Ok, you’ve done the hard work and selected the property that you like, so what’s next?
The next step is to make a list and calculate the transactional costs, so you are prepared for negotiations and making an offer?
First, you must decide what will be the Stamp Duty Land Tax (SDLT) as it can vary depending on who will become an owner of the property: an individual or a company. If the property is registered in the individual’s name, the SDLT rate will depend on the property purchase price and the effective rate can be between 0% and 12%. If it’s an additional property purchase, 3% surcharge on residential properties bought as a second home will apply, and extra 2% if you are non-UK resident. An experienced Buying Agent introduce you to the qualified experienced Tax Advisor to give you the right estimation if a more complex ownership structure is considered and will see the opportunity if any tax relief or exemptions are applicable.
Another question will arise if the property has a short-lease, and to maximise its value you will decide to extend the lease. Most residential flat owners have the right to extend their leases. For example, owners of apartment leases that were originally at least 21 years in length can apply for a 90-year extension after two years’ ownership or if the Seller owns the property for at least two years. They may even be able to acquire the freehold of their building, a process called collective enfranchisement. Lease extension premiums are calculated according to a complicated formula and is subject to negotiation with the landlord.
Generally, the shorter the lease, the more expensive it is to extend. Anyone with a lease approaching 81 years unexpired should seriously think of extending it. Under 80 years, marriage value is payable to the landlord, making it much more expensive to extend the term. You will need to instruct a solicitor who will start the process by serving an Initial Notice on the landlord, which will offer a premium for the lease extension. You will also need to instruct a chartered surveyor, to put a value on the lease extension. Once the Initial Notice is served on the landlord, you will be responsible for his/ her reasonable valuation and conveyancing costs, as well as your own. The experience of your buying agent, surveyor and solicitors in this process is fundamental, as professional team acting on your behalf will help you to reduce the cost of lease extension.
If you are looking for a mortgage, you must understand how the valuation of the property influences the mortgage amount – LTV (Loan to Value). Low valuations cause a problem for homebuyers, who discover that in the eye of their mortgage lender their prospective property is not worth what they offered. After years of overvaluing properties during the boom, lenders and surveyors suddenly became much more pessimistic as the slump hit and are continuing to give low valuations for those looking to renew mortgage deals. The mortgage valuation is for the benefit of the mortgage lender. It is designed to provide enough information for the lender to decide whether the property is safe to lend on, and up to what amount.
Since March 2016, mortgage lenders must include any mortgage-related fees, such as redemption charges and valuation fees, as part of the annual interest calculation. This way of calculating the interest is called the Annual Percentage Rate of Charge or APRC. All mortgage product-related costs should be outlined in a mortgage Illustration document. It is sometimes called a European Standard Information Sheet (ESIS): Arrangement fee, booking fee, valuation fee, telegraphic transfer fee, mortgage account fee, missed payments, mortgage broker fee, early repayment charge, exit fee.
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