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Buying a home

This information applies to Scotland only

What is in this information

The issues you need to consider when buying a property are set out here. The processes and how they relate to each other are explained stage by stage.

If you have problems buying a home, see Problems with buying and selling a home.

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How much can you afford

Working out a budget

The first thing you need to do is to decide how much you can afford. You should work out a budget from your current income and expenditure then work out how much you can afford to pay for a mortgage as a monthly outgoing.

The Money Advice Service has an online budget planner that you might find helpful to use.

How much can you borrow

You will need to find out how much money you can borrow. There are a number of different financial institutions that offer loans to people buying property, for example, building societies and banks. You should find out if you are able to borrow money, and if so, how much.

Once you know how much you can borrow you should work out a new budget. This forward planning can be invaluable to protect you from getting into debt later.

Some building societies now provide buyers with a certificate that states that a loan will be available provided the property is satisfactory. You may be able to get this certificate before you start looking for a property.

Additional immediate costs when buying a home

Before finally deciding how much to spend on a property, you need to be sure you will have enough money to pay for all the additional costs. These include:-

  • survey fees - if you or your mortgage lender require a survey in addition to the survey provided by the seller in the Home Report
  • valuation fees - if you or your mortgage lender require a valuation in addition to the survey provided by the seller in the Home Report
  • stamp duty land tax. For more information about Stamp duty land tax, go to the GOV.UK website at www.gov.uk.
  • fees, if any, charged by the mortgage lender or someone who arranges the mortgage, for example, a mortgage broker
  • solicitor’s fees
  • VAT
  • removal expenses
  • any final bills, for example, gas and electricity, from your present home which will have to be paid when you move.

You should be aware that you may still have some costs even if your bid for a property is not accepted, for example, you may already have paid for a valuation and/or survey. If the solicitor has started any legal work you may also have to pay for the work done.

You should also take into account the running expenses of the property you wish to buy. These may include:-

  • heating bills
  • council tax
  • insurance costs - including life insurance, buildings and content insurance.

The Home Report for the property that you are buying will include some information which might help you to assess the running costs.

Summary of steps in buying a home

These steps are not rigid. For example, you may know exactly what property you want to buy before you have chosen a solicitor. However most of the steps will be part of the process you go through to buy a home. You have to use a solicitor or conveyancer to buy the home legally. Once you have chosen the solicitor or conveyancer they will help you through the whole process:

Step 1: Choosing a solicitor or conveyancer

Step 2: Investigate getting a mortgage

Step 3: How to find a property

Step 4: Deciding on a property

Step 5: Get the Home Report

Step 6: Get a survey – if needed

Step 7: Making an offer

Step 8: Closing date is set (unless no-one else is interested)

Step 9: Offer is accepted

Step 10: Completion – part of the completion is the setting of an entry date which is usually negotiated. Other terms can be discussed at this stage.

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First-time buyers

Buying a home for the first time can often be a daunting experience but there is lots of information elsewhere as well as on this page to help you through the process.

The Money Advice Service website covers information on costs such as how to work out what you can afford as well as providing other money tips. See www.moneyadviceservice.org.uk.

Which? has produced a step-by-step guide which is on their website are www.which.co.uk.

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Choosing a solicitor or conveyancer

When someone wishes to buy a house, in almost all situations, it is necessary to use a solicitor for the legal work that needs to be done. You should approach local firms of solicitors and/or ask friends and relatives to recommend a suitable firm. Before making a choice of solicitor, you should ask for estimates of their charges for buying a house. It is important to contact more than one solicitor as there is no set scale of fees for purchasing a house and different solicitors will make different charges. You should:-

  • check whether the figure quoted is a fixed fee or depends on how much work is involved
  • check that the figure includes stamp duty, search fees, land registration fees, expenses and VAT and get a breakdown of these costs
  • find out what charges, if any, will be made if a sale falls through.

You cannot use the same solicitor as the seller as the solicitor cannot act for both buyer and seller. It is an advantage to use a local solicitor who will have a good knowledge of the local housing market.

