Guide to Buying Property in the UK: Types of Title Deeds, Payment Process and Expenses
When purchasing property in the UK, the key factors to consider are of great importance in terms of both the security of the investment and the smooth progress of the legal processes. During this process, numerous factors such as legal advice, payment plans, tax obligations and property management must be carefully evaluated.
For this reason, we have prepared this resource document, which contains important information and serves as a guide.
Types of Title Deeds in the UK (Types of Ownership)
There are two different types of title deeds in the country:
The type of title deed commonly found in Turkey, which covers ownership of both the land and the structure on it, is called ‘freehold’ in the UK. The vast majority of detached houses in the country have this type of title deed.
The type of title that covers only the ownership of the flat and where the land on which the flat is located is leased for a specific period is called ‘leasehold’. The vast majority of flats in the UK have this type of title. The land lease period (lease term) may vary.
With a regulation that came into effect in 2022, a new type of title deed called ‘peppercorn leasehold’ has been introduced, which has a lease term of 999 years and does not require ground rent payments. This is the most advantageous and preferred option among leasehold title deeds.
In the past, flats with lease terms of 50–60 years or less were common in the market. These types of titles usually entail a ground rent payment obligation, typically paid once a year.
How Does the Payment Process Work When Buying Property?
All payment transactions must be carried out through the property purchase solicitor representing you.
Therefore, you must first send all payments relating to the property you are purchasing to your solicitor’s client account. Your solicitor will then complete the transaction by transferring these amounts to the seller’s solicitor’s client account. This method is a legal requirement in the UK and protects the buyer.
In property purchase and sale transactions in the UK, the buyer and seller are represented by two separate solicitors, independent of each other. The specialist solicitor who will be involved in the purchase process manages the entire legal process on your behalf, carries out the necessary checks and securely executes the payment transfers.
It is important to check whether your solicitor is registered with the Solicitors Regulation Authority (SRA) via the link below. It is always advisable to work with reputable and trustworthy law firms.
https://www.sra.org.uk/consumers/register
Purchase Process: Exchange and Completion Stages
Property purchase in the UK takes place in two main stages: Exchange and Completion.
1. Exchange (Contract Stage)
At this stage, typically 10% of the purchase price is paid, and the sale contracts are signed by the buyer and seller and exchanged through their respective solicitors. The Exchange process is expected to be completed within approximately four weeks of the purchase decision being made.
Once the contracts are signed and the 10% deposit is paid, the buyer can no longer withdraw from the purchase. At this point, the buyer commits to taking possession of the property by paying the remaining balance upon delivery of the house, as stipulated in the contract. Otherwise, the seller may terminate the contract and retain the deposit.
2. Completion (Handover and Transfer of Ownership Stage)
Completion occurs on the day the property is fully finished and ready to move into. Prior to this stage, the seller’s firm sends the buyer’s solicitor a formal notice called a ‘Notice to Complete’. Compliance with the payment dates specified in this notice is legally mandatory.
On the day of Completion, the remaining balance of the property price and the Stamp Duty are paid, and ownership of the property is officially transferred to the buyer. After this stage, the buyer is now the legal owner of the property. Your solicitor will send you an official email confirming that ownership has been transferred to you, and this email will also include a copy of the lease agreement for the property.
Title Deed
The HM Land Registry in the UK usually sends the two-page official title deed, bearing the buyer’s name, to the buyer’s solicitor electronically within 1 to 1.5 years. However, the lease agreement provided to you after purchase is sufficient to prove that ownership has passed to you.
Payment Options and Guarantees
When purchasing residential property in the UK, each seller may offer different payment plans. Therefore, it is crucial to carefully review the payment terms and ensure legal safeguards are in place.
Payment Models Applied by Sellers
• Single-Stage Payment:
Some firms only take a 10% deposit at the Exchange stage. They complete the construction with this payment and collect the remaining 90% on the Completion (delivery) date.
• Phased Payment:
Other companies may request an interim payment of 10–15% in addition to the 10% received during Exchange. The remaining amount is again paid upon delivery of the property.
Securing Payments
It is critical that all payments are made through your solicitor. It is also advisable that the seller company is a member of one of the following organisations:
• NHBC (National House Building Council)
• LABC (Local Authority Building Control)
• ICW (International Construction Warranties)
These institutions offer three fundamental guarantees:
- The 10% advance payment made during the exchange is protected in the event of the construction company’s bankruptcy.
- Post-delivery warranty: A 10-year warranty for the exterior facade and a 2-year warranty for the interior fittings are provided.
