Buying a House in The UK – the not so easy way.
Filed under: Life in New Zealand, Property & General Investing
(This was some information that I put together for Kiwi Property Investor friends a while back. I thought it was worth posting, because my view of house buying in the UK actually changed quite dramatically when I saw how it works over here. Most people think that it’s really easy to buy property in New Zealand, and comparitively – it generally is. But that doesn’t actually always mean its better. So just for interest – here’s a view from the other side).
Just in case anyone is thinking of investing in the UK any time soon, here is a run-down of the process, and a guide to what to expect. (And whether its easier or harder than in New Zealand – in my “humble” opinion.)
Step 1 – Go shopping. (Pretty much the same)
You won’t often find a magazine like the Property Press or Real Estate – instead, the local papers are the best way to find properties for sale in an area. Either that or use websites. Fish4homes.co.uk is a good all round the UK site. Also, if you go walking round Estate agents – you can pick up all the info you need on a property. You can call up agents and ask them to post you the details of all the properties they have in you price range (but they often send you stuff more expensive than that – so its best to go in or specify the ones you want). Note – UK property details are VERY different to NZ ones. See the attached version. They go into great detail about what the layout is and what is included in the sale. They also contain a lot more photos.
Step 2 Find the asking price. (A lot Easier)
Unless you are buying a mansion/castle or a property is being auctioned – the price will be shown on the advert or the property details. The asking price is just an asking price – you can offer whatever you like – and most people expect to get offered below the asking price, unless the market is booming (which it aint right now!) 5-10% below is a fairly common rule of thumb.
Step 3 Set up a viewing. (Harder)
This is organised through the agent – but usually the vendor will show you round. (Most agents don’t want the fuss of having to do any work – but then they only get paid 1% commission). You turn up and the owner shows you round (if they have some nouse – the house will be smelling of muffins and coffee). Open homes are NOT common. You have to make an appointment to see each home individually.
Step 4 -Make an offer. OMG – so much Easier
You ring the agent and tell them a number. After they have spluttered their tea everywhere, they will then ring the vendor and come back to you with a reply. (Usually “no way in hell”). You may get another number back. You go away and umm and ahh a bit and if you can be bothered ring the agent back with your next offer. This goes on till you work out a price. Occasionally – you can actually go have a second viewing with the vendor, and sit down and do this bit over a cup of tea. The first time I did this – I got a £60k house for £53K when I was going to pay £56K for it (That was a LONG time ago).
Step 5 – Write up the offer.OMG – still so much easier
Write a letter to the agent saying how much you have agreed to pay for the property. You should add that this is “subject to survey and contract”. Mail it to the agent, with a copy to your solicitor.
Step 6 – wait while it all goes to custard.Unbelievably harder.
At this point – nothing is contractually binding. You as the buyer should get a survey done (a builders report – see below), and get your finance organised. Your solicitor does the rest: title searches, drawing up the contract, asking loads of awkward questions of the vendors – it’s a complete rigmarole and takes forever. Although you have had an offer accepted, the house can still be marketed, and either party can pull out for any reason. You have simply signed an offer; you have not got a contract on the property.
In recent years it has been the case that some people have paid a small non-refundable deposit at the time of making an offer in order to get a house taken off the market and ensure that gazzumping does not occur
(Gazzumping is the Vendor accepting a higher offer when there is already an offer in place).
The solicitors will work out any Right Of Way issues, and if they are any good will come up with a lot of niggles that you need to check. (we like to check the plumbing and drainage – just in case , and we like to know when the septic tank was last emptied).This whole section relies of yours and the vendor’s solicitors actually talking and the agent acting as a go-between. A lot of stress is involved.
Step 7 – Exchange Contracts. (Going Unconditional) Harder
Assuming you got through that bit – your solicitor will have drawn up the actual contract for sale. When (if) you get to the exchange of contracts bit – you go into the solicitors, and sign the contract. They then send it through to the vendor’s solicitor and the vendors sign. NOW you have a signed an active contract for purchase, and both parties are obliged to sell and buy the property.
At this point a deposit is paid (to YOUR solicitors trust account) and held until the sale completes.
Step 8 – Completion.(Settlement) About the same
This would generally occur about 4-6 weeks after exchange of contracts – but can officially occur on the same day (for those people who don’t have a deposit for example). This is the point at which the funds are transferred from the bank, to the solicitor, and from there to the vendors solicitor. When the Vendors solicitor sights the money – the keys are released and the house is yours.
Step 8a – paying the agent. Easier -Not your problem
There’s none of this fuss over the deposit being used to pay the agent. The line of payment is clearly defined and the VENDOR pays. When the vendors solicitor gets the funds form the buyer, they
- draw up a bill,
- take their cut,
- pay the agent ,
- pay the vendor what is left over.
NOTES;
Surveys.
