Property investment is the asset class that offers an opportunity to all types of investors and 2021 could be an exciting year for both experienced landlords and for those stepping onto the ladder for the first time. There could be an abundance of opportunities across the UK, so being prepared is imperative to maximise the potential. This property investment guide for the UK explains all the steps involved when buying a property.
- Make sure you’re in a position to buy
The first step is to make sure you can complete the transaction. If you’re buying with cash, no problem, just make sure you’ve got enough in the bank to cover the purchase, Stamp Duty, and other costs.
If you’re planning to use a mortgage, you can ask your broker to get you an agreement in principle from a lender. This means that the lender has taken a high-level look at your situation, and decided that you’re the type of person they’d lend money to. It’s not a binding offer, and it’s still possible that they’ll find something they don’t like about the property, but it’s a very good place to start.
- Make your offer
You can make your offer either verbally or in writing. Either is fine, but it is better to reiterate the offer in writing to keep things clear.
Your offer will include the price you’re willing to pay, of course, but you should also mention any other important factors that cast your offer in a positive light, such as:
If you’re an investment buyer you won’t have to sell a property first, so there’s no chain. That’s a big positive from a seller’s point of view.
If you’re buying without a mortgage, that’s one less thing that can go wrong so that’s a positive too.
If you are using a mortgage, you can attach your agreement in principle to show that you’re able to get finance.
- Have your offer accepted
All being okay, after a bit of back-and-forth you will get a call saying that your offer has been accepted.
At this point, the estate agent will issue a memorandum of sale confirming what’s been agreed. They’ll also ask you for the details of your solicitor, which means they can copy the letter to both sets of solicitors to moves things along swiftly.
- Instruct a solicitor
Your solicitor will receive the memorandum of sale from the estate agent so will be aware of the broader strokes, but you should also get in touch to find out specifically what they need from your side.
If you don’t have a solicitor yet, now’s the time to find one. There are a few things to watch out for when finding a good solicitor:
Get a fixed price quote for the transaction. To give a quote, the solicitor will need to know the purchase price, whether you’re buying as an individual or a company, whether you’re using a mortgage, and whether or not it’s leasehold.
Avoid cheap, large-scale licensed conveyancers, because they tend to keep costs down by operating a “call centre” model and you’ll never be able to speak to the same person twice
If you require a very fast completion, make sure they’re aware of that from the off and are in a position to act quickly.
You’ll need to sign a client engagement letter, and probably advance them a few hundred pounds to cover the costs of ordering local searches.
- Arrange your mortgage
Tell your mortgage advisor that you’ve had an offer accepted, and they’ll get things moving with the lender. It could be the same lender you’ve previously had an agreement in principle from, but they might approach someone else if better deals are now available or if the original lender doesn’t like this specific type of property.
The lender will need to know your solicitor’s details because your solicitor will arrange the legal aspects of the mortgage as well as the transaction itself.
They’ll book in a valuation survey, which you’ll often have to pay for, via your advisor.
- Get a survey
If you’re using a mortgage, your lender will undertake a valuation survey of the property before formally approving your mortgage offer and releasing the funds.
This is just a quick assessment for their own purposes to check that the price is reasonable, the rent will be high enough, and the property meets their lending criteria. On top of that, you can choose whether to get a survey of your own done.
The most comprehensive type of survey is a Full Building Survey (formerly known as a Structural Survey), which is only really necessary for old properties, listed buildings, or those built using non-standard construction methods. The survey will look into concerns around damp, drainage, woodworm, timber condition, and more.
A cheaper and more basic option is a HomeBuyer Report, which inspects all the main aspects of a property. For each item, such as the roof, flooring, and windows, it will give an opinion about whether any work is needed, and give comments for future investigation.
It’s up to you whether you think this is worth it. If you’ve inspected the property yourself and you’re confident in your ability to spot anything obviously wrong, it’s unlikely to reveal anything new. But if you lack experience, it could be either useful peace of mind or a cheap way of discovering that you actually don’t want to buy the property after all.
If you do decide to get a survey done, you can either ask an estate agent for a recommendation or search the database of Royal Institute of Chartered Surveyors (RICS) members. Once the report comes back, don’t be afraid to call the surveyor if you have any follow-up questions.
- Wait through the legal process
Although it’ll often feel like nothing is happening at all for weeks on end, there’s actually a lot going on behind the scenes during the legal process:
Your solicitor will order local searches covering flood risks, contaminated land, historic mining, and more. It can take a few weeks for these to come in.
If the property is leasehold, your solicitor will order an information pack from the freeholder, which you’ll have to pay for, with information about the service charge accounts, ground rent, major works, and so on. This can take a while to arrive too.
The vendor’s solicitor will issue a draft contract, and there will likely be some back-and-forth around this.
The vendor will provide information about the property. These reports frequently have bits that are missing or confusing, so your solicitor will have to go through this and ask any questions that arise.
If you just sit back and wait for all this to play out, prepare for months to go by, and still not be much closer to owning the property.
Your job is to manage this process overall by detecting where the hold-up is, and engaging with the right person to do whatever needs to be done. You should pursue your solicitor once per week in the early stages, and probably several times per week as you move closer to the deal.
- Complete and collect the keys
Before the completion date, your solicitor will request the mortgage funds from the lender so they’re sitting in their client account ready for completion.
They’ll also send you an account statement, and ask you for funds to cover:
Any amount towards the purchase that may be missing after taking the deposit and the mortgage advance into account.
Any Stamp Duty that will be due upon completion.
The full fee.
When the day of completion arrives, the funds will be transferred across to the vendor’s solicitor and the property will finally be yours.
While you head off to pick up the keys, your solicitor will deal with post-completion matters like paying across the Stamp Duty to HMRC and updating the Land Registry.