Buying a new home can often be a stressful time. Many find it made even more stressful by having to learn a whole new vocabulary of legal terms with which they are not familiar. So here’s our guide to the common terms used when you are buying or selling a property.
A chain occurs when you are buying or selling and there is a transaction related to it. It may be your own sale or purchase or it may be your buyer’s or seller’s own property which has a related transaction. To be described as “chain free” means that you either don’t have a property to sell (if you are buying) or buy (if you are selling). Transactions where a chain is involved are often the most stressful as you are dependent on all parts of the chain exchanging and often completing at the same time.
If one part of the chain falls through you can be left in a situation where the whole chain has to start again.
Probably one of the most exciting days of your life, your completion date is the day where monies are transferred and keys change hands. Once the money has been exchanged between lawyers, you have completed your sale or purchase and it is time to move in or out of the property. If you are involved in a chain, all parties need to agree on completion dates, which is one of the reasons why chains can be complicated.
Also known as the Agreement for Sale, your contract details the terms and conditions of the sale and purchase. The contract is usually governed by Standard Conditions which are set out by the Law Society.
The details included in the contract are the price you have agreed, the exchange date, when it happens and the completion date that you have agreed. When your lawyer exchanges contracts with your buyer or seller’s lawyer, it becomes legally binding and you’re obliged to complete the transaction.
Conveyancing is the legal process involved in transferring the ownership of a property from one person to another. Your conveyancer will help you fill out all the legal forms required to process your sale or purchase, liaise with your mortgage lender and the other party’s lawyer, and complete tasks such as obtaining and checking the searches, reporting to you, updating you periodically and transferring funds.
Whilst many people refer to this as the amount of money needed on top of your mortgage to buy the property, in conveyancing terms, the deposit under the contract is usually 10% of the purchase price. Once you have exchanged contracts to buy a property, you risk losing all of your deposit if you pull out. If you are buying and selling at the same time, your lawyer will organise the transfer of your deposit from the funds you are receiving for selling your current property. You may need to “top up” the deposit if you are selling for a lesser sum that you are buying.
Disbursements are expenses that your lawyer pays for as part of your home move. This can include things like the costs of searches and fees for registering details with the Land Registry. Usually you will need to pay an up-front fee to your lawyer, which covers the disbursements that are going to occur.
The equity in your home’s the amount that you actually own, as opposed to owing money to your mortgage lender. So if your property’s worth £400,000 and you have £200,000 outstanding on the mortgage, the equity in your property that you own is £200,000.
Exchange of Contracts
Although most of the excitement will come on the completion date when you buy or sell your property, the date of exchange of contracts is actually just as important. It means that both buyer and seller are legally tied in to buy and sell the property on the completion date. On exchange of contracts the deposit passes from the buyer’s lawyer to the seller’s lawyer.
A freehold property means that you have complete ownership of the land and everything built on it. This effectively lasts forever until you sell the property. Subject to legal and planning conditions, you have the right to do what you want to your land and home.
The person or company which owns the Freehold title to a property.
Gazumping is where a seller accepts your initial offer, then goes on to accept a higher offer from someone else. As well as the disappointment, you can incur costs if you’re gazumped, which is why it’s important to stipulate that a property’s taken off the market as a condition of your offer.
Like gazumping, gazundering is not a pleasant experience. If a seller is gazundered they have the price of the property (which has already been agreed subject to contract) reduced, often at the last minute.
The Land Registry is a Government department which maintains a record of properties in England and Wales. The Land Registry holds details such as when a property was last sold and for how much, keeping a record of titles on freehold and leasehold land and properties.
All properties sold in England and Wales (for money) must be registered at the Land Registry. Properties are given a unique title number when registered.
Land Registry Fees
These are the fees payable to the Land Registry when registering a property. Depending on the value of the property they vary from £20 to £910.
If the property you buy is leasehold the land your property built on is owned by someone else. So effectively you are buying the right to own a property temporarily (although usually for a very long time), because another party ultimately owns the land. You are likely to have to pay ground rent to this person (the Freeholder), while service charges may be payable if for example you buy a leasehold property in a block of flats.
A mortgage is a loan to buy a property usually given by a bank or building society. It is governed by conditions which are usually set out in the mortgage offer.
This is a written contract which shows that you agree to a lender’s (usually a bank or building society’s) terms and conditions. It also grants your mortgage provider a legal right in the property you are buying, as although your property will be your own, your lender can repossess and sell it if you do not keep up your mortgage repayments or in certain circumstances do not comply with other terms of the mortgage. This is why it is very important to be sure that you can afford the monthly payments, taking into account any potential rises in the rate.
Mortgage Agreement in Principle
Also known as pre-approval, securing a mortgage in principle from a lender means that you can get ahead of the game when it comes to house hunting. You will know your budget, show sellers that you are a serious buyer and be able to convert it into a concrete mortgage offer when you have an offer accepted on a property.
A formal mortgage offer from a lender (usually a bank or building society) will set out all the terms and conditions of your mortgage. This includes details of the size of the loan to the mortgage product you are applying for and your monthly repayments. Your lawyer will receive a copy of the offer which they can go through and check the fine print on your behalf and will usually act on behalf of the lender in applying for the mortgage funds at completion and registering the mortgage at the Land Registry.
Another terms for a buyer
If you want to amend or pay off your mortgage or if you decide to remortgage you will require a redemption statement. Your existing lender will detail exactly how much of your mortgage is outstanding and outline any early repayment charges or penalties. These are known as redemption fees. Your lawyer will apply for a redemption statement at the outset of a transaction and should provide it to you to check before exchange of contracts.
A remortgage means switching your existing mortgage from one provider to another.
As part of the conveyancing process, your conveyancer will carry out searches on the property you’re buying. Searches highlight any potential issues which may affect your desire to purchase the property, and can include things like a local authority search and water and drainage search.
Stamp Duty Land Tax (SDLT) is a government tax that is charged on properties with a sale price over £125,000. As the price of your property moves up through the bands, it attracts higher rates of tax:
- Up to £125,000 – 0%
- £125,001 to £250,000 – 2%
- £250,001 to £925,000 – 5%
- £925,001 to £1,500,000 – 10%
- Over £1,500,000 – 12%
If you are a first-time buyer and have never owned land or property anywhere in the world, you may be able to claim SDLT relief which means that the first £300,000 won’t attract any tax, as long as you are buying for less than £500,000.
Addition SDLT may be payable on second properties.
In order to check your property is priced correctly, your mortgage provider will carry out a basic valuation. It is sometimes worthwhile carrying out an additional survey which focuses on the state of the building you are buying. This can safeguard you from missing any potential problems with the structural integrity of the property which could lead to costly repairs further down the line. The Royal Institute of Chartered Surveyors offer three levels of survey, starting with the basic Home Condition Report (often referred to as the valuation). The Home Buyer’s Report which is more in depth and a Building Survey (often known as a full structural survey) which provides the most detail on your new home.
When you have the title on a property you arerecognised as the legal owner. The document (which is issued by the Land Registry) proves your ownership, and while in the past your mortgage lender would have looked after the title in the form of original deeds, nowadays the Land Registry stores it electronically.
This is the document which officially finalises a sale, transferring the title of the property from the seller to the buyer. You usually sign this at the same time as your contract documents, and it will be sent to the Land Registry after completion so the property’s title can be transferred into the buyer’s name as part of the registration procedure.
Another term for a seller