Buying a UK home – the legal considerations

Few things are more exciting than buying a new property, but the path to getting the keys can be complex and competitive – especially in London.

Desirable properties are often in demand, so you will need to be prepared to act fast to secure your ideal home or investment. Understanding the legal process and having advisers in place before you start your property search is a great way to get ahead.

Three key principles

Property ownership in the UK is complex, and there are always multiple issues to consider, especially if you are an overseas buyer. Working with an experienced solicitor at an early stage will help to guide you through the legal process and point out any ownership pitfalls you need to avoid.

Three key important areas to consider upfront are:

1. Ownership of residential property
   In the UK, there are two principal ways you can hold property – a leasehold or a freehold. A freehold gives you ownership of the property for an unlimited duration of time. Leaseholds, however, are still common, especially in London. Leaseholds can vary in length and can be just a few years or up to 999 years. In usual cases, a property with a leasehold will be a suitable investment if it has around 100 years left to run. The shorter the term left on the leasehold, the less valuable your investment becomes.
2. Structuring the purchase
   There are no restrictions on foreign ownership of property in England and Wales. Practically, property acquisitions can be structured in a variety of ways, although most people buy houses in their individual names. That said, you may find there are advantages to buying via an offshore company or a special purchase vehicle. The option that is right for you will depend on your personal situation – your legal team can help you understand and identify what route is best for you.
3. Tax
   When you buy a property in London or the UK, you are subject to certain taxes. The UK’s fiscal landscape changes regularly. Your circumstances (i.e. if you are a UK resident or not) may also affect the rates you have to pay. Your solicitor and a tax advisor will be able to advise you on any updates to legislation and what you are likely to pay.

Top Tips To Prepare For A Smooth Property Purchase

1. Organise your finances upfront and make sure funds are easily accessible. A ‘decision in principle’ (where a lender will give a non-binding estimate of what they will lend you, based on your current financial situation) can also be helpful so you know what you can borrow and what you can afford to buy.
2. Appoint your professional team as early as possible so you can act quickly and get ahead of other buyers.
3. Instruct an experienced solicitor in advance of making an offer so advice can be taken on structuring your purchase and the tax considerations before key decisions are made.
4. Monitor the tax situation along with your legal and tax team – the fiscal landscape changes often: overseas investors may need different game plans than UK investors.
5. If you are buying a leasehold flat, check the length of the term and notify your solicitor in case a lease extension is needed. Your solicitor can provide further advice as required.
6. If the property already has tenants, check their status at the beginning of the process and ensure the occupancy status is clear (the government introduced new regulations from 29 August 2020, which means that landlords will not be able to start possession proceedings in most circumstances unless they have given their tenants six months’ notice to vacate – this is particularly important if you want a vacant property on completion).
7. Get searches in advance to allow you to move quickly through the process.
8. Check out the local area at different times of day to get a feel for what it’s like to live there.

Summary Of The Legal Process For Buying A Property

Before your start  – Appoint your professional team

• Talk to your Lender or a mortgage broker who advises you on how much money you can borrow, and provide a ‘decision in principle’
• Identify which agents, solicitor and surveyor to instruct

Find your house and make an offer

Once your offer has been accepted by Seller a Memorandum of Sale will be issued (new builds reservation deposit paid).

Investigations into the property by your solicitor 

• Solicitor prepares Report on Title and title/searches are investigated
• Instruct a surveyor to check the structure of the property

Exchange – Commitment to buy and completion date agreed

• Buyer to sign the Contract – you are now committed to buy
• Buyer transfers 10% deposit to their own solicitor firm’s account
• Contract is dated, 10% deposit paid to the Seller’s solicitor and agreed Completion date inserted in the Contract
• Completion date cannot change once you Exchange

Once you exchange you are legally committed to the purchase and cannot withdraw without penalties.

Completion – the big day!

• Mortgage funds received from lender and balance of funds received from Buyer
• Completion funds sent to the Seller’s solicitor
• Keys released via the Agent to hand over to the Buyer
• Post completion formalities including Land Registry / Stamp Duty Land Tax paid
• You can move into your new home

What happens if completion is delayed?

• Seller serves the Buyer with a Notice to Complete – giving a further 10 working days to complete
• Interest is paid by the Buyer to the Seller for each late day during Notice Period (@ approx. 4.10% per annum on balance payable depending on base rate)
• After the Notice to complete expires Seller can cancel the Contract, take the 10% deposit and sue for breach of Contract if Buyer is unable to Complete

This article first appeared in Enness Global Mortgages’ high-net-worth guide on “How to Buy and Finance Luxury Property in London” published on 26 April 2021. Download the full guide here.