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An Introduction to the
Coveyancing...
in the UK Property Market
Conveyancing Fees Explained
When you buy, sell or remortgage a property,
you are advised to use a conveyancer, employed by a firm of solicitors, or
a licensed conveyancer, to look after your interests and deal with the
complex paperwork.
Your conveyancer will take care that all the legal conditions and
obligations are met and the new mortgage goes into place without problems.
He will also act on behalf of your current lender, making sure your
existing mortgage is repaid (if you are not a first time buyer).
During the conveyance, you will be told what is happening, what you have
to do next and be given a number of documents to sign and return allowing
the next stage to go ahead. It is important to respond to any requests
promptly, so that you do not delay the whole process. It is not unusual
for a chain of home movers to be all lined up and ready to go, only to
discover that one of them is guilty of dealing with a request to act on
something and the whole process grinds to a halt. Don't let it be you. A
break in the chain is unpleasant and stressful for all concerned.
Conveyancing Process at a Glance
Buying or selling a home is a complex
business, both legally and administratively. The exact order of events
varies slightly, but there are three main stages to the process.
The three main stages are outlined at the most basic level below. Follow
the links for more detailed information on what each individual stage
entails.
Stage One: Before the Exchange of Contracts
The draft contract is received and negotiated, enquiries are made and the
formal mortgage offer is received.
Stage Two: Exchange of Contracts
The contract is signed and you hand over a deposit. Final accounts are
prepared and the mortgage deed requested for you to sign. Final searches
are made.
Stage Three: Completion
You obtain the keys to your new home and receive the title deeds. Stamp
duty is paid and the transfer is arranged at the Land Registry.
GENERAL CONVEYANCING INFORMATION
Conveyancing is the transfer of legal title
of property from one person to another, or the granting of an encumbrance
such as a mortgage or a lien. However, the term may also refer to the
movement of bulk commodities or other products such as water, sewerage,
electricity, or gas.
A typical conveyancing transaction contains two major landmarks: the
exchange of contracts (whereby equitable title passes) and completion
(whereby legal title passes). Conveyancing occurs in three stages: before
contract, before completion and after completion.
A buyer of real property must ensure that he or she obtains a good and
marketable 'title' to the land; i.e., that the seller is the owner, has
the right to sell the property, and there is no factor which would impede
a mortgage or re-sale.
A system of conveyancing is usually designed to ensure that the buyer
secures title to the land together with all the rights that run with the
land, and is notified of any restrictions in advance of purchase. In most
mature jurisdictions, conveyancing is facilitated by a system of land
registration which is designed to encourage reliance on public records and
assure purchasers of land that they are taking good title.
In England and Wales this is usually done by a solicitor or a licensed
conveyancer. Either may employ or supervise an unqualified conveyancer.
The domestic conveyancing market is price competitive, with a high number
of firms of solicitors and conveyancing companies offering a similar
service. It is possible for someone to carry out their own conveyancing.
Under English and Welsh law agreements are not legally binding until
contracts are exchanged. This affords both the advantage of freedom before
contract, but also the disadvantage of wasted time and expense in the
event the deal is not done. To try to address this, Home Information Packs
are being introduced from August 2007.
The normal practice is for the buyer to negotiate an agreed price with the
seller then organise a survey and have the solicitor (or conveyancer)
carry out their searches and pre-contract enquiries. The seller's
solicitor or conveyancer will prepare the draft contract to be approved by
the buyer's solicitor. The seller's solicitor will also collect and
prepare property information to be provided to the buyer's solicitors, in
line with the Law Society's National Protocol for domestic conveyancing.
It takes on average 10–12 weeks to complete a conveyancing transaction,
but some transactions are quicker, many take longer. The timescale is
determined by a host of factors - legal, personal, social and financial.
During this period prior to exchange of contracts (exchange being the
point at which the transaction becomes legally-binding) either party can
pull out of the transaction at any time and for any reason, with no legal
or moral obligation to the other. This gives rise to a risk of gazumping
and its converse, gazundering.
