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The
Scottish Property System
Buying a House In Scotland
Vive La Difference-The Scottish and English
systems.
Surely I don't need a solicitor
Now
we are all in the single market place in Europe my solicitor in
England should be able to deal with the purchase.
What
will it cost?
Identifying
the real price.
Subject to Survey
Do I need to have the cash available on the
day I offer?
Noting Interest
What is a 'Closing Date'?
Concluding Missives
Make use of our local expertise.
Vive
La Difference-The Scottish and English systems.
For anyone buying property in Scotland it is important to be aware
of the correct way to go about it. This is particularly the case
for anyone moving from England, as there are fundamental differences
between the Scottish system and that operating South of the Border.
Although the basics are the same it is the timing of when the contract
becomes legally binding that has led to two different approaches.
It is important to understand that there is no second step in the
Scottish procedure and that the contract can become legally binding
at a relatively early stage, unlike in England where contracts are
often exchanged towards the end of the process. Here we prefer not
to wait until the removal men are at the door before concluding
a binding deal!
In
Scotland the contract takes the form of a series of letters known
as "missives". There is nothing for the purchaser to sign
to commit to the contract as the "missives" are generally
signed by the parties' solicitors. Once the offer has been accepted
on all points, you have entered into a legally binding arrangement
and neither party can withdraw without potentially being held liable
for the consequent losses of the other party. Accordingly, you should
be careful and only submit a written offer through a Scottish solicitor
and make sure your solicitor is aware of your situation. If you
offer in writing yourself and this is accepted, you could end up
being committed to buy a 'pig in a poke' - a well known Scots non-legal
term! Once committed, if you want to get out of the deal, you might
be liable for any loss on resale and other costs.
The
different legal systems have to be considered particularly carefully
if you have a house to sell in England and you are relying on that
sale to fund the purchase in Scotland. You will require separate
solicitors and it is important that your English solicitor is aware
of the need to progress the sale procedures as swiftly as possible
and the need to communicate effectively.
Surely I don't need a solicitor – its just a case of filling in
a form.
Certainly in areas where Land Registration is in place the conveyancing
part of the process is more straightforward but most properties
in the Borders are still not registered. Even where the property
has been registered there are still incidental but important aspects
of the transaction, which requires a careful eye. Solicitors are
used to dealing with properties. The length of a standard Scottish
offer is built on the experience of problems, which to a layperson
would not be obvious. If you are borrowing from a bank or a building
society they will certainly require the security work to be done
by a solicitor so why take on any unnecessary worry?
Now
we are all in the single market place in Europe my solicitor in
England should be able to deal with the purchase.
Perhaps - but they can't. Scotland has its own separate and distinct
legal system. The legal environment is different and you will require
a Scottish solicitor to look after your interests. Although some
agents, including solicitors, sell houses on either side of the
border, the estate agency part of the selling process should not
be confused with conveyancing. You will still need a Scottish solicitor.
What will it cost?
As property prices have risen the government has taken a bigger
slice of the cake in terms of indirect taxes. Stamp
Duty is paid at a variable rate-1% for properties between £120,000
and £250,000, 3% between £250,001 and £500,000
and 4% above that. This is payable on the whole of the price so
a purchase at £450,000 would involve a stamp duty bill of
£13,500. On top of that there is the cost of registering the
title, which is charged on a sliding scale increasing with the value
of the property and any security. Any solicitor should be prepared
to give you an indication of the likely costs at the outset of the
transaction and you might be pleasantly surprised at how the fee
element compares. At the end of the day you will need a bottom line
figure for budgeting purposes so make sure the figure quoted includes
VAT and outlays.
Identifying
the real price.
In Scotland properties are usually marketed on an "offers over"
basis. This is just an indication of the price that the seller is
being advised to market the property at to attract interest and
while a lower offer is rare in the current market it does not mean
that a lower offer would be refused. In a sellers market where scarcity
and demand combine to push up prices, 20% over has been the general
rule but this should only be taken as a rule of thumb and trends
can change. You should always start by considering how much you
can afford and also how much it is worth paying to secure the deal.
A property may also be offered for sale at a "fixed price".
Again that should be treated as a guide and you will still need
to offer acceptable terms to be successful. For example a seller
may be looking for early settlement and in that situation a "cash
buyer" has an advantage. At the end of the day the selling
price will depend on the interest and level of competition as well
as various other factors such as whether the property has been on
the market for a while. If the selling agents indicate that the
sellers are prepared to consider realistic offers, it might be worthwhile
giving an indication of your position and making your offer subject
to survey. If the property is attracting a lot of interest due to
the price sought, location or the type of property, you may have
to pay well over the asking price to take it off the market or to
secure it at a closing date where there are no certainties.