What the solicitor or conveyancer does

The main tasks of the solicitor will be to:-

  • discuss the buyer’s needs and explain the procedure for buying a house if required
  • explain the Home Report, the different types of survey and arrange a survey for the house
  • arrange a mortgage and advise on the different methods of loan repayment available.
  • inform the seller’s solicitor that the client is interested in making an offer for the house
  • draw up and submit a formal offer for the house in consultation with the buyer
  • prepare mortgage documents
  • check the legal ownership of the property and prepare a deed confirming the buyer’s ownership. A deed is a document which proves who owns the property
  • check the property certificate from the local councils provided by the seller to find out if they are planning any repairs or developments affecting the house
  • check that alterations to the house have had planning permission from the local authority
  • check the search of the official records carried out by the seller’s solicitor to see if there are any problems with the seller’s right to sell the property
  • receive the money to pay for the purchase and pay it to the seller’s solicitor
  • check that the house is insured
  • negotiate with the seller’s solicitor in the event of any dispute.

You can arrange some of these things, for example a mortgage, insurance yourself but will still have to use a solicitor for the legal side of the purchase.

It is now also possible to use an independent qualified conveyancer for this work. A list of independent qualified conveyancers can be obtained from:-

The Law Society of Scotland
26 Drumsheugh Gardens
Edinburgh
EH3 7YR
Tel: 0131 476 8179
E-mail: lawscot@lawscot.org.uk
Website: www.lawscot.org.uk

For information about problems with solicitors and conveyancers, see Problems with buying and selling a home.

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Mortgages

If you wish to buy a home you may be able to borrow money to do this. This is called a mortgage. The loan is for a fixed period called a term and you have to pay interest on the loan. If you do not keep up the agreed repayments, the lender can take possession of the property.

Types of mortgages

There are two basic types of mortgage available - repayment mortgages and interest-only mortgages.

Repayment mortgage

This is a mortgage in which the capital borrowed is repaid gradually over the period of the loan. The capital is paid in monthly instalments together with an amount of interest. The amount of capital which is repaid gradually increases over the years while the amount of interest goes down.

Interest-only mortgage

With this type of mortgage you pay interest on the loan in monthly instalments to the lender. Instead of repaying the loan each month, you pay into a long-term investment or savings plan which should grow enough to clear the loan at the end of the mortgage term. However, if it doesn't grow as planned you will have a shortfall and you will need to think of ways of making this up.

There are three main types of interest-only mortgages. These are:-

  • an endowment mortgage. This mortgage is made up of two parts - the loan from the lender and an endowment policy taken out with an insurance company. You pay interest on the loan in monthly instalments to the lender but don't actually pay off any of the loan. The endowment policy is paid monthly to an insurance company. At the end of the mortgage term, the policy matures and produces a lump sum which should pay off the loan to the lender. In some circumstances, an endowment policy may produce an additional lump sum. However, there is also a risk that it will not be worth enough to pay off the loan at the end of the mortgage term. If you have been told by your endowment provider that your policy will not be enough to pay off your loan, you should seek independent financial advice. You can get information about dealing with endowment policies from the Money Advice Service at www.moneyadviceservice.org.uk
  • a pension mortgage. This mortgage is mainly for self-employed people. The monthly payments are made up of interest payments on the loan and contributions to a pension scheme. When the borrower retires, there is a lump sum to pay off the loan and a pension
  • an ISA mortgage. With an ISA mortgage, you pay interest to the lender, and contributions to an Individual Savings Account (ISA) which should pay off the loan

You can find further information about interest-only mortgages, repayment plans and shortfalls on the Money Advice Service website at www.moneyadviceservice.org.uk.

Islamic mortgage

With an Islamic mortgage none of the monthly payments includes interest. Instead, the lender makes a charge for lending you the capital to buy your property which can be recovered in one of a number of different ways, for example, by charging you rent.

