses. In our experience, agreeing a date too soon can place unnecessary stress on the buyer and seller as they frantically try to hit what might have been an unrealistic target date from the outset. If you are in rented accommodation, we would strongly advise against giving your notice until exchange of contracts.
The key stages referred to above are set out in more detail below. Most of these stages apply to buyers, but it is useful for sellers to know what the buyer has to do before the buyer is ready to go ahead. Depending on the circumstances of the case, some of the stages described below may not apply.
The contract is prepared by the seller’s solicitor and should reflect the terms of the agreement between the buyer and seller. It contains the full names of the seller and buyer, a description of the property, the price and any other matters, such as restrictions on use of the property that the parties may have agreed between themselves.
When acting for the buyer, we check the contract in readiness for it being signed prior to exchange of contracts.
When acting for the buyer, we prepare the Transfer Deed which confirms the method of Joint Ownership. If you are buying jointly we need your instructions on joint ownership before we prepare the transfer. We ask you to confirm this in the Property Questionnaire. Please see the Joint Ownership page for more information.
This is a tax payable by the buyer on completion. As from 4th December 2014, tax is payable on completion only upon the part of the purchase price falling within the below percentage rates and bands.
The government announced at the Spending Review and Autumn Statement 2015 that higher rates of SDLT will be payable from and including 1 April 2016 for property in England and Wales purchased as a Buy-to-let property or second home. As a consequence, clients purchasing a property which falls into either of these categories will have to pay an additional 3% on each stamp duty band. For example, a buy-to-let purchaser buying at £150,000 will be required to pay 3% on the first £125,000 and 5% on the remaining £25,000. The table below shows the rates that will apply.
*Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.
There are exemptions available depending on your circumstances. Further information can be found at the following website – https://www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-propertiesRich
When we receive the contract and supporting title documents from the Seller’s Solicitors we will check the documents supplied and prepare a Preliminary Report. The Report will be sent to you along with copies of the title and supporting documents received from the Seller including the Property Forms. At this stage we may need to raise further enquiries with the Seller’s Solicitor. If so, we will provide you with a copy of our letter. Because our firm has a Conveyancing Quality Scheme accreditation, we must resist asking any enquiries that could be identified from inspection of the documents, or from your own inspection of the Property. We will only therefore raise enquiries specific to the title of the property.
When we are fully satisfied that you will obtain good title following completion, when we have replies to all enquiries raised and when we have reported to you on the searches and mortgage and all conditions have been satisfied, we will then send you a final Property Report. You will need to read through the contents of this report before you provide us with your authority to exchange contracts.
These are supplied by the seller and comprise a list of standard questions concerning the property that most buyers would like to ask. Some typical questions are:
Who maintains the boundaries?
Are there any guarantees for work done at the property?
Have there been any disputes with neighbouring owners?
Is the property affected by rights of way?
If the property is leasehold there will also be information concerning the lease, service charges etc.
The seller will also usually supply a list of fixtures and fittings indicating which are included in the price, which are excluded and which may be purchased by separate negotiation.
A seller should disclose all relevant information about the property to his buyer, but if he does not it will be very difficult for the buyer to prove that the seller deliberately withheld information from him. Furthermore, the law operates a “buyer beware” principle which means that it is for the buyer to satisfy himself that the property is structurally sound. Indeed, the law assumes that if the buyer has exchanged contracts he is happy with the state of the property; hence it is very difficult to persuade the courts to help the buyer who only discovers defects after completion, particularly where these could (and should) have been discovered prior to exchange of contracts.
Whilst most buyers find it tempting to rely on the mortgage lender’s valuation of the property this is rarely sufficient. Buyers should understand that a valuation is exactly that – a valuation – it is NOT a survey.
What is the distinction between the valuation and a survey- and why is it so important, anyway?
A valuation is prepared for the benefit of the mortgage lender to enable it to assess whether the property is good security for the amount of the mortgage loan. The valuer does not undertake a detailed inspection of the property and structural defects and faults may not be identified. Usually the valuation report will contain advice to the buyer that the buyer may not rely upon the contents of the report. In practical terms, this means that if the valuer fails to identify a significant problem with the property which only comes to light after completion, the buyer will have no legal remedy against the valuer and will not be able to seek compensation. The buyer has bought a problem and it will be the buyer who will have to pay to put the problem right. Mistakes do happen. Pity the poor buyers who moved in to their dream home only to find that the valuer had failed to spot that the seller had relocated the staircase in the property and left it balanced on two six inch nails.