The position in Scotland under Scots law is that the contract is generally
concluded at a much earlier stage, and the initial offer, once accepted by
the seller, is legally binding. This results in a system of conveyancing
where buyers get their survey done before making a bid through their
solicitor to the seller's solicitor. If there is competing interest for a
property, sellers will normally set a closing date for the initial offers.
The contract is normally formed by letters between the solicitors on
behalf of each of the seller and purchaser, called missives. Once all the
terms of the contract are agreed, the missives are said to be concluded,
and there is then a binding contract for the sale of the property.
Normally the contract is conditional upon matters such as the sellers
being able, before completion of the transaction, to prove that they have
good title to the property and to exhibit clear searches from the property
registers and the local authority. The fact that there is a binding
contract at a relatively early stage, compared with the normal practice in
England and Wales, makes the problem of gazumping a rarity. The
disadvantage for the buyer is that they usually have to bear the cost of
the survey for unsuccessful bids, though trials have been made of a system
where the seller arranges for one survey available to all bidders. From 1
December 2008 properties for sale will have to be marketed with
information, now branded as the ‘Home Report’. This is a pack of three
documents: a Single Survey, an Energy Report and a Property Questionnaire.
The Home Report will be made available on request to prospective buyers of
the home. The date of final settlement (the "completion date" in England)
is in Scotland known as the "entry date".
Conveyancing Process
A typical conveyancing transaction has five
stages:-
1) Pre-Contract
2) Exchange of Contracts
3) Post Exchange or Pre-Completion
4) Completion
5) Post Completion
Pre-Contract stage – Freehold Sale/Purchase
The estate agent will send to the seller's solicitor a memorandum of sale
providing, amongst other things, details of the solicitors acting for the
buyer. The seller's solicitor will then prepare the pre-contract package
to be sent to the buyer's solicitor. This will comprise:
1.
The draft contract, which states what property is being sold and the terms
on which it is to be sold.
2.
Evidence of the seller’s legal title to the property by way of office
copies.
3.
Seller’s replies to the Seller’s Property Information Form and Fixtures,
Fittings and Contents form.
4.
Copy planning permissions, if applicable.
Once the buyer's solicitor has received this documentation, the local,
environmental and drainage searches will be carried out. These can take up
to six weeks in the case of a Full Local Authority Search or approximately
10 days in the case of a personal search. Appropriate enquiries will be
raised and the draft contract will be approved or amended.
Once all enquiries have been resolved, the buyer's solicitor will report
to the buyer with the contract for signature, request the deposit and, if
applicable, check that all mortgage offer conditions have been satisfied.
At this stage, either party is still able to withdraw from the
transaction, even if the contract has been signed.
Exchange of Contracts stage
The exchange of contracts marks the stage in
the transaction at which a binding contract is formed and neither party
can withdraw without incurring the financial liabilities stated within the
terms of the contract. Normally a 10% deposit is paid to the seller’s
solicitors, which is retained by them until completion. The deposit serves
as a good faith statement that the buyer intends to proceed to purchase
the property under the terms of the contract.
If the buyer withdraws from the purchase, the seller can forfeit the
deposit and retain the money. There is no requirement in law for any
deposit to be paid by the buyer at an earlier stage than exchange of
contracts, although some estate agents may ask a buyer to lodge a nominal
deposit with them pending formal exchange of contracts. If the seller
withdraws, the buyer’s solicitor may apply to the court for an order
forcing the seller to complete and bring court proceedings for breach of
contract.
There is usually a period of 10-14 days in between exchange and completion
to afford the purchaser’s solicitor sufficient time to obtain the
necessary funds from the buyer and/or mortgage lender and for the seller’s
solicitor to obtain a redemption figure from the seller’s lender.
Post-Exchange stage
The purchaser’s solicitor will raise what
are known as ‘requisitions’ with the seller’s solicitor. These
requisitions relate to the mechanics of the completion itself, e.g. how
much money is required to complete the transaction and who holds the keys
to the property.
At the same time as requistions are sent, the buyer’s solicitor will
prepare and send the draft transfer deed for the seller’s solicitor’s
approval. The seller will sign this transfer deed to enable legal
ownership to be transferred to the buyer.
