The number of first-time buyers is at its highest for ten years, accounting for 51 per cent of the market despite rising prices and record deposits according to the Halifax. If you are thinking about taking that first step onto the property ladder, the legal aspects of ownership may be the last thing on your mind. However, taking a little time to think about these issues will help make sure your hard-earned money goes as far as possible. Helen Harris, a residential conveyancing expert with Forrester Sylvester Mackett, shares some tips to ensure buying your new home runs smoothly.
Work out what you can afford
Buying a house or flat will probably be the biggest financial commitment of your life, and it pays to budget carefully.
Work out the overall cost of buying a property before making an offer. Include all your incidental expenses, such as stamp duty land tax (SDLT), surveys and legal fees. If you are taking out a mortgage, you also need to be confident that you can meet the monthly repayments. If you fail to meet them you risk losing your home, so it is essential that you investigate fully the affordability of any intended purchase.
There are several online resources that allow you to do this such as the Money Advice Service, an independent body set up by the government to help people plan and manage their money.
Find the right mortgage for you
Few of us are fortunate enough to be able to buy a house outright and you will probably be looking to borrow some of the cost. Conventional lenders like banks and building societies will expect you to save a deposit of between five and twenty per cent. There are a wide range of mortgages on the market, and it is a good idea to get some independent financial advice on what is best for you.
Consider different sources of funding
You may also want to investigate other sources of funding. For example, parents or other family members may offer to contribute through a gift or loan. However, this type of assistance needs careful consideration and any arrangement should be documented to ensure there are no misunderstandings later. The tax and other legal implications need to be fully explored with your lawyers.
There are also some government-backed schemes aimed at helping first-time buyers, such as Help to Buy and the Starter Home Scheme. You can find out more at https://www.ownyourhome.gov.uk/schemes-all/.
Another idea is to pool resources with a partner or friend, which could allow you to afford a home that would otherwise be too costly. However, co-ownership can give rise to problems if the basis of your ownership is not addressed at the time of purchase. Your laywer can help by making sure the transfer deed correctly reflects your intentions. This is the document which transfers ownership from the seller to the buyer.
Agree the basis of co-ownership
If you buy a property with another person, you need to agree whether you will be ‘joint tenants’ or ‘tenants in common’.
Joint tenants have equal rights to the whole property, whereas tenants in common own separate and distinct shares. If you are a joint tenant, when you die your surviving co-owner(s) will automatically own the whole of the property. In contrast, if you are a tenant in common, your share will pass to someone of your choice via your will or according to the rules of intestacy if you die without one.
If you are contributing in unequal shares and wish to avoid disputes in the future, it is worth investing in a declaration of trust. This can set out how you want to split the net sale proceeds when you sell the property, and what should happen if one of you wants to end the arrangement.
Deciding how you will own your new home should form part of your overall financial planning as it could have a major impact on how much tax your estate pays in the event of your death. Equally, you may want to ensure that your partner does not have to worry about keeping their home should you die before them. So, now could also be a good time to make or review your wills.
Check whether the property is freehold or leasehold
Any property will be either freehold or leasehold, and it is a good idea to clarify this at the outset.
With a freehold, you own the property and the land it sits on outright. In contrast, a leasehold gives you the right to occupy the property for a set number of years. With a leasehold property, somebody else owns the freehold which means you will have a landlord. You will have to pay them ground rent and possibly a service charge to cover insurance and the upkeep of common parts. These can add considerably to the ongoing costs of ownership and you will need to factor them into your budget. A lease is also likely to include restrictions on how you use the property. For example, you may not be allowed to keep pets, or you may need the landlord’s permission to make alterations.
If you are interested in a leasehold property, it is important to be aware of any additional charges or matters that could affect your use of it. An experienced conveyancing solicitor can explain the lease terms to you and help you avoid potentially expensive pitfalls.
For advice on buying your first home, or buying or selling a property, please contact Helen Harris on 01225 755621.