It is for this reason that we recommend that buyers should give serious thought to having a detailed survey carried out by their own surveyor. The buyer will have a direct contract with the surveyor – and if things sadly do go wrong the buyer may be able to seek compensation for breach of that contract. However, on the assumption that the surveyor has done a good job – as of course most of them do – the buyer will know what defects exist and may be able to renegotiate on the price to help pay to put the defects right. Even if the surveyor reports that the property is structurally sound and in good order, the buyer should regard the survey fee as money well spent in purchasing the peace of mind that goes with knowing that all is well.
The buyer should also consider whether specialist reports might be needed from tradesmen who can check out the electrical wiring and the central heating or look for evidence of rising damp or timber decay.
Remember – it is the buyer’s job to be satisfied that the property is sound and good value for the price being paid.
We will assume that once a buyer authorises us to exchange contracts on your behalf that you are satisfied with the state and condition of the property and that you have carried out all inspections and surveys that you deem necessary.
Most buyers will require a mortgage to help with the cost of the property. It is not safe to exchange contracts until the buyer has a firm offer in writing from the mortgage lender. Sometimes a mortgage offer may contain conditions that need to be fulfilled before the money can be drawn down. All lenders require a period of notice to release funds – up to five working days in most cases – and this has to be taken into account when setting completion dates.
A first time buyer of an empty house is lucky – there is no chain.
More often than not there will be a chain of interdependent sales and purchases and exchange of contracts can only take place when everyone in the chain is ready to go ahead. It may be impossible to influence others involved in your chain and buyers and sellers should understand that the various members of the chain may be working to different agendas. One person may wish to complete very quickly, but the first time buyer at the bottom of the chain may not want to complete until his tenancy on his rented flat has expired as he cannot afford to pay both rent and mortgage payments in the same month. One person may receive their mortgage offer very quickly, but someone else in the chain may be having problems obtaining their offer because the wages clerk who was supposed to send off the buyer’s salary information has gone away on holiday and nobody else can deal with it. Such things can often happen.
On exchange of contracts a deposit is paid by the buyer to the seller. Payment is made through solicitors and is usually 10% of the purchase price, but a smaller deposit may be agreed, particularly if the buyer is obtaining a 95% mortgage. In the chain everyone should in theory find 10% of the price of the property they are buying, but in practice most people’s money is tied up in the house they are selling and there’s no spare cash. As a result, the deposit paid by the buyer at the start of the chain is simply passed along the chain to the end of the line.
Once the above key stages have been reached everything is in place and we can proceed to exchange contracts. Before that can happen, though, we need to agree the completion date.
This is the day when the buyer pays the balance of the price for the house and gets the keys. The seller gets his money and has to move out of the property if he has not done so already.
We strongly recommend that there should be a gap between the date of exchange of contracts and the completion date. We believe that there are compelling reasons for having this gap:
It enables the seller and the buyer to make their removal arrangements and arrange for final meter readings confident in the knowledge that the completion date is fixed; and
It enables us to request your mortgage funds and carry out our pre-completion searches.
Increasingly clients are asking us to reduce the gap between exchange and completion. Sometimes we are asked to exchange and complete on the same day. Whilst we will of course follow our client’s instructions we must point out that in our experience there will be far less stress and far less chance of things going wrong at the last minute if there is a reasonable gap. As property lawyers one of the worst things that we sometimes have to do is tell clients that their completion will not be taking place due to a last minute hitch down the chain, resulting in some cases in clients having to unload their removal van and carry their furniture back into their “old” house until a new date can be fixed. To add insult to injury they still have to pay their removal men for their time. Such things do happen, though thankfully infrequently, but the chances of things going wrong can be considerably diminished by leaving a gap between exchange and completion. We appreciate that moving in to a new house is an exciting thing and people don’t always want to wait; but consider that most people move only once every 11-14 years – an extra week’s wait is an insignificant amount of time but it can really help remove the stress from the removals process.
If you do instruct us to exchange and complete with little or no gap between the two dates, we will assume that you are aware of the risk that your arrangements may have to be cancelled at the last minute and other arrangements postponed. There may also be financial consequences – for example your removal company may charge a cancellation fee, and we may have to return your mortgage money to the lender, which will incur additional bank charges
We are not usually involved in handing over keys – this is normally dealt with through estate agents. Please note that the keys will not be handed over until the seller’s solicitor has received the purchase money. If there is a chain the keys may not be available until late in the day because the money needs to filter up to the top of the chain via bank transfers. We have no control over how long these transfers will take – if it is a particularly busy day for the banks there may be a time lag. As a rule of thumb, the higher up the chain you are the later you will receive your keys. We do not recommend arriving at your new house before lunch time as this will allow time for the money to be transferred and will cut down any delay in the keys being released to you.
We hope that these notes prove helpful in understanding what is involved in buying and selling a home. Please feel free to ask us if there is anything that you don’t understand during the process – we’re here to help.