The purchaser’s solicitor will request the buyer’s mortgage advance from
the buyer’s lender to be sent to them before completion.
The purchaser and seller’s solicitor will prepare completion statements.
This will detail how much money is required from the buyer to complete the
purchase and in the case of the seller, how much money is due to the
seller on completion.
Just before completion, the buyer’s solicitor will carry out
pre-completion searches to ensure that no last-minute problems have
occurred with regard to the title to the property.
The seller’s solicitor will request an up-to-date mortgage repayment
figure from the seller’s lender, as the seller’s mortgage must be redeemed
on completion.
Completion Stage
The buyer’s solicitor will telegraphically
transfer to the seller’s solicitor the money required to complete the
transaction. Once received, the seller’s solicitor will notify the buyer’s
solicitor and estate agent to authorise the release of the keys to the
buyer. The seller and buyer will then be notified that completion has
taken place so they can make their respective moving out and moving in
arrangements.
Completion usually takes place by early afternoon.
Post-Completion Stage
The seller’s solicitor must obtain a receipt from the seller’s mortgage
lender and forward this to the buyer’s solicitor to prove to HM Land
Registry that the mortgage has been redeemed and account to the seller
with the sale proceeds.
The buyer’s solicitor will attend to the payment of Stamp Duty to the
Inland Revenue. This must be paid within 30 days to avoid penalties being
imposed. Once notification from the Inland Revenue has been received, the
solicitor will proceed to register the property at HM Land Registry.
Notification of registration is usually received after a few weeks.
Here's a breakdown of what your conveyancer will be doing when you buy:
He will obtain a purchase contract from the sellers' solicitors, with
details of the property and its ownership.
He will sort out any pre-contract enquires and obtain copies of any
existing guarantees, planning consents, etc.
He will obtain the sellers' fixtures and fittings list to see what they
will be leaving in the property, and you will get a copy to check.
When your mortgage offer has arrived, he will arrange for you to sign the
contract and hand over your deposit for him to hold in readiness for
"exchange".
When the mortgage conditions have been met and the sellers are ready to
proceed, a completion date is agreed that suits everyone in the chain.
Contracts can now be exchanged and the transfer deed effected.
Once this has been done your conveyancer can call down the mortgage
advance from your lender and send you a final completion statement.
On completion day, your conveyancer pays the required amount to the
sellers' solicitors in exchange for the title deeds. You can now move into
your new home.
Your conveyancer will now register your name and mortgage at H.M. Land
Registry and send the deeds to your lender for them to hold as security
for their mortgage advance.
THE CONVEYANCING ARRANGEMENT
FEE
Arrangement fees became more popular amongst
lenders in the 1990s and are now a feature of most mortgage applications.
In most cases, the arrangement fee is added to the loan on completion and
so is not charged if the mortgage does not proceed. In some cases, the
arrangement fee can be requested upfront, and is called a booking fee.
This is common with some fixed rate mortgages, where you are paying the
lender to secure funds for your application at a certain interest rate.
Upfront arrangement fees and booking fees are usually not refundable.
Arrangement fees vary in cost, often between £199 and £399. In some
circumstances, they can be as much as 1% of the mortgage advance.
LEGAL FEES
Legal fees for the cost of the conveyancing are payable to the solicitor
or licensed conveyancer. The fee charged by a solicitor is based on his
time and the costs of legal registrations and miscellaneous costs (known
as disbursements).
Solicitors' fees vary from practice to practice, although 1% of the
purchase price is not an unusual figure. People selling an existing
property have an additional charge to pay for the conveyancing of their
existing property to a new buyer.
There are various conveyancing costs, which are usually itemised by the
solicitor on completion. These costs include the following:
* *local search, which reveals any matters affecting the property (such as
road widening schemes, planning consents).
* land Registry fees, which are incurred in the transfer of ownership on
the register from the old to the new owner
* Stamp duty, if applicable (see section below).
Once a solicitor has the basic information, he can often give an estimate
of costs.
*From 10 September, all homes in England and Wales with 3 or more bedrooms
will need a Home Information Pack (HIP), which includes a sale statement,
searches and evidence of title. The average pack is taking around 5 days
to compile, with costs in the region of £300 plus VAT.