You can find further information on this type of mortgage from the Money Advice Service website at www.moneyadviceservice.org.uk.

Can you afford a mortgage

Changes to mortgage rules from 26 April 2014, mean that lenders must make sure you only take out a mortgage you can afford. This means that they'll ask you for lots of information and proof on your income, outgoings and spending habits.

Lenders will check to see if you can meet the initial mortgage repayments and other household costs. They will also consider how you would manage if interest rates were to go up in the future, or if there was a change in your income because, for example, you wanted to start a family or retire.

More information on what a lender will do to check if you can afford a mortgage is available from the Financial Conduct Authority's website at www.fca.org.uk.

Where to get a mortgage from

A mortgage could be available from a number of different sources. Some of the available options are:-

  • building societies
  • banks
  • insurance companies. They only provide endowment mortgages (see above)
  • large building companies might arrange mortgages on their own new-build homes
  • finance houses
  • specialised mortgage companies.

For some groups of people, for example, first time buyers on a low income, it may also be possible to borrow some of the money you need to buy a home from other, government-backed sources. You will usually need to borrow the rest of the money from a normal mortgage lender such as a bank or a building society.

For more information about government-backed schemes to help you buy your own home, see Finding accommodation.

As well as standard mortgage deals, lenders might also offer deals which are especially designed for people who don’t qualify for a standard mortgage. This type of deal is known as a 'sub prime' or 'adverse credit' mortgage. They are aimed at people who have had financial difficulties or credit problems in the past. For example, you might have had a previous home repossessed or have been declared bankrupt. You might also have difficulty proving that you have a regular or reliable income.

Sub prime and adverse credit mortgages usually charge a higher rate of interest than standard mortgages. Lender may also limit the amount of money they are prepared to lend you.

Before taking out a sub prime or adverse credit mortgage, you should get some independent financial advice.

If you’re thinking about taking out a mortgage you should make sure you look into all the different options available and that you only borrow what you can afford to pay back. If you do not keep up the agreed repayments, the lender can take possession of your property.

For more information about mortgages go to the Money Advice Service website at: www.moneyadviceservice.org.uk.

If in doubt, you may want to consult an independent financial adviser. For help with finding a financial adviser, visit www.moneyadviceservice.org.uk.

Using a broker to get a mortgage

Instead of going directly to a lender such as a building society for a mortgage, a broker could be used. A broker may be an estate agent or a mortgage or insurance broker. They will act as an agent to introduce people to a source of mortgage loan to help them buy a house.

You may want to use a broker because it can save you time shopping around. However, some lenders offer products direct to customers that a broker may not be in a position to offer. So, it may be best to shop around, to see what else is available.

From 26 April 2014, a broker must tell you if there are limits on the range of mortgages that they can recommend. For example, that they only consider mortgages from particular lenders rather than the whole mortgage market.

A broker may be used when it could be difficult obtaining a mortgage directly from a lender, for example:-

  • the mortgage required is particularly large
  • the property is unusual in some way
  • more than two people wish to jointly purchase the house
  • the applicant is self-employed and their income fluctuates.

There are rules about how much a broker can charge for their services. Also, brokers must not discriminate against you because of your age, race, sex, disability, religion or belief, gender reassignment, pregnancy and maternity or sexual orientation when they are offering you their services.

For more information about mortgage brokers, go to the Money Advice Service website at: www.moneyadviceservice.org.uk.

There is also information on getting mortgage advice on the Financial Conduct Authority's website at www.fca.org.uk.

Making a complaint about a mortgage lender

If you want to complain about a mortgage lender or broker, you should first discuss the problem with them, and then consider making a formal complaint. If you think the mortgage lender or broker has discriminated against you, you can complain about this as well. Each lender or broker should have its own internal complaints procedure. If you have followed this procedure and are still not satisfied, you can take your complaint to the Financial Ombudsman Service.

For more information about making a complaint to the Financial Ombudsman Service see How to use an ombudsman or commissioner in Scotland.

