Known as the heart of the world, London is a rhapsody of people, ideas and energy. Up in the north, Fortune 500 companies have started to set up their division in Manchester, proving without a doubt the significant investment potential it has to offer.
Since the local government announced the “BNO 5+1” immigrant visa policy, immigration experts predict that the number of Hong Kong people immigrating to the UK will continue to rise in 2022. The property price has risen by more than 8% yearly, and the property price has recorded a 5th consecutive year, cumulative increased 19%.
PROPERTIES IN UNITED KINGDOM
Comparison of new build and second-hand home
New build introduction
Most of the new buildings in UK are Flat/Apartment. Some of the new buildings not close to the city center are bungalows and townhouses, built by British or overseas developers. Apartments are mostly 5 or more storeys, while townhouses are mostly only 3 storeys. Off-the-plan construction period is about 10 to 36 months. It should be noted that the owner of a new building does not have freehold ownership.
Pros of new build
- Simple buying process: Developers will generally prepare the required documents for the buyer, and the sales staff will assist the entire transaction process. Buyer only needs to sign the contract and settle the payment.
- Modern design: New builds are designed with a sense of fashion, and will be equipped with smart home functions. The clubhouse also provides a variety of equipment and services to facilitate the needs of residents.
- Energy-saving: New builds are more energy-efficient than second-hand buildings because new builds in UK must comply with the latest UK building regulations. More than 80% of new buildings in the UK now have UK Energy Performance Certificates.
- Discounts: In order to attract buyers, developers in the UK will provide additional discounts, such as paying part of the cost of new builds or stamp duty.
- Save on maintenance costs: All decoration and equipment are new, so buyers do not need to spend additional maintenance costs.
- Warranty: Most new UK buildings come with a warranty, but buyers should pay attention to what the warranty covers. General warranties include building safety features such as alarms, fire doors and security lighting.
Cons of new build
- Delays on construction projects: Delay projects are common in new buildings in UK, and developers can collect deposits from buyers after obtaining building permission before building new buildings. Buyers should be aware that there are no key dates for off-the-plan properties, only the expected completion date is provided. The "Last Delivery Period" is shown in the sale and purchase agreement to protect the buyer, which is generally 12 to 18 months after the expected completion date. However, the waiting period may affect property mortgage offers.
- New building premium: Most UK new buildings are more expensive than second-hand properties, but when it is no longer brand new, it will depreciate. Usually, the selling price of second-hand buildings really reflects the value of the property. If you buy a new building for investment purposes, you must calculate the UK property rate of return.
- Rental yields are not as good as expected: Rental yields depend on regional demand. If there is too much supply of new buildings in the same area, it will affect the ability to rent and appreciate, and rental yields may not meet expectations. However, rental yields for new buildings are generally higher than for second-hand properties.
Pros of second-hand home
- Price negotiable: Buyers can negotiate directly with sellers, sometimes even at a price lower than the market price.
- Immediate rental yields: If the property is good quality, the landlord can immediately rent out the flat and earn an instant rental return.
- No need to pay a deposit in the early stage: Unlike buying a new or uncompleted property in the UK, buying a second-hand property does not need to pay a deposit immediately after selecting a suitable property.
Cons of second-hand home
- Follow up the entire transaction process by yourself: Some second-hand properties are not followed up by sales brokers. Buyers need to analyze the value of the property and follow up the entire process of buying a UK property.
- Additional renovation costs: Second-hand buildings are older than first-hand buildings, and buyers may require additional renovation costs.
- No provisional sale and purchase agreement: The process of buying and selling second-hand properties takes about 3 to 6 months. During this period, there is no provisional sale and purchase agreement, and the transaction may be cancelled suddenly.
UK properties buying process
Buying a new property is slightly different from buying a second-hand property. Buying a new property requires paying a deposit when a suitable unit is selected. While buying a second-hand property, the deposit will only be paid when the contract is signed. The time to apply for a mortgage varies. Buying a new property in the UK can only apply for a mortgage six months before handing over the property. As for buying a second-hand property in the UK, you can apply for a mortgage after signing a memorandum of sale.
Buying a new property
- After selecting a new property at the showroom, the buyer needs to sign the "Preliminary Sale and Purchase Agreement" with the agent/developer and pay the deposit.
- Authorize a UK lawyer to assist with the sale and purchase agreement, and then sign the agreement.
- Buyers are required to pay 10% to 20% of the down payment for new buildings in the UK.
- Buyers must apply for a mortgage from the bank 6 months before handing over the property.