- Long Stop Date protection: The seller company is obliged to complete the project by the final delivery date specified in the contract, known as the ‘long stop date’. If delivery does not occur by this date, the 10% advance payment made is covered by the guarantee.
How Can Payments to Construction Companies Be Secured?
There are three main methods for securing payments exceeding 10%:
1.Stakeholder System
The seller company holds payments exceeding 10% in its solicitor’s client account, and these amounts are not transferred to the company until Completion. The buyer is guaranteed that this money is safe through their own solicitor. This system provides a high level of protection.
2.Deposit Guarantee Insurance
Some companies offer deposit guarantee insurance for payments exceeding 10%. This insurance ensures that your entire advance payment is covered.
3.Financial Guarantee Letter
Some companies provide a financial guarantee letter for the amounts they collect and declare their financial statements for the last three years. However, this method does not provide a legal guarantee; it is based solely on the company’s own declaration. Therefore, it is only meaningful for highly reliable and prestigious companies.
Costs When Buying Property in the UK
The main costs you will encounter when buying property in the UK are as follows:
• Estate Agent Commission: In the UK, estate agent commission is charged solely to the seller. Therefore, you will not pay any fees to the estate agent representing you during the purchase process.
• Solicitor’s Fees: You will need to engage a solicitor to handle the purchase transactions and represent you legally. Solicitor’s fees are typically determined at rates that vary according to the value of the property being purchased.
• Stamp Duty: This tax, payable at the completion stage, varies depending on the value of the property being purchased, whether you or your spouse own any other property worldwide, and the country in which you reside. Stamp Duty is calculated by your solicitor and paid to the relevant tax office through your solicitor.
Regular Expenses After Purchase
After becoming a property owner in the UK, there are certain regular and legal obligations you must take into account:
• Property Tax: There is no property tax in the traditional sense in the UK. However, rental income from property is taxable. Rental income up to £12,570 per year is exempt from tax per person. This income must be declared, and income above this threshold is subject to income tax.
• Council Tax: This tax is paid by the person actually residing in the property. Therefore, if the property is rented out, this tax is usually paid by the tenant.
• Service Charge: For properties located in an apartment block or complex, a service charge must be paid for the maintenance and services of the common areas. This charge is covered by the property owner and is usually calculated on a per square metre basis. The amount of the charge varies depending on the facilities and quality of services offered by the complex. Building insurance is often included in this fee.
• Rental Management and Commission: If you rent out your property through an estate agency and receive a comprehensive rental management service, you pay a commission to the relevant company for this service. Estate agencies deduct their commission from the rent they collect from the tenant and transfer the remaining amount to your bank account in Turkey or the UK.
• Rent Guarantee Insurance: To mitigate the risk of the tenant defaulting on rent payments, it is recommended that you take out rent guarantee insurance. This insurance ensures that your rental income is protected.
Mortgage-Based Property Investment for Non-Residents in the UK
It is possible for individuals with ‘non-domiciled’ and ‘non-resident’ status in the UK to acquire property using a mortgage. However, this process may involve more complex and restrictive conditions compared to those applicable to UK residents.
Application Process and Required Documents
For mortgage applications from individuals with this status, income documents in particular are examined in detail. The validity of income sources outside the UK, the stability and source of foreign currency income are carefully assessed by banks. In addition, financial documents proving the applicant’s international credit history may be requested.
Deposit and Interest Rates
A higher deposit is generally required from non-residents. This rate usually varies between 25% and 50%. Furthermore, while some banks only accept applications from certain countries, others may offer special conditions to specific professional groups. Interest rates may be higher than for residents, depending on the applicant’s risk profile.
In the UK, mortgage applications can only be made for projects that are either completed or expected to be completed within a maximum of 6 months. It is not possible to obtain a mortgage for projects with a delivery period exceeding 6 months. Therefore, investors planning to purchase property with a mortgage are advised to select flats only from projects that are either completed or will be delivered in the near future. Furthermore, given the complex and restrictive nature of the process, it is recommended that the ‘exchange’ and ‘completion’ transactions be carried out simultaneously for purchases made with a mortgage. This approach will also prevent unforeseen risks that may arise from the lending institution.
To ensure that all these processes proceed smoothly and without issues, it is strongly recommended that individuals not resident in the UK seek professional advice from mortgage brokers experienced in mortgage matters.
Important Notice:
This document has been prepared for general information purposes only. Property purchase processes in the UK, and particularly tax obligations, can vary significantly depending on individual circumstances. Therefore, it is crucial to consult qualified and competent professionals, particularly regarding tax legislation and all legal and financial matters. This guide does not constitute any legal or financial advice.