Making an offer: how to buy a house in the UK — making an offer on a property and freehold vs leasehold explained
Buying a home is a complicated, often emotional and occasionally fraught process.
Not only is property the single most expensive purchase you are ever likely to make, but in London, winning the property of your dreams can be extremely competitive, which is why it's a good idea to be well prepared before setting your heart on your dream home.
The good news for Londoners is that buying a home is not quite as fraught as it used to be. In some parts of London and the South East the scales are tipping back in favour of the buyer.
Residential transactions across England dropped by a little over three per cent between April and May this year, according to data from the Land Registry. But further research found that in three sample boroughs — Westminster, Redbridge and Wandsworth — the number of transactions in recent months was down by a staggering 70 per cent in a year.
Nonetheless, finding a property that suits your needs (at least until you can afford to knock it into shape) is one thing. Putting together the financial package of deposit and mortgage is an entirely different issue.
It’s particularly challenging if you fail to take into account the significant costs and fees associated with a purchase, which could have a dramatic impact on your savings pot.
What extra fees and charges do I have to pay when buying a house?
To start with there are mortgage arrangement fees to bear in mind – usually between £0 and £2,000.
Unless you are a first-time buyer buying a home for less than £300,000, you will also have to pay stamp duty, the tax you pay on residential property purchases over £125,000 (or £150,000 for non-residential and land purchases).
Stamp duty operates on a sliding scale with a higher rate of tax charged on more expensive properties. For the average-priced London house, this works out at five per cent of the agreed price of the property.
Does it matter if my home is freehold or leasehold?
Most flats in the capital are on a leasehold basis, which means you own the property for a fixed period of time, but not the land underneath it. Freehold is when you own both.
The ideal leasehold is a new one — a 999 year lease with a peppercorn rent on the land your home is built on. This means there’s little practical difference between this and a freehold. But some homes on the market are offered with leaseholds of far shorter periods – a few years perhaps.
When a property is too cheap to be true, its often because the leasehold is about to end. Renewing it is at the whim of the current freeholder, who can charge more or less whatever they like to sell you, the trapped leaseholder, the freehold.
How to make an offer on a property
You’ve found a house you can just about afford, you've got a big enough deposit and a mortgage you’ve agreed in principle with a lender. To secure your new home, you need to make an offer to the seller and have that offer accepted.
Usually you will be dealing with the estate agent rather than the owner directly and your first job is to decide what price you want to open the negotiations at.
Remember the asking price may or may not be an accurate reflection of the property’s value in the current market so ensure you research similar properties in the same area to decide what you feel it’s worth.
Ultimately, a property, like any asset, is only ever worth what someone is willing to pay for it at this specific point in time.
Agents are obliged to pass on your offer to the current owner, but they can advise them to reject it if they feel they can secure a better deal (and a bigger commission). The owner will either accept your offer, counter it or simply reject it outright, batting the ball back into your court.
This could happen several times until you agree a final figure, and if there’s another prospective buyer in the picture, there is the risk of unwittingly entering into a price war where the seller or their agent plays you off against each other in a bid to push up the price.
Once you reach a price you’re happy with it's important to explicitly state to the agent (ideally in writing) that your offer is dependent on them removing it from the market and is strictly subject to a survey of the property.