- Wait for the notice and arrange for a local building inspector to inspect the building.
Buying a second-hand property
- Buyers first apply to the bank for an Agreement in Principal to prove their financial ability.
- You can try to negotiate with the seller if you choose your favorite second-hand property from the UK second-hand property website or through a sales agent.
- When the buyer and the seller reach a consensus on the price, they can sign the "Memorandum of Sale" containing the transaction price and transaction details.
- Buyers can apply for a mortgage from the bank, which takes 2 to 3 months. The bank will value the property during this time, and buyers can arrange a building inspector to inspect the interior and exterior of the house at this time. To consider whether the original owner needs to follow up on repairs or reduce the price.
- Both parties sign a formal contract, and thus buyer pays the deposit. Buyers then wait for the bank to approve the mortgage. After that, the buyer officially starts to pay.
Learn more：Guide to Buying UK Properties with Mortgage
Costs of buying UK property
Whether buying a new property or a second-hand property, buyers have to pay miscellaneous fees in addition to the property price. The cost of buying a property can be roughly divided into two parts, namely tax and other costs.
Costs of buying UK property 1. Attroney fees
Entrusting a lawyer to follow up on the buying and selling process of a house in the UK. It costs about £1,000 to £1,800.
Costs of buying UK property 2. Building inspection fee
Hiring a building inspector to certify that the structure of the home meets safety specifications can cost around £600 to £850.
Costs of buying UK property 3. Homebuyer report fee
If the property is a second-hand building which is under 50 years old and the buyer intends to apply for a mortgage, he needs to submit a Homebuyer Report to the bank. It costs about £400 to £650.
Costs of buying UK property 4. Mortgage brokerage fees
A mortgage broker can get you a better mortgage plan and it costs around £500 to £800.
Costs of buying UK property 5. Sourcing fee
If looking for properties through traditional real estate, buyers need to pay a sourcing fee, which is about 1% to 1.5% of the property price.
Costs of buying UK property 6. Land registration fee
Whether it is a new building or a second-hand building, the buyer needs to register with the UK Land Registry for about £90 to £140.
UK property tax
UK property tax includes stamp duty, income tax, local tax and value-added tax. The payment time of each tax is different.
UK property tax 1. Stamp duty
When buying a property, the buyer is required to pay stamp duty within 14 days of completing the transaction. Since the UK stamp duty is progressive, a more favorable stamp duty rate can be used if the buyer is buying a home for the first time. UK stamp duty of 2-12% will only be levied on property values over £125,000. If it is not a first-time home buyer, a stamp duty of at least 3% is required. If you are an overseas buyer, you will also need to pay an additional 2% stamp duty.
UK property tax 2. Income tax
Income tax is payable if the property is rented out. Generally ranging from 0 to 45% of net rental income.
UK property purchase tax 3. Value-added tax（VAT）
No matter where you sell your property as long as you are a British citizen, you must pay VAT to the British government, generally 18%-28% on profits.
UK property purchase tax 4. Council tax
Council tax means that the owner needs to pay the government for the maintenance of local facilities and the environment. The British government is divided into A to H grades according to the property value. Usually, the higher the property price and the higher the grade, the higher the council tax, which is about £1400 to £1800 per year.
FAQs of buying UK property
Freehold and Leasehold
Both belong to land use rights. Freehold means that the buyer has the absolute ownership of the land, that is, the buyer permanently owns the land and the buildings on the land. Leasehold means that the buyer just leases the land, usually for 120 years or 250 years, some 999 years, can also be leased after the expiration. However, the ownership of the land needs to be returned to the freehold holder when the lease term expires. Therefore, the shorter the remaining lease term, the lower the value of the property.
In the past, land buyers of leasehold titles were required to pay ground rent or land maintenance fees, but recently the United Kingdom introduced the “Leasehold Reform (Ground Rent) Bill”. From June 30, apartment owners will no longer have to pay any ground rent, and with a near-infinite tenure, those owners will truly own their property.
Hiring a mortgage broker to process mortgage applications
Banks may be more stringent in approving mortgages for foreign residents, and interest rates may be higher than ordinary mortgages. Mortgage brokers are very familiar with market conditions and fixed-rate, floating-rate, Buy-to-let mortgages, etc. They may help you get a better mortgage plan.
Overseas buyers to pay additional stamp duty
British government requires overseas buyers to pay 2% additional stamp duty when they buy houses in England and Ireland. However, when you have lived in the UK for 183 days, you can apply for a stamp duty refund within 12 months of the sale of the property.