This is like getting a builders report – and should be done on any house you want to buy. There are different levels of report from a basic homebuyers survey (which is generally what the banks do to satisfy themselves that its not a pile of rubble) all the way up to a full structural survey. It can cost over £500 for a full structural survey but if the house you are buying is an old one (well over 100 years) its worth it. You need to be aware of any subsidence issues particularly. You also probably want to get damp reports done, and woodworm reports done. These are a lot cheaper, but can be really handy.
Damp Proofing
A lot of old houses haven’t been damp proofed and its something you really need in the UK. (The damp comes up from the floor rather being a condensation issue like in NZ – its fixed by injecting a chemical barrier into the wall just up from the ground.) We could benefit from a similar product here in NZ.
Wood treatments
Similarly easy – they guys go in before you move in and spray the wood to get rid of woodwaorm. Oddly enough – something I have not come across in New Zealand – don’t we get woodwork here? All these things can be used to re-negotiate the price. You have until exchange of contracts to do whatever you want – and you have the option of dropping the price if you want to.
Property Details
I’ve included below the details for the house we sold when we came to New Zealand. It went on the market in May 04, and we exchanged contracts on it on the 17th December and completed on the 21st December. (We left the UK on the 27th December – so you can imagine the stress we were under) We sold it for £215,000. Which is perhaps why I don’t have much time for people in New Zealand who whinge at being offered $10,000 less than the asking price .
Ive also shown a set of New Zealand house details for UK readers to compare. Thats about the standard you get. It’s not impressive.
And the New Zealand Version:
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Avalon’s Money Thread: Buying Houses in New Zealand.
Filed under: Avalon's Money Thread, Interest Rates, Credit Cards & Mortgages in NZ, Property & General Investing
Many people find the whole process of buying and selling houses here a lot easier than at home (especially in the UK). In many ways it is but you still need to be very careful. Agents here are not angels and they are just as likely to try pulling a fast one as an agent in the UK. Especially once they know you are a “filthy rich migrant”.
Neil Jenman’s book “Don’t Sign Anything” is a really good book explains a lot of the nasty tricks that agents can pull. It’s a bit of a scary read but I figure forewarned is forearmed and it’s good to know when you are about to be sold a lemon! It’s especially good at talking you through the auction process and what to watch for.
My main advice is literally “Don’t sign anything” not without a solicitor looking it over.
You wouldn’t do it in the UK so don’t do it here. Always get your solicitor to check the sale & purchase agreement (s&P) before you sign it. The seller’s agent often draws up the contract and a lot of them are less than trustworthy most of the time. Always remember: they work for the seller, not for you. If you don’t understand something ask your lawyer and not the agent. The lawyer works for you, and will give you the advice that works in your interest.
Be extremely wary of anyone that the agents recommend to you. Whether its solicitors, mortgage brokers, valuers, builders, chief cook and bottle washers or Uncle Tom Cobbley. You can never be sure that they are not paying “commissions” to the agent, so they are not truly independent. If you are not the only one paying then they are not working for you. If you wish to use people the agent recommends – ask the agent upfront if they get a commision. They do not have to volunteer the information, but they do have to tell you if you ask.
Always also get a full builders report and valuation done. I want to know of any problems before I buy just to make sure I’m really not buying a lemon.
You can get a lot of useful info from websites such as QV (Quotable Value) and Terranet on local values. However it’s also worth paying for a proper valuation done especially if you are buying fairly quickly after arriving in the country. It will cost you probably around $300 – $700 depending on the property and where it is, but bear in mind the property is gonna cost over $300,000, so its worth knowing you are not going to pay too much. QV and Terranet do not do proper valuations - the reports that you get from them will not tell you if you are about to pay too much for the house.
Paying Deposits on houses.
Deposits are usually 10%, but you can organise a lesser one if you want. That would go in the S&P agreement as well. We gave a 5% deposit because this was a big house and 10% was a fair whack of money. If you and the seller arrange just a $5000 deposit thats fine – its between the two of you. Agents will probably tell you it has to be 10%, and its a load of rubbish. Bear in mind with deposits, which unlike in the UK the deposit is paid to the Agent, not to the lawyerss because they want to be sure they get paid their commission before anything else!
When you have the S&P drawn up, it’s fairly standard to have a condition in there that says “Subject to finance”. Basically it means if you can’t get a mortgage, you don’t have to go through with the purchase. But just be aware that it should actually read “Subject to finance satisfactory to the purchaser”. This can avoid you being forced to take a mortgage out that is going to cost you more than it should including sometimes being forced to borrow off the seller! This is one of the reasons your lawyer should check the agreement before you sign it.
My best advice is:
(A) Not to rush into anything and do LOTS of research. Talk to as many people as you can who know the areas you are looking at. It may look great but is it? You need to find out what the specific concerns are in each area, especially any sunlight issues, because if the sun doesn’t get onto your property for part of the day or even year, you are going to be VERY cold! (Big problem in Wellington for Eastbourne, Seatoun, and the Eastern Bays)
(B) Get a valuation on any property you are interested in. It will cost a couple hundred bucks – but it tells you what it’s really worth – from someone who works for you not the seller.
