Buying a property should be a simple matter; find a house you like, pay the price and move in – but this is seldom how it really happens.
Potential buyers and most especially new buyers are bombarded with terms they have never heard of and have no idea what these expressions mean. Often, however, the significance seems clear – you could get into a lot of trouble and it will be complicated.
This article sets out to try and help with some worrisome terms you may come across and explains their meaning.
A survey of any property you wish to purchase is a worthwhile expense as a professional surveyor will have a thorough look and not only recognize existing faults but in many cases potential future problems. This could save you from buying a home where the roof is ready to cave in a year or two after you set up home, causing not only a large expenditure and untold damage, but meaning you need to find somewhere temporary to live until the problem is fixed. Obviously not all houses fall into this category, but pipes, sewage and many other facets are looked into to ensure you are buying something stable and in good working order.
This is simply the correct name for a lawyer who specialises in property sales and purchases and any documentation relating to this. He will assure you get the completed and correct deeds (papers for a property). The conveyancer should carry out a “title search” to make sure the property really does belong to the seller and to check that there are no claims or charges against the property.
People love initials but really they tell poor unsuspecting laymen little. This stands for “Energy Performance Certificate” and it shows how energy efficient or not the building is. In some cases this document also shows how adding features can improved these energy ratings. Some areas are more clued into this than others, but at least if you come across it you will know what it means.
This can be a bit of a minefield and is something many home owners neglect.
Freehold means the land the building is on totally belongs to the owner of the building.
Leasehold means the land is leased. Many leases run for at least a hundred years, but before you get complacent thinking that is a long time, it may already have run for 98 years before you bought it.
Ground rent is the amount of rent payable for leasing the land. In many cases this is nominal and may be £1 a year, but this is not always the case, so find out how much it will cost.
If there is little time left on the lease, this needs looked into very carefully. Some contracts have automatic renewal but you do not want to find the owner of the land no longer allows you to use their land as they want to sell it for a lot of money to a big conglomerate who will build a supermarket. That means your house will no longer exist! Granted this seldom happens but it is a possibility.
In theory there is an advantage to leasehold as it is the owner’s responsibility to maintain this locale in good order, but this is seldom applied and the homeowner maintains it.
Land Registry Fee
Land Registry Fee; for once this is just what it says; the fee you pay to register the property as yours.
In theory this is exactly what it says; in practice it is more complex. Literally it is the value a buyer would pay and the amount a seller would accept; but it is more often used only as the amount a person would pay. This makes it subjective and does not necessarily reflect a true value on a property. Basically it is the amount you can expect to receive if you are selling and the sum you may have to pay if buying.
If you are hoping for a loan or mortgage on a property the money lender, (generally banks not loan sharks), will carry out a “valuation” to see if it is worth the money they will be lending you. Do not be surprised it this differs from the market value.
Mortgage Indemnity & Mortgage Life Insurance
These are both insurance policies relating to a mortgage, but they are not the same thing at all. No need to panic, there is nothing complicated about this.
· Mortgage Indemnity is an insurance policy the money lender takes out against your failure to make repayments for any reason. If they have to repossess the property and cannot manage to sell it for the full value of the outstanding loan, this policy covers them for any loss.
Note: This insurance does not in any way cover you, the purchaser, for anything and you will probably have to continue paying.
· Mortgage Life Insurance is an insurance policy taken out by the purchaser to cover them in the event of death. If the policy holder dies without paying the mortgage in full then the insurance automatically covers the remaining amount due.
Note: Read the insurance policy carefully including, (especially), the small print as insurance companies are notorious for adding strange clauses that give them an “out” when it comes time to cough up the money.
Just the word “negative” alone causes some people to break out in a sweat. Literally, negative equity means “whatever you pledged/offered as security for a loan is worth less than the item you bought/want to buy”. In the housing market this is used to refer to houses that have a mortgage, and if the money left to pay on the mortgage is more than the value of the house this is negative equity.
This only becomes a problem if you have trouble making the payments, wish to sell or take out a second mortgage/re-mortgage the house. As long as you keep paying, negative equity will have no negative effect on you.
You will nearly definitely not get another mortgage while you are in negative equity, and if you sell there could be a hefty “balance owing” left over after the sale.
No, it is not for stamps but it used to be – a stamp was attached to a document, or the document was stamped in some cases, to show the tax had been paid and this made the document legal. Stamp duty is actually a tax and just as in olden times this makes the sale or purchase of a building legal, although actual stamps are no longer used.
This is only required for property over a certain value, (currently £125,000 but it may change so check), and is quite low initially, for example houses valued at £125.001 – £250,000 pay 1% tax. This is payable upon purchase of a building or land and in some cases for leasing property where you are paying more than the “tax free” amount of £125,000.
Hope this helps make house hunting easier, so enjoy your new home, office or whatever else you buy.
Want further information or need help managing this? Contact PROPERTYmajor on 01322 518 020 or submit an enquiry form on our website