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How to find a property

There is a number of ways in which someone could find a property to buy:-

  • using estate agents or solicitors’ property departments
  • visiting the local solicitors’ property centre
  • looking at property pages in local newspapers
  • contacting house building companies for details of new properties being built in the area.

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Deciding on a property

When you find a property you are interested in you should arrange to look round it to make sure it is what you want and to check as far as possible on the state of repair. You will need to get some idea of whether or not you will have to spend any additional money on the property, for example, on repairs or decoration. It is common for a potential buyer to visit a property two or three times before deciding to make an offer.

Warranties for newly-built properties

If the property is a newly-built property, check whether it has a Buildmark warranty. Buildmark warranties are organised by the National House-Building Council (NHBC) which is an independent organisation with over 20,000 builders of new houses on its register. Before being accepted onto the NHBC register, builders must be able to show that they are technically and financially competent and they must also agree to keep to NHBC Standards.

The Buildmark scheme covers homes built by NHBC registered builders once the NHBC has certified them as finished. The scheme will, for example, protect your money if the builder goes bankrupt after contracts have been exchanged but before completion. It also covers defects which arise because the builder has not kept to NHBC Standards. For more information, go to the NHBC website at: www.nhbc.co.uk.

If you buy a new or newly converted home, you may be able to use the Consumer Code for Home Builders if you have a problem. This is a voluntary code and applies to builders under the insurance protection of one of the participating home warranty bodies. You can get more information about the code, which includes a dispute resolution scheme, on the Consumer Code for Home Builders website at www.consumercodeforhomebuilders.com.

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Energy Performance Certificates

When you buy a house you will get an Energy Performance Certificate (EPC) free of charge. From 9 January 2013, an advert to sell a property must include EPC information. The EPC will give you information about the energy efficiency rating of the house and suggestions for cost effective energy saving improvements. The Energy Performance Certificate must include details of any Green Deal plan as you will have to take over repayments of any Green Deal loan. If the seller fails to provide an Energy Performance Certificate the local authority can charge a penalty of £500. More information about EPCs can be found on the Energy Saving Trust Scotland website at www.energysavingtrust.org.uk.

For more information about the Green Deal, see Green Deal - how it works

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The Home Report

Most houses which are marketed for sale will require to have a Home Report and to make it available to potential buyers. There are three parts to the report; a single survey of the property, an energy report and a property questionnaire. More information about the Home Report can be found on the Scottish Government website at www.scotland.gov.uk.

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Getting a survey

If you are buying a house which has a Home Report you will get the single survey as part of the Home Report. The surveyor who produces the single survey has a legal responsibility to provide accurate information to both the seller and the buyer. The single survey is broadly the same as a scheme 2 survey.

You should consider getting your own survey as well as the seller's single survey especially if you have any concerns about the condition of the property. If you are buying the house with a mortgage, the lender may insist on having a survey for mortgage assessment carried out, to be paid for by the buyer. There are three main types of survey, or inspection which you can get:-

  • mortgage valuation report (scheme 1 survey). A mortgage valuation is the least expensive type of inspection and provides a valuation of the property for the purposes of getting a mortgage
  • home buyers report (scheme 2 survey). The home buyers report will consider not only the value of the property but will also examine the structure of the property and should identify any existing or potential problems
  • full structural survey (or buildings survey). A full structural survey is expensive but provides a thorough and detailed inspection of the property.

The buyer’s solicitor should ensure that the surveyor is a member of:-

  • the Royal Institute of Chartered Surveyors; or
  • the Incorporated Society of Valuers and Auctioneers: or
  • the Incorporated Association of Architects and Surveyors.

If the surveyor reports that there are some problems with the property, you will have to consider whether you still want to go ahead with the purchase. In some cases it may be necessary to ask a builder or other workman to estimate the cost of carrying out necessary repairs.

