Prerequisites to buy a property
- To be registered as a co-operative
- Have a business plan with cashflow projections
- Have a bank account
- Have spoken to, and received a positive response from some lenders in order to finance the purchase price and other expenses, such as
- An Agreement in Principle for a mortgage from a bank or a building society
- Loanstock pledges
- A Radical Routes loan that has been recommended by Finance Group and approved at a gathering
- A conveyancing solicitor to help you with the legal transfer in ownership
- An architect - if your group is planning quite significant renovations
What to look for in a property
Energy Performance Certificate
Look at the Energy Performance Certificate. This should be available from whoever is selling the property, and are also free to look up online on the national EPC register.
An EPC gives a property an energy efficiency rating from A (most efficient) to G (least efficient). It contains: information about a property’s energy use and typical energy costs recommendations about how to reduce energy use and save money An EPC is valid for 10 years. So, if you've recently bought your property, you can provide your members with the EPC you just got for quite a while before needing to get a new one. You don't need to get a new EPC if you've improved your property, though you might decide that it's a good idea to do so. You also don't need to get a new one unless you're advertising for new tenants.
www.gov.uk has a list of accredited assessors, who can assess your property and produce the certificate. They will include your EPC on the national register unless you opt out. You can be fined if you don’t get an EPC when you need one.Floor plans
Find out if there are floor plans available for the building that you can go through with an architect, a building project manager, or someone else with some experience. Things you might want to look out for are - the number of bedrooms, living spaces, bathrooms and steps, the size of shared areas and bedrooms, whether proposed bedrooms meet local and national space standards etc. It is also work considering whether structural adjustments can be made to make the property more accessible such as step free access into the house and garden, widened doorways, bathroom on the ground floor etc.
Planning: Use Class
Check what the building’s ‘use class’ is, and if you will need planning permission for a ‘change of use’, by looking at the national Planning Portal.
Talk to your local planning department to see whether they would be open to a ‘change of use’. A planning application may take a long time to come through, but you shouldn’t risk completing the purchase until you have the permission.
Negotiate and Survey the Property
Once you've found somewhere that works for your group, or the part of your group who is being housed at that property (if you are not housing everyone together), make sure you decide amongst yourselves who will talk to whom (the bank, other lenders, owners, solicitor, architect, planning department, builders etc.) before starting the process.
Put in an offer to the owners
This is usually lower than the asking price but don't go too much lower or they may not take you seriously. You are in the same boat as any other buyer here so as well as talking to other co-ops, it might be helpful to talk to friends and family about their experiences putting offers in. It depends on the owners (do you know them, will you offend them, do you think you can get away with it, are there reasons the building should be valued lower?). They will then reply, either accepting or asking for more. Negotiate - it depends on the market, the state of the building and how much the owners want to get rid of it. However, be aware of the maximum offer you can afford and never go above it, no matter how much you want the building – that would just be saving a crisis for later.
Get a building survey and valuation
If the owners are responding positively, and you think the purchase could potentially go ahead, get a building survey and valuation. In Scotland it is the sellers’ responsibility to arrange a Home Report (similar to a RICS Level 2 house survey) to show to buyers before they can market their property.
- RICS (Royal Institution of Chartered Surveyors), or
- RPSA (Residential Property Surveyors Association).
A valuation is an estimate of how much the surveyor thinks the building is currently worth – this will be cheaper, typically between £200 and £500. A surveyor can carry out a building survey, a valuation or both.
Estate agents will also do a much more basic appraisal, for free, to estimate the value of a property - this is not as accurate as a valuation.
Mortgage lenders will require at least a valuation, as they will lend you a certain percentage (usually 70%) of the property’s value, not of what you actually will pay! However a more in depth report is a good idea, especially if you intend building work to change the use of the building, or to get it ready for you to move in. This could either be
- a RICS Level 2 Home Survey (previously called a HomeBuyer Report) which is non-intrusive, meaning the surveyor won't look behind furniture or under floorboards, so they’ll only be able to identify ‘surface-level’ issues, or
- a RICS Level 3 (previously called a Building Survey) which is the most thorough type of survey and provides a comprehensive analysis of both the property's structure and condition.
