The House Purchasing Process

So you’ve made an offer on a place and it has been accepted. Now it’s time to get the ball rolling on legally transferring the ownership to you. Anjum Khaliq of our conveyancing team sets out the process…

Purchase Pack
The purchase pack is the initial documentation, containing terms and conditions and the client information questionnaire. Once you have appointed us, we send this to you straight away. We ask you to return the completed pack to us together with your identification documentation. When it is all received, we start the legal work.

Memorandum of Sale
Your estate agents (if applicable) will send us a copy of the Memorandum of Sale, which provides the details of the property, the amount offered and the name of the sellers and buyers and their conveyancers.

Mortgage
We will need to know if you are purchasing with the aid of a mortgage and, if so, who the lender is and how much you are borrowing. We will want to check if there is any element of the purchase that we are legally bound to report to your lender, for example if you receiving funds as a gift or loan from a third party, typically a family member.

Contract Review
The seller will complete a fixtures, fittings and contents form and provide specific details about the property. You will need to check the details and inform us if there is anything that needs clarifying.

Arrange a Surveyor
We recommend carrying out a full structural survey for the property. You should not rely on the valuation report issued by the lender’s surveyor as it is very basic and is produced for your benefit.

Property Searches
We will request searches which will include Local Authority Search, Environmental Search, Planning and Water and Drainage Search which are standard searches. If there is a particular search you would like carried, for example Crossrail or HS2 or a specific infrastructure matter, we will do that for you. See the story opposite for more about searches.

Report
We will examine the documents provided and raise enquiries with the seller’s conveyancer before sending you a legal report. This will contain information about the title to the property and a preliminary draft of the contract and transfer for you to sign.

You should read the contract carefully, sign it and return it to us. The transfer is the legal document which both seller and buyer sign to transfer the ownership of the property. This must be signed in the presence of an independent adult (18+) witness. The original should be sent back to us. We will also report to you with the Mortgage Offer (if applicable) and will send you the Mortgage Deed for your signatures. The Mortgage Deed also should be signed in the presence of an independent adult witness.

Deposit
Once you are happy with the searches and enquiries, we will require the deposit funds to proceed to exchange of contracts. This is normally 10% of the purchase price. We will account to you after exchange of contracts with a financial statement that shows the funds you have paid, the mortgage funds, Stamp Duty and professional fees and disbursements.

If you are buying and selling simultaneously, we would normally use the deposit received from your purchaser to pass on to your seller and, if required, will request the additional funds from you.

Buildings Insurance
It’s important to have buildings insurance in place by the exchange date. This will be a condition of your mortgage lender and will protect your investment in the property and your mortgage lender’s interest as well.

Exchange of Contracts
When the contracts have been exchanged, both seller and buyer are contractually bound to complete on the agreed completion date. The conveyancers usually exchange contracts over the telephone and then send the completed signed contracts by post. Exchanging contracts by your conveyancer legally binds both parties to transferring the property, so you can rest assured the seller must vacate on the day of completion. Mortgage monies will be requested from your lender and the paperwork will be collated in readiness for completion.

Completion Day
On the agreed day of completion, we will send the outstanding balance of the purchase price which you have provided to us, including the money received from your mortgage lender, to the seller’s conveyancer by telegraphic transfer. As soon as they receive the monies, they will inform us and the estate agents and the keys can be released. The property will then be legally yours.

Application Land Registry
Once completion has been confirmed, we will pay stamp duty land tax on your behalf.  We will also make an application to Land Registry with the change of ownership form called the Transfer Document signed by the vendor.

Title Deeds
Once Land Registry has processed the application, you will receive a copy of the title information document showing you as owner. This usually takes a few weeks, slightly longer if the property is a new-build.

Indemnity policies explained

If you’re selling a property, you may find the buyer’s solicitors and the mortgage lenders insist on an indemnity policy being in place before the sale can go ahead. If you’re buying a property, your conveyancing solicitor may advise that a policy should be purchased before you proceed. In this article, property specialist Eve Crampsie looks at the different types of indemnity insurance policies and what they do.

A Legal Indemnity Policy protects the buyer when a problem in the title of the property cannot be resolved. Under this policy, the insured party is indemnified by the insurer against any specified costs or losses which may occur in the future. The premium for a legal insurance policy needs to be paid only once and is usually transferred to successors in title.

Indemnity policies basically cover valuable losses of any property and legal costs. Indemnity insurance will cover most title defects as well as some other issues.

