Help to Buy (HTB): top tips for your purchase (Part 3)
Did you know that the average age of first-time buyers has increased to 35 (37 in London), with the average home price estimated to jump by 30% in the next 10 years?
It is no surprise then that many first-time buyers are trying to get on the property ladder as soon as possible, especially with the Help to Buy scheme ending.
We have put together a few of the most ‘frequently asked questions’ we are asked by first-time buyers.
How long will it take?
Whilst every transaction is different, you can expect it to take between 6-8 weeks to reach exchange of contracts, depending on the parties. If you are purchasing a new build property, it may be that the developer requires exchange within 28 days, and you should let your solicitor know if you require an expedited service from the outset.
The completion date will be fixed on exchange.
Until you have a fixed date for completion, it is not advisable for you to plan for furniture deliveries, removals or handing in your notice to your landlord. Nothing is fixed or binding until exchange of contracts has taken place!
When do I pay the deposit?
The deposit, which is normally 10% of the purchase price (or 5% if you are purchasing with the Help to Buy scheme), is payable on exchange of contracts.
It is important to note that this is the contractual deposit, even if you are contributing more towards the purchase – there is an important difference!
What if I’ve paid a reservation fee?
If you are purchasing a new build property, it is likely that you have paid a reservation fee to the developer to reserve the property. The amount varies but is capped at £500 if you are purchasing with the Help to Buy scheme.
Any reservation fee will be deducted from the deposit paid on exchange of contracts or completion.
When will we receive the mortgage funds?
Your solicitor will request your mortgage funds in time for completion. It is worth noting that most lenders require at least 5 working days’ notice of completion and this should therefore be factored in when agreeing and fixing a completion date. The mortgage funds will go directly to your solicitor.
What other costs should I budget for?
Your solicitor should provide you with an indication of the expenses and third party costs from the outset, such as SDLT, legal fees, approximate cost of searches and bank charges. Once the draft contract documents are received, your solicitor should be able to advise you about any other charges which may be applicable.
Some examples include:
- Notice Fee – this is generally an administration fee charged to buyers of leasehold properties (including new build) for notifying the landlord of the change of ownership and any charge. This is usually in the region of £60-£120 plus VAT per notice.
- Engrossment Fee – this is generally charged by the developer’s solicitor for producing a final copy of the lease or transfer and is usually in the region of £100-£150 plus VAT.
- Service Charge or ground rent apportionments – if any service charge or ground rent is payable, the amount due will be calculated to ensure that each owner only pays for their period of ownership. For example, if the seller has made advance payments, they would be reimbursed on completion.
Equally, if you are purchasing a new build, you may be asked to pay from the completion date to the end of the financial year or, alternatively, some developers ask for a lump sum on account.
You should also note that, if you are purchasing a freehold, particularly on a new development, there may be an ‘estate charge fee’ which works like a service charge and will also need to be paid on completion as per the developer’s instructions.
I have agreed an incentive with the developer – how does this work?
As mentioned last week, if you have agreed an incentive with the developer, it is important to let your solicitor know as soon as soon as possible. Incentives are generally dealt with by way of an ‘allowance’ on completion. For example, if an SDLT incentive of £3,000 was agreed, that would mean on completion you will send £3,000 less. Therefore, although no cash is exchanging hands, the developer will account for this on their completion statement, saving you the amount agreed.
For further information, please don’t hesitate to contact our New Build Real Estate team.