In a sale or purchase there are three distinct stages:
Before exchange of contracts
Nothing is legally binding on either side and, generally speaking, there
is no refund for a wasted survey, search fees and legal costs if the sale
falls through.
Between exchange of contracts and completion
Both sellers and buyers are legally bound to complete on an agreed
completion date.
On completion day
Monies change hands through the conveyancers, deeds are handed over,
sellers move out and buyers move in.
STAMP DUTY
Stamp duty is a 'purchase tax' charged by the Government. It is charged
when documents are legally completed in the UK.
Stamp duty is charged when you buy a property costing more than £125, 000.
The cost is worked out as a percentage of the purchase price of the
property and the rate is charged on a scale.
House Price Stamp Duty
£125, 001 £250, 000 1%
£250, 001 £500, 000 3%
£500, 001 or more 4%
In marginal situations, it may be possible to reduce payment of stamp tax.
For example, if a purchaser buys a house with curtains and carpets for
£128, 000 and the curtains and carpets have a value greater than £3, 000,
then, if the purchaser buys the property, separate from the curtains and
carpets, the purchase price of the property falls below £125, 000 and there
is no stamp duty. However, the sale documents would have to show this and
the borrower may then only be able to borrow the lower amount.
HIGHER LENDING CHARGE (formerly known as a mortgage indemnity guarantee
MIG)
This is the cost of an insurance taken by the mortgage lender, but charged
to the borrower, when the amount borrowed is a high percentage of the
value of the property.
When a mortgage lender agrees to lend against the security of property,
the lender's major consideration is to avoid losing money.
In order to reduce this risk, mortgage providers take out insurance to
cover loans where a high percentage of the purchase price is to be loaned.
Typically, if someone borrows less than 90% of the purchase price of a
property, the provider does not seek further security, other than the
property itself, as the likelihood of loss is low. Above this percentage
and the provider is likely to insure against loss.
The following examples show how the higher lending charge is calculated;
based on different percentage amounts borrowed.
Example one
Purchase price £108, 000; mortgage of £93, 000. £108, 000 x 90% = £97, 200.
Since the mortgage required is less than this amount, insurance is not
taken.
Example two
Purchase price £108, 000; mortgage of £100, 000. £108, 000 x 90% = £97, 200
£100, 000 - £97, 200 = £2, 800 (higher lending charge of 8.5% only applicable
on this amount). £2, 800 x 8.5% = £238.
The higher lending charge premium is paid by the borrower, though it can
often be added to the loan if the lender allows.
Please Note: Not all lenders make the borrower pay the higher lending
charge. Many lenders pay the higher lending charge premium themselves.
SURVEY / VALUATION FEE
Since the Building Societies Act 1986, building societies are required to
arrange a report and valuation of every property on which a new advance is
made. Whilst lenders other than building societies are not legally
required to arrange valuations, they all insist on them.
A survey fee is charged for such a valuation. The survey fee is,
therefore, another cost that will usually be paid with the mortgage
application. The valuation offers some benefits to both the lender and the
borrower in giving a professional opinion as to the market value of the
property and security for the loan.
A qualified valuer has a duty of care and a contractual liability to
provide an accurate valuation.
The lender wants to know of any defects that may affect the property's
marketability. The inspection may also reveal other aspects, such as
undeclared occupants, or a suspicious connection between the vendor and
the purchaser.
The borrower is also concerned with the market valuation of the property
and any major defects it may have. Some of the surveyor's findings may
enable the purchaser to renegotiate the price.
The surveyor is either a staff valuer, working in the direct employ of the
lender, or a panel valuer. Most lenders operate a panel system, whereby
local valuation firms are requested to perform the survey.
There are three main types of survey available. These vary in depth of
information and, therefore, in cost:
Basic Mortgage Valuation
A basic valuation costs the least of all surveys because it is the most
basic. Normally, a mortgage lender will insist you have this survey
because it gives them basic information about the value of the property.
It will advise them about some basic conditions of the property (e.g. what
type of construction it is, what type of roads service the property). This
type of survey should cost around £100 - £500 depending on the property
value.
