In this article we will be taking a look at the house buying process as it currently stands in Scotland.
The process itself in considerably quicker and offers greater security for all parties involved.
There are a number of reasons for this. It basically involves the legal requirements the buyer and seller have to pass through before the whole house buying and selling procedure can even begin.
These requirements vary for both the buyer and the seller and must be in place before any property can be put up for sale.
They are as follows
The Vendor /Seller is required by law to provide what is called a Home Report.
It consists of a single survey, an energy report and a property questionnaire.
The single survey contains a valuation and an assessment of the property's condition (including the roof, external walls and plumbing). For older properties or those of a non-standard construction, a more in depth survey may be required.
The energy report will give the property an energy efficiency rating and assess its environmental impact by looking at carbon dioxide emissions.
Completed by the seller, the property questionnaire will contain details such as whether the property has ever flooded or been treated for wood rot, as well as useful pieces of information such as what the parking arrangements are and which council tax band the home falls into.
The exceptions to this are on new-builds and buildings that have recently been converted into residential properties. A copy of these documents must be provided to all prospective buyers.
The Buyer is required to have secured the funding or at the least posses a mortgage agreement in principle before they can even make an offer to buy on any property.
These requirements provide an element of security in that the buyers are better informed about a property's condition and value at the point of making an offer. It also provides the vendor with the assurance that any offers received from prospective buyers. Will have already been screened and accepted for funding by a lending institution.
In Scotland all house purchase activities are controlled by solicitors Therefore before anything can commence buyers and sellers must have appointed their respective solicitors.
Before an offer is made the buyer has to have either the mortgage actually in place or an agreement in principle from a lender. The procedure for obtaining funding is pretty much the same across the UK and will usually take the following course.
When the buyer applies for a mortgage, they will need to fill in a mortgage application form. This will ask for some fairly detailed information to help the lender decide whether, and how much, to offer to lend. The lender will normally need the following information.
Proof of identity:
Birth certificate, passport drivers license, bank account details and utility bills etc
If employed, proof of salary from employer : Payslips P60
If self-employed, copies of audited accounts from the accountant.
If working as a contractor: contract details. Long term or short term.
Previous or current mortgage arrangements Loans:
Details of any amounts outstanding, length of term and payment management e.g regular payments with no arrears. No bad credit issues. CCJ’s etc
Details of personal financial circumstances:
including details of:
Any expenditure commitments e.g: credit cards, other loans or HP agreements.
Essential expenditure/outgoings e.g: utility bills, council tax, insurance, travel costs, fixed childcare costs.
Spending on 'quality of life' items which are non-essential e.g: recreation, leisure etc.
Once this has been assessed the lender will issue a mortgage offer based on the information given on the application form and the supporting documentation. This offer will be based on what it believes the borrower can afford to pay back over the term or length of the loan.
Based on this mortgage offer, the buyer will know how much they are able to lend, and can therefore look at properties within the suitable price range
Once the buyer has assured themselves that they have mortgage funding available. A solicitor can be instructed and the process can commence.
Solicitors are responsible for the following tasks
Examine and explain the home report
Carry out searches in the property and personal registers to ensure there is nothing preventing the seller from selling the property.
Check with the local authority to see if there are any planning issues affecting the value of the property and whether any roads next to the property have been adopted by the local authority.
Put together the formal offer
Submit the offer to the seller's solicitor
Draw up the contract, and organizing the transfer of the Title and money.
We’ll take a brief look at each stage.
Firstly the home report, as previously shown this consists of three elements. Each of which has a bearing on the property.
The Energy Performance Certificate (EPC) - this reveals how energy efficient the property is and where improvements could be made.
Survey – an assessment by a qualified surveyor from the Royal Institution of Chartered Surveyors (RICS) pointing out the condition of the property, where repairs are needed and a valuation of the property. A mortgage valuation might also be included. The level of information contained in the survey is broadly equal to the Homebuyers report. This is however subject to a three month timespan.
If the survey is over three months old then the buyer will have to get another one done. In many cases buyers may decide to instruct their own surveys as a matter of requirement.
Property Questionnaire – sellers have to provide an accurate account of the property including its Council Tax band, any Local Authority notices served on it, alterations made, parking, any history of flooding as well as factoring in arrangements covering any repair and maintenance.
The solicitor will receive these documents and advise their clients on how to proceed. If all is well and the buyers wish to proceed then their solicitor will issue a note of interest to the vendors solicitor.
Note of interest
When the buyer has found a property they want to buy, their solicitor will register a ‘note of interest’ with the seller’s agent.
This essentially shows the buyer is interested in the property and wants to be kept advised of developments such as the fixing of a closing date to submit offers.
Prior to making an offer the buyers can instruct the solicitor to begin the process of commencing the preliminary searches etc. However if the offer is not accepted then the buyer will still be liable to pay for those services. In many cases solicitors are instructed to forward an offer and wait until that has been either declined or accepted.
Making an offer
When, the buyers decide to issue an offer on the property.
The need will be to decide how much to offer.
The amount offered will depend on:
Property prices in the area;
How much you can afford;
Any competing interest in the property;
Anything else that is to be included in the offer such as
fixtures and fittings.
The buyers solicitor will do this in in a formal letter.
If there are several competing bids, the seller’s solicitor will set a closing date for offers to be submitted. These will then be opened at the same time on the closing date All parties will be notified as whether their offer has been accepted or declined.
