So, you’re looking into buying your first house. It is both an exciting and daunting time, but being armed with the correct knowledge can be an enormous help. With this in mind, we’ve prepared answers to five questions you may not have asked yourself.
1. Freehold or Leasehold?
Owning a freehold means that you own the land for an indefinite period of time, and when you die it will be passed on to your estate. This is the best form of ownership available to anyone in the UK. Owning a leasehold, on the other hand, means that you own the land for a set period of time.
Whilst we’ve all had short leases at some point in our lives, the kind of leasehold that you buy is for a long period of time – 99 and 125 years are common leasehold terms. For the duration of that time, you own the land and have many of the rights a freeholder has. However, the purchase is likely to be subject to conditions that make a leasehold significantly different from a freehold.
The most common of these is the inclusion of a ground rent or maintenance charge. These will entail a monthly or yearly charge you will have to pay, as the leaseholder, on top of the upfront cost of the land and any interest you will have to pay if you take out a mortgage. This is something to be very careful of as a first-time buyer, as it may be that a home looks like it suits your budget, when in fact there are additional costs that will make it more expensive.
There has been quite some controversy surrounding the way that leaseholds are sold in England and Wales as of late. Many buyers feel like they are not adequately warned that there will be ground rent or maintenance fees, or even more complicated clauses in the lease that can make it difficult to sell on the property.
In 2019, Parliament passed a bill to regulate leaseholds, and the Government of the time even committed to banning the use of leaseholds for newly built houses. The law on leaseholds could be changing as you read this! Given the significance of having a leasehold versus a freehold, this should be one of the very first questions to ask the seller or estate agent.
As you get into the conveyancing process, make sure that your solicitor has read the lease in detail, if there is one, so that you are not caught off-guard by unexpected clauses.
2. Joint ownership or tenancy in common?
If you, like many first-time buyers, intend to purchase the property with a partner, spouse, or other co-owner, you need to bear in mind that there are different ways to co-own property in England and Wales. Joint ownership means that all the co-owners own the whole of the property, with no division of the land into shares.
If one joint tenant dies, the property goes to the remaining joint tenants, rather than to their estate. This is a commonly used form of ownership when spouses or partners buy property together, as it means that, in the unfortunate event of one spouse or partner dying unexpectedly, the other spouse or partner will not have to deal with any complications as to the ownership of their home.
This is not to say that all spouses or partners want joint ownership, nor that they necessarily should. Every group of co-owners has their own requirements.
Tenancy in common, on the other hand, means that each tenant owns a specific share of the property. Each tenant’s share can be included in their estate and passed down in the event of their death. Some spouses or partners buy property in this way because they have specific intentions for their legacy, for example having children from a previous marriage that they would like to leave property to.
It is also a common choice for those buying property together who are not spouses or partners. If you wish to buy property as tenants in common, you will have to establish how the property will be shared. Whilst splitting the land into equal shares is quite common, things to consider include the amount contributed to the purchase price or mortgage deposit.
It may be that one purchaser contributes significantly more money, and therefore wants a larger share. In cases of the latter, you will need to instruct a solicitor to draft a deed of trust for you to ensure that the shares are protected should one person wish to sell out.
Whilst you may never have thought about your estate and what might happen if you were to die, this is a crucial part of any purchase, and as such you will have to ask your co-purchaser(s) what their intentions are, and have a think about your own.
3. Is the house a new build?
Buying a new build house has many upsides – being able to customise the building to make it truly yours, getting something that nobody has ever had before, and warranties and guarantees that give the buyer some peace of mind. However, buying a property that is newly built or not yet built is not all upside, as there can be some hidden difficulties.
There can often be unexpected delays when buying a house ‘off-plan’ (before it is finished), which can lead to difficulties with arranging a mortgage.