Subject
to Survey
An offer "subject to survey" is less attractive to the
seller as it puts the buyer in control, so if your offer were acceptable
in principle a seller would generally set a time limit for the survey
to be done. An offer "subject to survey" may be accepted
at a closing date if it is the most attractive on the basis that
the survey will be done within 48 hours. This approach is also useful
where you test the seller with a verbal offer, reach an agreed price
and then submit a formal offer "subject to survey" which
is instructed on your solicitor being advised that the offer would
be acceptable in principle. In that situation speed is of the essence
and you should arrange the survey through your solicitor and not
the financial adviser or lending institution who will not generally
act with the same haste as they are operating in the main south
of the Border where a different approach and timescale applies.
This tactic also saves wasting time and money on surveys for properties
that you don't get which is an often cited criticism of the "Scottish
System" known as the "Multiple Survey" problem.
Do
I need to have the cash available on the day I offer?
Not strictly so- you will only need the funds for the purchase at
the settlement date - i.e. the date of entry agreed in the missives.
This can be a matter of weeks but is more usually several months
ahead. The "entry date" is when you will pay the price
in exchange for getting entry to the property. If you have a house
to sell, particularly if the house is in England where a different
system applies, you must be confident that the funds will be available
from your sale or elsewhere e.g. bridging finance. If you have a
substantial equity in your existing house some banks will still
agree open ended bridging but generally a "closed bridge"
is preferred and cheaper. With interest rates as low as they are
at present it might be worth taking a "minimal risk" to
secure the property of your dreams. However, you should be careful
and get the bank to put any bridging facility in writing. Another
approach may be to extend your existing mortgage pending sale, taking
some of the stress and worry away.
Noting
Interest.
If you don't want to miss out on a chance to offer you should ask
the selling agents to note your interest. In that way if another
party offers you may be given an opportunity to submit a competing
formal offer in which case a closing date may be fixed. However
the selling agents are not bound to do so and you should be aware
that by waiting you take the risk that if an acceptable offer comes
in, the property could be sold without going to a closing date.
Increasingly properties are sold to purchasers who make an attractive
offer without waiting for the closing date.
Closing
Date.
If a closing date has been set and you have noted your interest
you or your solicitor will be notified of the date set and invited
to submit a formal offer. The Closing Date system has its critics
as you are in the blind bidding situation but it generally means
that the seller achieves the best price and where there are a number
of interested parties it gives each an opportunity to submit an
offer. The downside is that you may incur costs, particularly for
a survey, which will be no further use to you if your offer is unsuccessful.
If a closing date is fixed you will need to have done all your homework
before you are ready to offer. If you are confident you will have
the finance in place an offer "subject to survey" may
be worth considering. It may be helpful to have a survey carried
out and your funding arrangements should be in place. Your solicitor
can instruct a surveyor (and obtain quotes from specialist contractors
for woodworm, damp, dry/wet rot etc) and help you find a mortgage,
either directly or through a broker.
Concluding Missives and the Conveyancing.
If your offer is successful, your solicitor and the seller's solicitor
will then negotiate the "missives" which are the formal
letters passing between them dealing with the finer points of the
contract which will finally be concluded. You should be kept involved
throughout this process, as the solicitor is your agent and can
only act with your express or implied instructions. Your solicitor
is under a duty not to delay concluding missives and you should
instruct him to delay to the prejudice of the seller. However you
still have the final say on when to go that final step to enter
into the binding contract but you must keep in contact with your
solicitor and ensure that you fully advise him or her of your position
and ability to proceed. Once "missives have been concluded"
(roughly equivalent to the "exchange of contracts" in
England) you are contractually bound to buy the property at the
agreed date of entry and the seller is bound to sell. The date of
entry may be some weeks, or even months ahead, and it is at that
point that the full purchase price is payable. On occasions the
contract provides for a deposit payable at an earlier stage but
usually only in the case of a new house where the builders tend
to dictate the terms, or in high value transactions. If a deposit
is required this should be clear from the sales particulars. From
that point, your solicitor will examine the title deeds provided
by the seller's solicitor and prepare the "disposition"
(the document which will transfer the ownership of the property
to you), liaise with your lender, prepare loan documents for your
mortgage, check all the necessary searches and ensure that the seller's
title matches the title plan. Your solicitor will also report to
you on any title conditions affecting the property and any relevant
planning or other considerations. To protect your position the appropriate
clauses will have been included in the offer and in the unusual
situation where something unexpected crops up and either the sellers
are unable to give good title or there is any other material failure
to meet the conditions specified in the missives, the deal may fall
through leaving the purchaser to seek remedies for breach of contract.
However that will only apply if this situation arises after missives
are concluded.
Make
use of our local expertise.
These are the main features that you should look out for when buying
property in Scotland. It is not as daunting as it may seem and by
discussing your plans with your solicitor at an early stage you
will ease the process and avoid potential pitfalls. If you are looking
for a solicitor to assist with your house purchase in the Scottish
Borders, call 01573 226999 or e-mail rh@hastingslegal.co.uk to discuss
your plans.
Updated
5th October 2005
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