(C) Dont use any companies recommended by an estate agent. They may be paying “Commission” (aka Kickbacks) to the agent and are therefore NOT independent. If in doubt ask the agent – they have to ‘fess up.
(D) Check out some auctions and see what happens. Watch out for “Vendor bids” where the agent bids the price up on behalf of the Vendor. It’s totally legal to do that here. We went to one auction where we had been told the house was expected to go for “top 400′s”. The bidding started at 600. There was only one guy bidding (and lots of interested watchers). He bid against the agent only and ended up paying $780K. I cannot for the life of me work out why he didn’t just stop. But ho hum not my money.
(E) Use a Lawyer from the start of the process. Once you sign a Sale & Purchase agreement in New Zealand – it is a Binding Contract and exceedingly difficult to get out of if you change your mind. Be absolutley sure it is right before you sign. This is the biggest difference between the UK and NZ house buying systems.
Updates:
Obviously since writing this about 3 years ago, Ive had a lot more experience of buying houses and dealing with Real Estate Agents. Ive met a lot of agents who are spectacularly good at what they do, and just would not do anything dodgy. Ive unfortunately met one or two for who the word “Ethics” doesn’t mean a whole lot.
You should also be aware that there is a new Sale and Purchase agreement out, written “in plain English” by the Real Estate Institute. That’s a bit like the Immigration agent industry getting a law written that says only they can give immigration advice. If you want to use it – fair enough – but if your lawyer says its a bad idea – please listen to them. Also know that although some agents may claim it is their Company Policy to only accept the new S&P, they are not in a position to do this – they have to accept an offer written on the original S&P whether they like it or not. If you have any problems – speak to your lawyer. I think its worth noting that I don’t know of any Property Investors that will use the new agreement – and its their job to understand how these things work. I wouldn’t touch it with a bargepole!
Avalon’s Money Thread is a series of posts which were originally written in 2007 for an Immigration Forum. They came about by answering questions that forum members asked, about how to cope with the often difficult financial situation they face in New Zealand. They formed the basis of what was eventually to become the book Avalon’s Guide: after another year or so of drinking way too much coffee and finding out way more about taxes, money and investing that any sane person should.
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Bloody hell it’s cold!
Winter is here – with a vengeance that only comes from being stuck in houses with little or no heating or insulation!
There was a truly funny piece in the Dom Post about this on Monday – from Linley Boniface – who writes with a wicked sense of humour and had some great lines:
It is, in short, an outfit offering the level of thermal protection an Antarctic scientist might require in order to spend an afternoon dissecting a Weddell seal on an exposed ice shelf. And yet, I am wearing this not on an ice shelf, but in my home office in Wellington. Although I can’t tell you exactly how cold it is in here, my gin and tonic is only a couple of degrees away from freezing over.
Ask any migrants to New Zealand what bewilders them most about this country and they will immediately mention our cold homes – as well as our insane driving, our inability to laugh at ourselves and our inexplicable fondness for cheap pies containing mince presumably garnered from recycled camel genitalia.
The cold homes, though, are most baffling, because most people consider hypothermia a symptom of being cold, rather than an expression of national identity.
I get this completely! Now our house is actually reasonably warm. For a start it has some insulation in it – but to be honest most winter days you wouldn’t notice. Thin walls and one layer of fibreglass does not cut it in my opinion. And one lousy woodburner in a five bedroom two story house has to have been thought of by a moron. However we have just installed a ducted heatpump system in the top story – and now most of the house is warm and toasty. At $6500 it bloody well ought to be. I don’t think it will be long before we fit out downstairs with the same system. I feel this is money well and truly spent so that my brain doesn’t freeze and shatter into a thousand pieces.
I am absolutely 0% of the opinion that migrants complaining about cold houses is a sign of whinging and the premise that you should bugger off back home or get used to wearing 20 jumpers. How on earth is that more reasonable than expecting your house to be warm, dry and not have you end up in hospital with pneumonia???
One of the few plus points in the Budget is that the government has finally figured out that it might be cheaper to offer grants for insulation rather than pay medical bills for thousands of kiwis living in substandard homes. I hope it works this time. I tried to get a grant to update the insulation in two of my rentals – and although the energy efficiency commission agreed I could have the money – they never actually got around to doing anything. Now my rentals are actually insulated – but hey – it doesn’t hurt to add a bit more – and we may even be able to get a bit of help to put heat pumps in.
Just be prepared to get sneered at if you happen to like being warm. On the other hand – when you do something about it being warmer outside than it is inside your home – you can sit smugly inside without the need for the requisite 20 jumpers and not give a stuff about anyone else’s snotty opinion of you.
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