Report and Valuation (Homebuyers Report)
The RICS homebuyer report is in a standard format and is designed
specifically as an economical survey and is a cost-effective way to
minimise risk. The homebuyer report focuses on essentials: defects and
problems that are urgent or significant and will affect the value of the
property.
The homebuyer report, unlike a building survey, provides not only a survey
but also a valuation as an integral part of the service.
This type of report is much more detailed than the basic mortgage
valuation, which most people choose to commission, and is normally
instructed by house/flat buyers for their own use giving them a direct
link with their own Chartered Surveyor. The surveyor's main objectives in
providing the service are to give guidance on value and to assist the
prospective homebuyer to:
* Make a reasoned and informed judgement on whether or not to proceed with
the purchase.
* Assess at what price it would be reasonable to purchase the property.
* Be clear what decisions and actions should be taken before making an
offer to purchase.
The surveyor will also give a professional opinion about the particular
features of the property that affect its present value and may affect its
future re-sale. The report format is standard, compact, and easy to
understand. It covers the building inside and outside, the services and
the site. It focuses on the defects and other problems that the surveyor
judges to be urgent or significant. It also covers:
* General condition and particular features.
* Particular points which should be referred to your legal advisors.
* Other relevant considerations concerning, for example, safety, location
or perhaps insurance.
Matters not judged to be significant are generally not included in the
report, but where necessary, the surveyor may also provide some extra
service which is considered outside the scope of the standard package -
perhaps for a schedule of minor defects (for later discussion with a
contractor).
Internally, the condition of service installations, such as wiring and
drainage and central heating, will also be examined but not tested.
Structural survey
The building survey used to be called a structural survey and it is the
most detailed of the three reports. There is no standard form, but all
surveyors have developed their own detailed report format.
The surveyor will examine and report on chimney pots and stacks, the roof
cover, soffits and fascias, gutters and downpipes and look at all external
walls to see if there is any current evidence of settlement or subsidence.
The surveyor will examine windows and external timbers and endeavour to
identify a damp proof course. He will lift inspection chambers to examine
the drain runs, advising on the necessity or otherwise of a drains test if
there is visual evidence within the inspection chamber or around it , or
on the building, of drainage problems.
The surveyor will also examine the site, identifying any visually apparent
problems with the boundaries. He will also advise if he considers that
trees represent a threat to the stability of the building. Inaccessible
roof surfaces are examined from the ground with the aid of binoculars.
Inside the property, the surveyor will go into the loft, if access is
available, to inspect the structure of the roof, the insulation, any water
installation and examine chimney stacks, checking that there is adequate
support. The composition of ceilings may be noted together with the
condition of any wiring found within the loft.
The surveyor will then examine the underside of the ceilings and check for
signs of movement which may indicate roof spread and then inspect all
internal walls to see if there are any signs of settlement or subsidence.
The surveyor may recommend immediate remedial action, or monitoring of
cracks within internal and external walls.
A damp test will be carried out to accessible ground floor areas. This can
give an indication of whether sub-floor timbers are at risk from dry or
wet rot problems.
The surveyor will then inspect timbers, plumbing, electrics and heating.
If there are obvious problems here, he may recommend specialist reports.
The report may result in a schedule of repairs on a separate page that you
could give to a building contractor to obtain a quotation for any works
that need to be carried out before you exchange contracts on the property.
The building survey can include a valuation on the property and a
reinstatement value (what it would cost to build the property from scratch
in the event of say, a fire). The surveyor will confirm exactly what is
and what is not covered under a building survey by confirmation letter
when you ask for a quotation.
The content and materials provided in this
web site are for informational and educational purposes only and are not
intended to supplement or comprise any precise facts, although we have
researched sufficiently for the facts and information to be reasonably
accurate. All content and materials including research papers,
case studies and testimonials summarizing facts have been done by
individuals working for this website. We cannot be held responsible for
any inaccuracies, as we have described that information is for educational
purposes and therefore maybe a few weeks old.
Resources:
Wikipedia | easylawyers.co.uk | haart.co.uk
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