Common types of indemnity policies

1) Absence of Easement Indemnity Insurance

The Absence of Easement Indemnity Insurance is an insurance policy used when part of the property or private land abutting the property does not have the necessary legal rights over private land abutting the property so the purchaser cannot enjoy the rights necessary to occupy the land. An example might be where there are no rights of access to get to the property over private land abutting the property, or where services which are private or cross private land serve the property.

For at least 12 months before the policy is put on risk, the right must have been exercised unchallenged. It may also be necessary to obtain a statutory declaration from the seller confirming the position throughout their period of ownership. Once the policy is put on risk, any financial losses which occur during the time that the use of right was being challenged, the policy provides compensation.

2) Adverse Possession Indemnity Insurance

In some cases, the owner of the property may have claimed ownership of some land but they are unable to provide required evidence to Land Registry to prove they are true owners. Here, the owner will only have possessory title. This is called adverse possession. In such situations, it is necessary for anyone purchasing the land to have indemnity insurance. The insurance will cover financial losses suffered by the purchases if someone tries to claim the land.

3) Breach of Covenant Indemnity Insurance (Freehold)

In cases where there is a breach of covenant relating to a freehold title, indemnity insurance can be of great help if the breach is less than 20 years old. The Breach of Covenant Indemnity Insurance can be offered as an alternative so the beneficiary’s consent can be obtained. The cover will have a condition that the breach should at least be 12 months old and that the person obtaining the insurance knows of no attempt by the beneficiary of the covenant to take action.

4) Flying Freehold Indemnity Insurance

When a part of the freehold property overhangs that of a different freehold property, a flying freehold is said to occur. This usually happens when a property is divided into many freeholds.

5) Good Leasehold Title Indemnity Insurance

If the Land Registry doesn’t receive necessary proof of the superior title for a given property, a good leasehold title is usually used to register the property. The Good Leasehold Title Indemnity Insurance will offer compensation if the claim to the title is successfully challenged. For this policy, the cover will have the condition that no challenge should have been made when indemnity policy was taken out.

6) Lack of Planning Permission or Building Regulations Approval Indemnity Insurance

At places where property has been built, altered or extended without proper permissions and approvals, this insurance comes into effect. If the owner loses money because the local authorities took action on breach of regulations, the policy will cover it. This insurance is usually available only for work that was carried out at least 12 months ago.

7) Unknown Easements, Rights and Covenants Indemnity Insurance

This indemnity policy might be used where there are documents which are either known to affect the title to a property or which might affect the title but the documents themselves, or details of their contents, cannot be produced. These documents may also contain covenants or restrictions which are in conflict with the current use of the land. Even though an indemnity policy cannot prevent enforcement of covenants, it can provide financial compensation if any.

COMMON QUESTIONS

What is building regulations indemnity insurance?

You’re most likely to come across indemnity insurance for building regulations during a house sale or purchase.It’s a type of policy that’s sometimes recommended by conveyancing solicitors because work has been done to the property – an extension has been built, for example – but there’s a concern from the local authority over lack of evidence that building regulation consent was granted.

Indemnity insurance for planning permission is available too if you lack the documents to prove planning permission was granted.

Do you need a ‘lack of building regulations approval’ indemnity policy?

While the paperwork is being checked for the house sale, if there’s no completion certificate showing the appropriate building regulations process has been followed, an indemnity insurance policy is often requested by the buyers’ solicitors. The indemnity insurance is designed to protect the new homeowners (and subsequent owners) against legal action if the local authority serves a building regulation enforcement notice. Basically, the local authority can force the owner to alter or remove any work that doesn’t comply with building regulations. The insurance can cover the legal costs or fees associated with this.

In practice, building regulations indemnity insurance is very rarely claimed on, and some people question how useful it really is (it wouldn’t, for example, cover the cost of putting any work right). But many people agree to buy a policy so the house sale can progress.

Depending on the insurer, indemnity policies can be arranged through the post or online. KWW has an account with a selection of insurance companies. The cost or premiums for indemnity policies depend on the value of the property as well as the risk insured. Accordingly, the premiums are charged on a sliding scale, ranging from as little as £20 to as much as £300. KWW charges a fee to negotiate and put on risk an indemnity policy.

You need to be aware the legal indemnity insurance merely offers financial compensation. It does not cure the insured defect. It is also a condition for indemnity policies that their existence not be divulged to a third party.

Buying a retirement home: Things to consider

The United Kingdom’s population is aging rapidly and, fortunately, higher living standards mean most of us will enjoy a long and active retirement. As we grow older our housing needs often change and, if you are approaching retirement you may have already started to think about your options. Here, Sarah Trickey, our residential conveyancing expert, looks at some of the things you need to consider when buying a home for your retirement.