Subject to survey
Here the buyer instructs the solicitor to issue an offer before having their own survey done. If their offer is accepted , it will be subject to the results of the survey. There are three types of survey, these are fairly consistent across the UK and are as follows:
Home condition survey – the cheapest and most basic survey. Suitable for new-build and conventional homes, it essentially provides a current valuation for mortgage purposes. But not much else. Typical cost: £250.
Homebuyer’s report – a more detailed survey looking thoroughly inside and outside a property. It also includes a valuation. Check whether the valuation and homebuyer’s report done at the same times. Typical cost: £400+.
Building or full structural survey – the most comprehensive survey suitable for an older building or one of non-standard construction (for example, if it’s made of timber or has a thatched roof). Typical cost: £600+.
If after submission the offer is accepted, the vendor’s solicitor issues a qualified acceptance, which simply means the property belongs to the buyer if contract details can be worked out.
The vendors solicitor will also hand over information about the property such as the title deeds and planning papers. At this stage the buyer will instruct their solicitor to commence work on the preliminary searches and other details. This stage of the process is called
Swapping the Missives
Here the buyers and vendors solicitors negotiate the the terms of the contract on behalf of their clients.
This is the legal process required to transfer the ownership of the property from the seller to buyer. The legal aspects of buying a home can be complicated. Therefore most home-buyers in Scotland appoint a solicitor qualified in Scots Law and holding a practicing certificate from the Law Society of Scotland to do the legal work involved in buying a property.
The fee charged by solicitors will vary. It is worth getting estimates from several solicitors. Prior to appointing one to act.
For freehold properties the process is fairly simple, however leasehold properties will require more work.
The lease is the legal document which sets out the rights and duties of both the tenant(leaseholder) and the landlord of the building (freeholder). The lease will specify the number of years available on the property.
This usually applies for 99 or 125 years.
Clarification may need to be sought for a number of different
issues such as
The length of time the lease has left to run:
The ground rent payable to the landlord or freeholder, including any management fee or service charge to cover repairs and maintenance of shared parts:
Who is responsible for maintaining the shared areas of the building and whether that responsibility is shared in a fair way:
What liability there may be for any major work e.g: re-roofing or painting the outside of the building etc:
Solicitors will advise their clients on the progress and provide
advice on any documents that need to signed.
Once all the contract details have been agreed,
the two solicitors exchange letters.
These letters are known as conclusion of missives.
Both parties are now legally committed to the sale.
After this the buyer may be required to pay a holding deposit: on average £500-£1,000 to secure the deal. It is not a common practice, as there are usually penalty fees in the contract to deter either party from backing out at this stage.
Once the contract has been agreed by both parties The buyers solicitor will check the title deeds and discuss with their client the regard to any condition on the property.
Title burdens – conditions attached to owning the property ranging from where rubbish bins can be put to more serious restrictions on how the property can be used and altered.
The vendor signs the transfer of the title deeds, called the disposition.
The vendor’s solicitor will also prepare the
Land Transaction Return for the buyer to sign.
At this point the buyers solicitor will contact the lender to confirm that the contract has been signed. The purchase is proceeding and what the date entry is expected to be. This allows the lender to release the funds at the right time to complete the sale on the date of entry.
The vendors solicitor will request the transfer of funds from the lender on the date of entry.
That then is a basic introduction to the house buying process as it stands in Scotland.
As with all mortgage transactions there will be additional costs or fees. The largest will be that for the solicitors. Some have already been mentioned as in the holding fee and survey fees.
Mortgage Arrangement Fees
There is often a fee to set up the mortgage – usually referred to as an arrangement fee.
These can be either paid in advance, or added to the mortgage, but choosing this option means you’ll pay interest on it for the length of the mortgage. May vary in price subject to the lender and lending scheme. Other lenders fees may include.
A fee for transferring the money, typically £40-£50
A fee of £100-300 for setting up, maintaining, and closing down the mortgage account.
These work on a sliding scale according to the survey undertaken
Home condition survey – the cheapest and most basic survey.: up to £250.
Homebuyer’s report – a more detailed survey looking thoroughly inside and outside a property. It also includes a valuation: £400+.
Building or full structural survey – the most comprehensive survey suitable for an older building or one of non-standard construction: £600+
May not be required subject to due to penalty clauses written into the contract £500 - £1000
Solicitors fees average cost: £400-£900 plus 20% VAT.
This will include any or all of the following
Searches plus any other fees paid on the buyers behalf.
Registering the signed title deeds with the Land Register. The cost starts at £60 and rises , subject to the property price
The transaction is completed by paying the Lands and Buildings Transaction Tax (LBTT) . Essentially the Scottish version of the stamp duty paid in England, Wales and Northern Ireland
It works on a sliding scale as follows and must be paid within thirty days of completion
2% for homes costing between £145,000 and £250,000
5% for homes costing between £250,001 and £325,000
10% for homes costing between £325,001 and £750,000
12% for homes costing more than £750,000
When researching content for this article we came across one constant piece of advice with regard to keeping expenses as low as possible.
This is to shop around for the best deals available. Things like mortgages, often lenders may have specific deals where free surveys may be included as part of the service. Fees may be re-paid. Solicitors may offer reductions on certain services. lenders may include a free conveyancing service if a solicitor on their panel is employed. etc.
Don't be frightened to ask questions.
That concludes this article. It is not exhaustive but covers the procedure in as simple a manner as is allowable in a document of this size.
We hope it was informative and provided some insight into the process
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All the best