Moreover, there can be some issues with a new build home that you need to clear up before you go ahead with the purchase. This is because many defects will not be covered by the warranty that comes with the home. There are companies that specialise in surveying for these kinds of issues, and it will often be worth investigating, if possible.
This is sometimes referred to as ‘snagging’. If you do so, the defects can be complied in a ‘snagging list’, and you can ask for it to be a condition of your purchase that the issues are addressed. When purchasing a new build, it is always worth asking your estate agent and your solicitor about their experience with new builds, with the developer building the property, and making sure that any of the above issues can be dealt with before going ahead.
4. Are you getting help with the mortgage?
It has become quite a standard practice in the UK for first-time buyers to receive financial help from family members in order to pay the mortgage deposit. This can be a great way to ease the transition from renting to owning.
If you are fortunate enough to have family members that can and will help with your mortgage deposit, you need to bear in mind that their contribution could impact your mortgage offer, if you’re not careful. This is because this contribution could be construed as a loan, unless the contributors specify that it is a gift in signed writing.
This deed of gift is something that a good solicitor will be able to help you out with. Without evidence that the contribution is meant as a gift and not a loan, the mortgage lender will adjust their offer accordingly. And if your family members do truly mean the contribution as a loan, you will need to have a conversation with them about how this will affect your mortgage.
If your family want to help you with your mortgage but can’t provide any financial help for the mortgage deposit, you can consider whether adding a family member’s name to the mortgage could help you get a better deal. If a family member has a particularly good credit score, they could be party to a ‘Joint Borrower, Sole Proprietor’ mortgage, with the upside being a better interest rate for you, the buyer.
This will not affect the Stamp Duty Land Tax exemption that first-time buyers get from HMRC. Whilst we can suggest looking into something like a ‘Joint Borrower, Sole Proprietor’ mortgage, as we at Oakwood Property Solicitors are not Mortgage Advisors, we can give no advice as to whether or not one would suit you and your situation, and we would highly advise seeking out professional Mortgage Advise from a licensed Advisor.
5. Have you instructed a solicitor?
It might seem obvious to some, but you might be surprised at how integral a role your solicitor will play in the purchase of your first home. A good solicitor will work closely with both your estate agent and your mortgage lender to keep every party to the transaction in sync. They will perform searches on the property, to ensure that both you and your mortgage lender know that the property is safe and secure.
If there are any risks to purchasing the property, your solicitor will break them down for you in simple terms. Your solicitor will ensure that your ownership is protected and will dig up any hidden issues with the property, such as agreements previous owners have made that have become enshrined in the title of the land itself.
These could be rights of way that neighbours have over the land, or a duty to maintain a nearby road. Your solicitor is there to explain every element of the conveyancing process to you in a way that makes you feel confident and comfortable in the purchase of your new home.
There are many different options when it comes to solicitors. It is even becoming more frequent these days not to instruct a solicitor at all, but rather to rely on the in-house conveyancer at the estate agent handling the purchase. Whilst this has its advantages in terms of convenience, and can keep the process streamlined, it also has some clear disadvantages.
Having an independent solicitor allows you to have an impartial advisor to turn to when you have questions that could impact the purchase of the home. Moreover, many purchases become more complex than they may at first seem and having a legal professional to simplify the process can save a lot of stress and confusion.
There are many connected legal services to purchasing a house, such as drafting a deed of trust in situations of unequal shares or producing a will to ensure that the home is passed on in the way you prefer. These can often be done at a discount if you instruct a solicitor for your property purchase.
However, hiring a solicitor can come with many hidden costs. Hidden fees are a big issue for firms that deal with residential property. This is one area where we at Oakwood Property Solicitors strive to turn the legal industry on its head – we have no hidden fees.
WHAT TO DO NEXT
If you’re buying your first home and want to find out more or get a quote that is guaranteed to cover the whole process, then please feel free to contact us via email, telephone on 0113 218 5727, or drop into our office on Roundhay Road in Leeds. We’d love to hear from you.
