Hot Topic Highlight - How to Buy Guide (Residential)

Posted on 14 / 05 / 19
by Jen Lemen

Hot Topic Highlight - How to Buy Guide (Residential)

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What is today's blog about?

Purchase & sale is a core technical RICS APC competency on the residential pathway, as well as being frequently selected on many other pathways such as valuation, commercial (if you deal with mixed-use schemes) or planning & development.

This week, we will be taking a look at the Government's newly published How to Buy a Home Guide.

This supplements a number of other guides, such as How to Rent, How to Rent a Safe Home, How to Let, How to Lease and How to Sell a Home.

The guides all provide basic advice on various aspects of residential property for tenants, landlords, leaseholders, home buyers and sellers. Each provides a concise overview of the relevant process and flags up potential areas of concern or conflict.

It should be noted that the guidance relates to England and Wales, as the transactional process is different in other geographic areas, including Scotland.

What does the guide cover?

The How to Buy a Home Guide primarily focuses on freehold properties being purchased by first time buyers.

It covers the following:

  • Affordability
  • Mortgages
  • ID checks
  • Types of home, including leasehold and freehold
  • Rented property
  • Offering
  • Referral fees
  • Instructing a legal representative
  • Legal process, including searches
  • Survey
  • Exchange and deposit
  • Moving
  • Completion and what happens next
  • Complaining
  • Simultaneously buying and selling

What does it say about affordability?

As well as discussing the impact of credit score and deposit on how much a purchaser can potentially afford to spend on a house, the Guide mentions a number of Government schemes that surveyors should be aware of.

These include the Help to Buy: Equity Loan, Help to Buy: ISA and Lifetime ISA schemes. An issue raised with the Help to Buy: ISA is that the bonus cannot be used towards legal or estate agent fees or any other indirect costs.

It also flags up other costs associated with a residential purchase, including Stamp Duty Land Tax (unless certain exemption criteria apply), survey or report costs, conveyancing fees, search fees, insurance (e.g. building, life), moving costs, repairs or improvements and mortgage costs.

What ID checks are required?

The Guide makes reference to money laundering checks required as part of a surveyor, estate agent, lawyer or mortgage lender's Customer Due Diligence. You can read more about these in our blog archive.

This will, however, generally require providing proof of identity, address and funds.

What does the Guide say about key criteria for purchasers?

The guide discusses the criteria purchasers may consider when choosing a property, which will also affect value and marketability, including:

  • Affordability
  • Location
  • Transport links
  • Flat/house
  • New-build/second-hand, i.e. any impact of a new build premium
  • Energy performance, including impact of MEES
  • Number of bedrooms
  • Amount of living space
  • Internet speed
  • Car parking
  • Scope to extend
  • Garden
  • Conservation area
  • Listed building status
  • Condition
  • Freehold/leasehold, including, if leasehold, the associated costs of ground rent and service charge and any additional requirements of restrictive terms or conditions
  • Investment potential if the property is rented out, which will carry associated legal, tax and mortgage implications

What are referral fees?

Referral fees may change hands when an estate agent, developer, surveyor, mortgage broker/lender or other property professional refers a buyer to another professional.

RICS Residential Real Estate Agency (6th Edition), also known as the Blue Book, requires surveyors to advise of any relevant referral fees or if advice is offered to any other party than their client.

What happens after an offer is accepted?

The legal conveyancing process can be lengthy, starting with the circulation of a Memorandum of Sale by the estate agent to the parties' legal representatives. This will document the selling price, any conditions, timings and details of the legal representatives.

The Memorandum of Sale will form the basis of the draft contract issued by the seller's legal representative. This will be followed by local authority searches, which identify restrictions such as listed status, new public roads, rail schemes and Tree Preservation Orders. Planning and title will also be investigated, as well as any additional searches being recommended, e.g. flood risk, mining and radon.

The legal representatives will also raise enquiries based on the draft contract and results of the searches, which will need to be resolved before the process can move forward to exchange. A common way of dealing with appropriate issues is to take out indemnity insurance, e.g. against a chancel repairing liability.

What is a survey?

This is a common area of confusion, as a mortgage valuation is not the same thing as a survey, e.g. RICS Condition Report, RICS HomeBuyer Report or Building Survey - depending on which is most suitable for the property being purchased. Surveyors should be able to advise on which type of survey is most appropriate for the property type, condition and purchaser.

A mortgage valuation tells the lender whether or not the property is reasonable security for the loan being advanced. It may not always include a physical inspection and will not provide in-depth information about condition and any defects.

In contrast, a survey informs the purchaser about the condition of the property and can facilitate price renegotiations if issues are identified. For example, a HomeBuyer Report will apply condition ratings to defects and reflect the impact of these on value, as well as providing an overall opinion on the purchase decision.

Post-survey, it is advisable for a purchaser to discuss the report and any recommendations with the instructed surveyor. It may be that further investigations or specialist advice is required, e.g. damp survey or boiler check.

We will discuss duty of care owed by surveyors in a future blog article, however, further information can be found here.

What happens next?

The parties will exchange contracts when any outstanding enquiries are resolved and the contract documentation is finalised. At the point of exchange, the deposit will be transferred over and the purchaser will need to arrange buildings insurance.

A completion date will also be set, which is generally 2-4 weeks after exchange, although it can be simultaneous.

At completion, the remaining funds and legal ownership are transferred to the purchaser and the keys will be released by the estate agent. The purchaser's legal representative will register the change of title at the Land Registry and will settle any SDLT liability owed.

What else does the Guide provide?

The Guide includes a helpful glossary of purchase and sale terminology on pages 16-17. It also includes a diagram of key milestones on page 18.

Where can I find out more?

Head to our blog archive to read lots more about the purchase & sale competency, as well as other RICS APC competencies and hot topics.

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Stay tuned for our next blog post to help build a better you

N.b. nothing in this article constitutes legal or financial advice.