Funding a house purchase in later life
Many older homeowners can afford to fund their purchase from the net sale proceeds of their existing home. If you are in this fortunate position, you can finally become mortgage-free. However, this does mean synchronising your sale and purchase, or selling your existing home first, so you will need to be organised and find a conveyancer who can keep your sale on track.

If you do need to borrow, finding the right mortgage may be harder as you get older. Many lenders place age restrictions on who can borrow, and some will not lend against certain types of retirement property. Your lender may agree to transfer your existing mortgage, and recent changes have made it easier for older borrowers to take out a fresh mortgage. For example, several lenders now offer retirement mortgages which allow you to pay just the interest each month. The loan is paid off when your home is finally sold. However, this is still something of a niche area and it is important to get specialist independent financial advice to ensure any arrangement is right for you.

The difference between freehold and leasehold
Most properties in dedicated retirement complexes or sheltered accommodation are leasehold. So too are most flats which are another popular option for downsizers. If you are used to owning a freehold, some of the differences between freehold and leasehold may surprise you. With a freehold, you own your home outright. In contrast, a lease only gives you the right to occupy the property for a set number of years. A lease is therefore a diminishing asset. You will also have a landlord, to whom you must pay ground rent and, usually, a service charge to cover insurance and the upkeep of common parts. This can be an advantage if it relieves you of the responsibility for repairs and for keeping the garden tended. However, the downside is that it will also probably add considerably to the ongoing costs of ownership and you will need to factor this into your budget.

Additional restrictions
A lease will also include restrictions on your use of the property. For example, you may not be allowed to keep pets or you may need permission to make alterations. An experienced conveyancing solicitor can explain these provisions to you, so you can ensure the property still meets your needs. This is particularly important with retirement properties, where leases often contain additional restrictions that you would not find elsewhere. For example, leases may restrict ownership to people over a certain age. This means there will be fewer potential buyers when you, or your heirs, come to sell, and this may affect your property’s value. Some leases also prevent you from sharing occupation with another family member or carer who does not meet the age requirement. This could cause problems if your personal circumstances change or you need additional live-in help.

Additional charges
Service charges for retirement properties are often high compared to conventional homes because of the additional healthcare facilities on offer. As well as factoring these costs into your budget, you should consider whether they are likely to increase and by how much. Remember too, that you will still have these expenses even if the property is empty, for example, if you go into long-term care. You may be attracted to a development because of the additional services provided, for example an on-site restaurant or resident manager. However, some of these may be discretionary and could cease in the future. Your solicitor can check which services the landlord is obliged to provide and which can be withdrawn.

What happens on resale?
Some leases of retirement homes impose additional charges if you want to sell. Typically, these range from one per cent to thirty per cent of your home’s value. In some cases, these charges will also apply if you die and your property passes to your loved ones or next of kin. Unfortunately, these types of provision, and their consequences, are not always clear to buyers.

For advice on buying a home for your retirement, or buying or selling a property generally, please contact Sarah Trickey on 020 8979 1131 or email s.trickey@kww.co.uk

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

Choosing a law firm? Why it’s smart to keep it local

There are many benefits to using a local solicitor rather than a remote or online service supplier. The most obvious one is that you are in the same area, which makes certain stages of the transaction – for instance producing identification documents at the start of your matter or signing documents when you are edging closer to that dream move – much easier to deal with. Having a solicitor ‘on your doorstep’ will make these sometimes tedious and time-consuming tasks easier to complete. Solicitors that practice in the local area may also have strong links or relationships with other property experts in the area, which can be invaluable throughout the conveyancing process.

But isn’t it cheaper to use an online conveyancing firm?
Not always. You have to be very careful when comparing quotations from solicitors that there aren’t any hidden extras. Solicitors fees that sound too good to be true generally are too good to be true.

Can’t we just deal with everything via telephone and email?
Legal documents such as contracts and transfers have to be signed by hand. In some cases, these documents need to be witnessed, and that is something your solicitor can do for you if he or she is local. By using a firm out of your local area the process of signing documents would have to be dealt with using the postal service. Many conveyancing transactions are time-pressured, so a quick visit to your solicitor to sign can help you achieve your desired completion date. Your solicitor must also verify your identity for every transaction, and check where your money is coming from if you are buying. This can be done online but verifying your identification this way carries additional costs.

Can I do my own conveyancing to save costs?
It is our strong advice that you should always instruct a suitably qualified conveyancer to conduct your sale or purchase. Conveyancers have trained for several years to become experts in the law and the conveyancing process. It is simply not worth the risk.

