City Guide

Baytify's Guide For Real Estate Investment in England and Wales

City guides for: London, Manchester, Leeds, Birmingham, Liverpool, Cambridge, Milton Keynes, Oxford, Surrey

Property purchases in England and Wales may appear complicated. A Baytify guide to investing in property in various areas simplifies this procedure. While we try to answer most of your questions, this guide does not substitute legal, accounting, or tax advice. For help, contact your Baytify wealth manager or Client Services.

Step 1 - Understanding Legal Titles:

FREEHOLD TITLE 
This grants indefinite ownership of both land and attached structures, commonly seen in landed houses.

LEASEHOLD TITLE
Apartment owners have temporary rights for 99, 125, 250, or 999 years. Leasehold titles control estates, but leaseholders can extend them at will. Costs arise. Tenants pay ground rent and management fees annually.

Step 2 - Building Warranties:

If you're considering a new-build property, it will typically come with a ten-year building warranty covering structural defects. The builder is accountable for rectifying defects in the first two years, and the warranty covers specific parts of the home for years three to ten. If you're buying off-plan, the warranty might also safeguard your deposit if the developer face insolvency before completion.

Step 3 - Exchange and Completion Process:

INSTRUCTING A SOLICITOR
Once the purchase is tentatively agreed upon, engage a solicitor to initiate the conveyancing process. They will conduct due diligence, including title checks, access verification, local searches, and planning consent assessments.

EXCHANGE OF CONTRACTS
Upon satisfactory due diligence, pay the exchange deposit (typically 15% to 25% of the purchase price) to the vendor's solicitor. This step legally binds you to the purchase.

COMPLETION
The final purchase price balance is settled on an agreed-upon date after the exchange. For properties under construction, completion occurs when the property is ready for occupation.

Step 4 - Understanding Acquisition Costs (SDLT):

Stamp Duty Land Tax (SDLT) is based on property valuation and usage. The SDLT rate is increased by 3% for buy-to-let and second residences. Ownership of a property outside the UK counts as your first home, and future UK acquisitions will incur a fee. First-time purchasers and homeowners transferring between homes are excluded. Non-resident purchases pay 2% more starting in April 2021.

LEGAL FEES
Legal costs cover the expense of retaining a solicitor for property conveyancing. Solicitors decide their prices. Buying with a mortgage requires paying your lender's legal expenses.

MORTGAGE COSTS
The lender arrangement fee and mortgage broker fee to obtain the best offer are mortgage charges.

FEE FOR VALUATION
Bank valuations are required for mortgage lending. Fees range from £250 to £1,000 (including VAT) depending on property size.

HOME REPORT 
A “home report” is required for second-hand transactions. This seller-funded report describes the property's value and condition. Home reports can be used by lenders to value homes.

PACK FURNITURE 
Furnishing your flat increases its rental appeal. Prices range from £5,500 to £6,000 (plus VAT) for a one-bedroom apartment to over £7,500 for a two-bedroom apartment, depending on furniture size and quality. Corporate rentals may cost more. 

Step 5 - Operating Costs:

COUNCIL TAX 
Paid by the occupier, but the owner pays if the property is vacant. Rates depend on property value and local authority tax rates.

SERVICE CHARGE 
Applicable for apartments or properties with shared facilities. Covers building upkeep, maintenance, and insurance.

GROUND RENT 
Paid by leasehold property owners, amounts are specified in the lease.

REPAIRS AND MAINTENANCE 
Owner's responsibility, though tenants may be liable for damages beyond normal wear and tear.

MANAGEMENT FEES 
Charged by lettings and management agencies for services like tenant placement and contract renewal.

Step 6 - Understanding Tax Implications:

INCOME TAX
Non-UK residents are subject to income tax on UK earnings from rental income.

CAPITAL GAINS TAX 
Payable on profit from asset disposal, including property.

INHERITANCE TAX
Paid on an estate after someone passes away.

Note: Consult a tax advisor for personalised advice on exemptions and tax strategies.

Step 7 - Lettings and Management Process:

Your lettings and management agency will collect the keys, pass over documentation, and examine the house to make sure it works. On new homes, snagging is done. A non-resident landlord form is advised for international investors for tax purposes. A lettings and management firm may also advise you on legal and regulatory issues before leasing your home. Agents often provide furniture packages to help you equip houses in England and Wales before leasing.

After that, the agent markets the apartment, conducts viewings, and negotiates. When an offer is accepted, the agent will run credit, landlord, and employment checks on the tenant(s). These details are forwarded to the landlord and renter for signature if the landlord approves. After contract signing, the agency will organise move-in and inventory. This requires the investor to create a UK tenancy deposit protection scheme account to secure the tenant's deposit and reduce disputes at the conclusion of the tenancy. This may be done by the agent.

Monthly rent is collected by the agency and sent to the investor. Without a UK bank account, investors must incur international bank transfer fees. Monthly fees are deducted from rent by certain agencies. Also, the agent can pay service costs for you. The agent remarkets the unit for reletting or selling once a tenant ends. The agency arranges a property inspection and repairs after the renter departs. If the tenant's deposit is deducted for loss or damage, the agent will advise. Most firms can organise landlords' contents, public liability, and rental guarantee insurance.

Step 8 - Arranging a Mortgage:

For finished properties, acquire a mortgage before signing. Under the present financing offer, this allows for quick completion. Although off-plan acquisitions may take months or years to complete, you can apply for a mortgage six months before practical completion.

Talk to a knowledgeable mortgage counsellor about the best lenders and products for your circumstances, budget, and investment strategy.

Their next step is to get an agreement in principle (or decision in principle) from your selected lender. Once approval in principle is granted, your mortgage advisor will submit a comprehensive application. 

They'll ask for these documents:

1. Proof of ID and residential address
2. Proof of current income
3. Property details: for example, the size, location, and completion date
4. proof of deposit and declaration of existing liabilities

A lender will analyse and underwrite the whole application. The lender hires a surveyor to assess the property's worth and suitability for lending security. A mortgage offer is provided after approval. This validates the lender's accepted terms, rates, and mortgage offer conditions. The mortgage duration, maximum loan, interest rate, and variations are listed.

A copy of the formal mortgage offer is sent to your solicitor, and the lender orders its solicitors to commence conveyancing. Following this, the property owner or developer's solicitor issues the mortgage deed, legal charge, and leasehold-title lease.