If you’re a foreigner buying UK property off plan, here’s our step by step guide to take you through the purchase process so you know what to expect at every stage.
Buying a property is likely to be one of the most expensive purchases you ever make . Whilst the purchase process is inherently the same across the UK (England, Northern Ireland, Scotland and Wales) there are some variations. This guide specifically covers England and Wales.
So, you’ve done your research, gathered data and information, run analysis of the likely performance of the property you want to buy and have secured the lowest possible price. What next? What is the purchase process for buying UK property off plan?
Step 1 – Buying UK property (in England or Wales)? Make sure you buy in the right entity
As an investor buying overseas property, it is critical to ensure you are purchasing the property in the right entity (as an individual, company or trust) because making changes to the entity which owns the asset at a later date might trigger a taxation event.
It is really important to make sure that you have thought about this carefully, so make sure that you’ve planned this well in advance of entering into the legal process of buying a property. You should seek independent specialist taxation advice on this matter.
Step 2 – Offer and Reservation
When your offer is agreed, the agent will prepare a Reservation Agreement to capture the details of the sale which will be included in the contract, including your name, the agreed price, any stage payments together with any other conditions of the sale. The Reservation Agreement will be signed by you and the developer you’ll pay a reservation fee which is typically £2,000 – £5,000 depending on the value of the property.
The agent will carry out their MLR (money laundering regulations) obligations. You will need to provide your ID and proof of address (utility bill or similar) dated within the last 3 months.
Step 3 – Solicitors Instructed
Once the Reservation Agreement has been signed by you and the developer (or their Agent) you will need to appoint a solicitor to act on your behalf throughout the purchase process. Typically, the developer or property agent will have a recommend solicitor (or panel of recommended solicitors) to act for you.
Once instructed, the developer’s solicitor will submit a draft contract to your solicitor, together with documents relating to the Title to the property. If the property being purchased is leasehold, a copy of the lease will also be supplied.
Your solicitor will review the sales contract and terms of the lease on your behalf. They will also conduct investigations relating to the property itself including local searches, to establish if there are any matters you need to be aware of i.e. is the property being built on or near contaminated land or water.
If there are multiple apartments to be sold in the building, the recommended solicitor(s) will have typically undertaken a significant amount of legal due diligence and will have prepared a legal pack and a Report on Title, before being appointed by you.
Step 4 – Exchange of Contracts
A Purchase and Sale Contract consists of two parts: one is signed by you and the other by the developer, for UK property, this will generally be referred to as ‘the contract’. You will pay a ‘deposit on exchange’ which is typically 10% of the purchase price. The two solicitors then ‘exchange’ their signed contacts and the deposit money is paid by your solicitor to the vendors solicitor.
At this point both parties are legally bound by the contract and therefore to proceed to completion. You will now have a have a legal interest in the property and you should obtain insurance for this property, this will be:
- Freehold – building insurance
- Leasehold – the building will most likely be insured by the group responsible for managing and maintaining the building
Typically, the 10% deposit will be held by the developer’s solicitor as stakeholder but check this is the case with your solicitor.
Between exchange and completion of the property, stage payments may be due. The amounts and timeframes will vary but could be in the order of 5% to 20% of the purchase price and will be linked to either construction milestones or time. You will have been made aware of any stage payments prior your reservation. The stage payments will typically be used to fund the developer’s construction costs. You should seek advice from your solicitor as to your recourse, should the building not be completed.
Step 5 – Construction Updates
Many investors purchasing off plan property will do so 2 or 3 years prior to the building being completed. Reputable developers will keep you regularly updated with regard to the construction process and how this is impacting the estimated completion date. An estimated completed timeframe will be included within the contract, but this may change due to the construction process taking more (or less) time than expected and the contract will allow for this to be changed.
Step 6 – Obtaining a Mortgage
If you require a mortgage, you should seek the advice of a mortgage broker. As a foreign buyer, you should start preparation 3 – 6 months prior to completion.
You can learn more about obtaining a mortgage in our blogs and our Guide to Buying in the UK. Please email [email protected] for your copy.
Step 7 – Pre Completion ‘Snagging’ & Building Regulations
Prior to completion, most reputable developers will ask you to ‘snag’ your property. This is an inspection that allows you or your representative to check the developer has met all their obligations under the terms of the contract. This may include things such as checking the dimensions of rooms, to checking the paint finishes. If any defects are recorded, the developer should then arrange for these to be remedied.
In many instances, if you’re an overseas buyer, your letting agent can carry out the snagging on your behalf.
All new buildings in England and Wales must be building regulation compliant, whether by way or warranty or separate completion certificate.
Step 8 – Completion Preparation
Developers will typically begin by giving an estimated completion date that covers two quarters of a given year, i.e. estimated completion is Q1/Q2 2022. As construction progresses, the completion ‘window’ will be narrowed down, to the point where a particular month is given for completion. When the developer is certain of the date, a 14 day notice period will be served. At this point you should arrange for any outstanding funds to be remitted to your solicitor who will also arrange to draw down any mortgage funds from your lender. Other costs will also be payable on completion, details of which can be found in our Buyers Guide to UK Property.
Point to note: The contract will provide an estimated completion date, but this may change during the construction process due to unforeseen circumstances. As such, most off plan contracts will include a long-stop date, which requires the developer to complete the purchase by a fixed date in the future. This can be a number of years after the estimated completion date.
Step 9 – Completion Date
On the day of contractual completion, your solicitors will pay the balance of the purchase price to the developer’s solicitor. Title documents and keys will be handed over to you. There is no requirement for either the vendor or you to be present at completion.
If you delay completion beyond the completion date, you will be liable to pay interest at a penal rate on the balance of the purchase price. In most circumstances it is likely the developer will serve “special notice” which requires completion within a fixed period, usually 10 working days. If you still fail to complete, the vendor can treat the contract as being at an end and you will have forfeited all monies you have already paid.
Step 10 – Post-completion
Your solicitors will be handed the Title deeds and they will apply for your registration as owner of the land or property after payment of Stamp Duty Land Tax (SDLT). This process may take several months, although you must have paid the SDLT to your solicitor at the point of completion. At the end of the registration process, the Land Registry register the title confirming that you are now the owner of the property (the Registered Proprietor).
Most investors will appoint a letting and management company to find a tenant and manage the property. Many developers will have a recommended letting and management agent who can advise landlords. Fees will vary depending location of the property.
We hope you found this article useful if you are thinking of investing in the UK. If you’re at the start of your investment journey, you may also want to read up on the purchase procedures in Australia or New Zealand or download a copy of our latest UK Market Review.
Important notice: Proptech Pioneer and its associated companies seeks to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect. You use the information at your own risk and accept no liability if you rely on this information. Proptech Pioneer is not a tax advisor, conveyance, lawyer or financial advisor. You should seek independent advice from independent professionals before making any investment decision.