17 July 2015
Property Purchase Terms Explained
A house purchase is likely to be the biggest and most expensive purchase you will ever make. Research has shown that one in six people in Britain has no idea about their rights and obligations when buying a home. It is vital that buyers, especially first time buyers, know their rights and have a basic understanding of the legal process.
Assistance is at hand to steer you through the legal jargon and complexities of the procedure that must be carried out to transfer the property, known as “the conveyancing process.”
There are many terms used during the house sale and purchase process that can be confusing if you don’t know what they mean. This quick guide should help you understand the process a bit better.
Commonly Misunderstood Terms
Freehold and leasehold
If you own the freehold, it means you own the building and the ground it stands on, although there can be restrictions on what you can and cannot do at the property. Leasehold means you have a lease to hold the property for a certain number of years and you usually need to pay an annual ground rent, which can increase over the lease term, and a service charge.
The service charge is usually an annual levy for costs incurred by the landlord or the management company in carrying out, amongst other things, repairs and maintenance to the common parts of the building such as communal stairways, lifts and garden areas. The amount of the annual service charge should be factored into your budget and bear in mind that it can increase during the lease term.
Leases are used for the sale of apartments and flats or a new plot on an estate. Leases contain restrictions on what you can do at your property, for example, whether you can keep a pet or rent out your apartment to a lodger.
Exchange of Contracts
This is the moment when your sale or purchase becomes legally binding. You cannot pull out of the transaction, or change the amount you want to pay for it, after contracts have been exchanged unless certain circumstances apply. If you do, there are serious implications, both financial and otherwise.
This is when the seller changes their mind before exchange and decides to sell to somebody else. Although annoying, and it can feel like a real let down if you have your heart set on the property, it is legal.
Rare, but not unheard of, this term is used when a buyer demands a reduction in the price at the last moment, just before exchange of contracts. It’s usually to compensate for declining house prices in the area and is slowly becoming more popular. It’s a risky strategy as it can create animosity between buyer and seller. Again, it is legal.
The amount of money the buyer has to pay the seller when contracts are exchanged. It is usually 5% to 10% of the purchase price.
This means you contract to buy a property before it is built. It can be cheaper in a rapidly rising house market but there are risks too. If the developer runs out of money, or they haven’t adhered to building regulations it can become a legal minefield that you will need professional advice to navigate.
The end point of the process is here! This is when you pay the remainder of the purchase price, receive the keys to your new home, and physically move in.
Buying a new home can be one of the most stressful times in your life, but with a good property lawyer it needn’t be. The Property lawyers at Slater and Gordon can help you with any stage of your property purchase and help you enjoy the excitement of a new house.
Call our team on 0800 916 9083 or contact us online and we will call you back.
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