Alterations

You should try to see whether the property has been modernised or altered in any way. If it has, your solicitor or qualified conveyancer should check with the local authority to see whether the work is legal. You should be aware, though, that although the council may have granted a 'completion certificate', showing that work has been carried out in accordance with building warrants, this is no guarantee of structural quality or standard of workmanship.

Repairs

You or your agent should ask the seller for details of any major repairs that have been carried out on the property. If the property is a flat you should ask about how repairs are shared between owners and whether there are any outstanding statutory repair notices.

For information about when a solicitor or qualified conveyancer fails to provide information that might affect your decision to buy the property, see Problems with buying and selling a home.

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What kind of offer to make

Unconditional offer

It is normal practice for the buyer to arrange a mortgage and find out as much as possible about the house before making an offer. The offer specifies the price to be paid. Although this is called an ‘unconditional’ offer, it contains a number of standard conditions. You should not make an unconditional offer without thinking about having a survey carried out in addition to the single survey provided by the seller. You should also arrange a mortgage before making any kind of offer for the house.

Conditional offer

The conditional offer specifies the price to be paid but makes this subject to the buyer receiving a satisfactory survey.

The seller will rarely accept a conditional offer but may indicate that s/he will accept the offer if the ‘subject to survey’ condition is withdrawn. The buyer would then have to get the property surveyed very quickly.

A seller will almost always prefer an unconditional offer. If the house is advertised at a fixed price there is little to be gained by making a conditional offer.

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Making an offer

If you make an offer for a house it may be accepted. Once there is a binding contract, the buyer cannot withdraw from the contract without becoming liable for compensation. Even if the buyer or seller dies and sometimes even if the house burns down, the agreed price must be paid.

If the house is advertised at a Fixed Price this means that the seller is willing to accept the first firm offer at the price specified. The price is likely to be on the high side as it is the highest figure the seller thinks the house will fetch. The buyer should not feel obliged to offer the amount specified if the survey of the house shows that a lot of repairs are needed or if the house has been on the market for a long time.

If the house is advertised at an Upset or ‘offers over’ price this means the figure specified is the minimum the seller would be willing to accept. The seller will normally wait until a number of people have expressed an interest in making an offer and then announce a closing date. Sealed offers are submitted on that date and the seller chooses the best one. You will have to decide how much to offer based on the value of the property to you and the top price which you can afford to pay. The surveyor’s valuation will provide some guidance on this but you should also take into account the amount of interest in the property, the amount of repair the house needs and the current trend in house prices.

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Acceptance of offer

If you have made an unconditional offer for the house this will normally be accepted or rejected by the seller straight away. An acceptance may be completely unconditional, in which case there will be a binding contract immediately. Usually, however, the acceptance will contain a number of conditions and there will be no binding contract until all of those conditions have been accepted by your solicitor.

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Completion

After a binding contract has been agreed, called ‘concluding Missives’, your solicitor will complete the conveyancing procedures and prepare a number of documents, particularly a ‘disposition’ which will transfer ownership of the house to you. The contract or Missives will specify the date of entry to the property. This is the date on which you will have to pay the seller the purchase price of the property in return for the Disposition and the keys to the property. Your solicitor will make all the arrangements for settling the transaction on the date of entry and for completing the buyer’s loan at the same time. This is called ‘completion’ of the purchase.

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Buyer wants to withdraw from the purchase

You might want to withdraw from the sale before the contract has been completed. This is usually a matter for negotiation between your solicitor and the selling solicitor. This is because; although the contract hasn’t been completed, some costs may have been incurred for example, the seller may have extended warranties to accommodate you with a late entry date.

If you are wanting to withdraw from the purchase after the sale has been concluded you cannot do so without incurring costs, When the housing market is slow you might have difficulty selling your own home after you have completed the purchase of another home. The costs you incur may simply be damages from breaking the contract of sale. However a recent landmark ruling in court (July 2013) has ordered the purchasers to pay the full asking price for dropping out of the contract. You must discuss the possible consequences of wanting to withdraw from the contract with your solicitor or qualified conveyancer.

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