Draw up a works schedule
If the building needs work before you can make it your home, it will very useful to draw up a works schedule, with a list of jobs in order, listing how long each job will take. This will help you estimate how much time will pass between buying the property, and getting it ready to move in. You need to know this to plan cash flow through the first year, and some mortgage lenders will require you to make a plan of these works.
Go through the surveyors report with someone who has some idea of building works. Start getting quotes for the works needed (e.g. Replace all front windows, with wooden frames and sealed units – quote from joiners and glaziers; Rewire throughout – quote from electricians; Painting and decorating – done by ourselves – estimate of costs of materials).
You may need to employ an architect if alterations are substantial, if so you will need to factor their fees into the business plan.
Talk to your lenders
Submit the reports along with your business plan to the bank, or any other organisations you want to borrow money from and arrange to talk to them.
Legal transfer of property ownership
Most of the legal work that goes into buying a house involves conveyancing, which in law generally refers to the transfer of 'title of property' from one person to another.
The easiest option is to employ a solicitor; but they are not cheap, and they like to create complexity. There are some jobs that you can do yourself, and some for which you really do need a solicitor.
Solicitor’s fees for a housing co-op buying a house will be more expensive than for a private individual buying a house. Fees can be negotiated, especially if you do some of your own work, but expect to pay around £500, and more if there are complications. You should account for the estimated legal costs in your business plan.
Obtain a title to the land
The process starts by ensuring that you obtain a good and marketable 'title' to the land. This means proving that the seller is the owner, has the right to sell the property, and that there is no factor which would stop a mortgage or re-sale.
This phase you can do yourself if you wish; information can be found on the internet or books can be purchased on the subject. The DIY conveyance website is a good starting point.
Drawing up contracts
The seller's solicitors draw up the contract and the buyer's solicitors examine it. It is possible to do this yourselves if you are confident with legal jargon, but some solicitors will be unhappy about dealing with people who are not registered legal professionals, or even use the fact that you're not a solicitor to the seller's advantage.
Exchanging contracts and paying the deposit
Once you and your solicitor are satisfied that everything is in order, the contracts can be exchanged. You sign a copy of the contract which is passed to the seller, and the seller signs a copy of the same contract, which you receive.
At this point you hand over a non-refundable deposit as security to the seller in case the contract is not carried out. This is normally 10% per cent of the purchase price, but it is usually negotiable.
Once contracts have been exchanged (normally by the two solicitors) both parties are legally bound to follow through with the transaction. You can no longer change your mind - if you pull out it is likely that you will lose your deposit, and you could be sued for breach of contract.
Preparing the draft transfer document
Next, you or your solicitor prepares the draft transfer document (if the land is not registered it will require a special kind of transfer or 'conveyance'). This document transfers the title of the property from the seller to the buyer. Once both parties have agreed on the draft, it is signed by the buyer and the seller.
Completion
All of the above you could do yourselves despite the complexity involved; however, it will be very difficult to persuade a mortgage company to do the last stage, generally known as completion, without a solicitor. The completion date may be anything from the same day as the exchange of contracts to several months later, depending on the circumstances of the sale.
The mortgage company will send the remainder of the purchase funds ready for transfer at the request of the solicitor. This is usually carried out by some electronic means (for which you will of course be charged) into the solicitors bank account - this is a reason why they are reluctant to do it without a solicitor. The solicitors then arrange the transfer of title and keys at the same time as all monies.
Even after completion, there are still a few things to be done. Your solicitor will need to check the title deeds once more and arrange for them to be registered in your name. In the case of a leasehold property, they need to make sure that your name is on the lease. They also need to get the transfer stamped to officially approve the sale and despatch the title deeds to the lender.
Paying Stamp Duty
At this stage you will have to pay Stamp Duty. Stamp Duty is a sliding scale; to find up to date Stamp Duty figures, look at the government website.
Insurance
Once you own a house, you should get buildings insurance.