How can I tell which firm is right for me?
There are a number of key things to look for when deciding which firm to use. To name a few:
* Is the firm regulated by the Solicitors Regulation Authority or other licenced body?
* Has the firm provided you with a clear indication of costs?
* Has the firm been awarded the Conveyancing Quality Scheme (CQS) accreditation from the Law Society?

For many, moving house can be a stressful and daunting prospect. It is therefore vitally important that you instruct a conveyancer you can trust to do the best job possible and to act in your best interests. Choose a firm that has a good reputation, is experienced and has qualified lawyers and, most important, a firm you feel comfortable dealing with. A firm like KWW Solicitors, perhaps.

Bank of Mum and Dad: Go in with your eyes open

Have you heard of The Bank of Mum and Dad? It’s been around for as long as any of us can remember, but from humble beginnings – 50 quid to buy a car back in the 60s, £250 toward a wedding in the 70s, perhaps £500 toward the deposit for a flat in the 80s – it has grown out of all recognition to become what would on paper be a UK top 10 mortgage lender. The good old Bank of M&D will help to finance a quarter of all UK mortgage transactions this year – at an average amount of around £17,500.

Without The Bank of M&D it’s hard to see how young people (and the not-so-young: the average age of a first-time buyer in the London area is 32) living in this affluent part of the UK could take their first steps on to the housing ladder. In fact, a study by insurance giant Aviva forecasts that by 2025, 3.8 million people aged between 21 and 34 will be living at home with their parents – that’s a third more than at the moment. The study also forecasts that the number of households containing two or more families is also expected to rise, from 1.5m to 2.2m. Aviva’s figures assume house prices will continue to rise t the same rate they have done over the past 10 years.

Still better than renting
At KWW, we are seeing more and more instances of generous parents providing that essential financial boost, often as much as 10% of the purchase price. “House prices may be very high,” said one of estate agent contacts “but mortgage repayments are still less than rental payments and owning a property even with a large mortgage gives the kids an investment rather than paying out dead money.”

If you are a parent or family member looking to help your loved one into their first home, there are some important things to consider from the outset.

Gift or Loan?
It is important the family member who is offering the helping hand confirms whether the financial assistance is a gift or loan. It is sometimes difficult to distinguish between the two. A gift is essentially where the financial assistance is given with no strings attached. This effectively means the family member assisting financially (we’ll call them the ‘donor’) does not impose any conditions on the funds being paid back and will not legally have any interest in the property. So if the donor might want their money back on the future, this may not be the route to choose.

A loan is where the financial assistance is repayable. If the money is repayable, the donor should first consider how the money is repayable (for example, how often, over what term and will there be interest on the loan) and second, whether a charge needs to be registered against the house to protect the donor’s interest.

A charge is a legal document which will set out the terms of the loan. KWW can help you with preparing and registering the charge with the Land Registry on completion. Where a charge is registered against the property, consent would be required by the charge holder (the donor) in order to remortgage or sell the property in the future. If, however, the purchase is also going to be with the aid of a High Street mortgage, consent is required from that lender to register a second charge and is often not granted for fear of the borrower being overextended financially. A registered charge will protect the interests of the donor in the event of future family disputes, marriage or family breakdown/divorce.

Joint ownership
Parents or family members often assist with mortgage applications, helping to increase the amount mortgage companies are prepared to lend. In this situation the donor usually becomes a joint owner of the property. There are two ways you can own a property jointly in England & Wales – as joint tenants or tenants in common. As joint tenants, in the event of the death of one of the owners, the property will transfer to the surviving owner regardless of what it says in the deceased owner’s will or under the rules of intestacy.

With tenancy in common, on the death of one of the owners, the share does not automatically pass to the surviving owner but according to any valid Will or otherwise the rules of intestacy. Because the shares are distinct, the tenants in common can hold unequal shares in the property. KWW can prepare a Declaration of Trust, which is the legal document that sets out how those unequal shares are held by each owner.

Another important thing to consider if you are buying a property with your child or a family member is whether either of you is likely to own another property anywhere else in the world at some point in time. If this is the case, you may be liable to pay the higher rate Stamp Duty Land Tax on completion, being a second home owner. If you are purchasing jointly with a mortgage, you must understand that you are equally responsible for full repayment of the loan, not just a share of it, regardless of how you jointly own the property.

So, using an example, if mum and dad are purchasing a property jointly with their son with a mortgage and the son is to live at the property and repay the mortgage, if he fails to make the repayments on the mortgage then his parents are equally responsible for the full repayment, including the balance of the loan (not just a proportion of it).

We’re always pleased to see families coming together to help dreams come true but we would urge a great deal of thought to go into the decision-making process and the appropriate legal steps to protect everyone’s peace of mind.