The Scottish legal system is different to the system in England and Wales and you are advised to seek independent advice at an early stage before committing yourself to any major expenditure. The following advice may help you to understand the process.
If you live in Scotland and are considering house purchase, there are a number of options that may help you to find a suitable property. Estate agents are the usual route to finding a house to buy through the open market
- Direct sale through a private seller
- If you have the knowledge and experience a property auction may lead you to a bargain
- Right to buy schemes for existing tenants of registered social landlords offer an opportunity to buy at a discount
- Homebuy (shared ownership or shared equity) schemes where you purchase part of your property either on the open market or from your registered social landlord and rent the balance.
Since 2005 the Scottish Government have been committed to supporting the ‘First-Time Buyer’ to move onto the property ladder with its Low-cost initiative for First-Buyers (LIFT formerly known as HomeStake) either by:
- the New Supply Shared Equity scheme which enables the first time buyers to purchase a new build property via a housing association or a private developer.
- the New Supply Shared Equity with Developers scheme which enables the first time buyer to purchase a new build property from a developer;
- the Open Market Shared Equity scheme which enables the first time buyer to purchase a property on the open market
Whichever route you follow to find the property you wish to purchase financial and legal arrangements will be similar to those in England and Wales.
The costs of buying a house
Buying a house will involve a range of significant expenses in addition to the purchase price of the property. Additional expenses could include:
- Survey/valuation fees
- Legal costs including solicitors’ fees, searches and land registry charges
- Legal costs passed on to you by your building society, bank or other lender
- Mortgage indemnity guarantee which may be necessary if your loan exceeds a certain proportion of the value of the property (typically 75%)
- Arrangement fees if a mortgage broker is used
- Stamp duty (a tax on house purchase for properties exceeding a pre-set value)
- Costs of setting up and consuming supplies of gas, electricity or water
- Telephone/broadband connection
- Removal expenses
- Property insurance (including Buildings and Contents)
- Life / critical illness/ job loss insurance
- Service charges for leasehold properties
- Ground rent for leasehold properties
- Repairs and property maintenance costs
- Essential first furniture and equipment
- Council tax
It is best to estimate how much you will need to allow for these costs to avoid committing yourself to expenses that you had not anticipated at a time when your outgoings may already have increased with the mortgage payments. You may need to consider borrowing more on your mortgage to ensure you can cover all of these additional costs without hardship or complication.
Arranging the finances
Sellers of property will want interest from as wide a range of prospective purchasers as possible in order in increase competition for their property and to maximise the sale price. If you have confirmed arrangements in place for the finances that will be required to enable you to proceed quickly you will put yourself in a stronger position with the seller showing that you are a serious bidder with the capability to commit to the purchase. If you are the equivalent of a first-time buyer who is not dependent on the sale of another property you may be able to demonstrate that you are in a position to proceed very quickly. You should ask your proposed lender to provide a certificate showing how much you will be able to borrow if the deal proceeds.
There is no limit to the number of financial institutions you can approach to find the best deal for you. There are a number of websites that produces tables of current deals for comparative purposes. You can try the Financial Service Authority for independent tables comparing mortgage deals.
Using a Mortgage Broker may be advisable in some circumstances:
- if your proposed loan will be a high proportion of the value of the property
- you are buying an unusual property
- you are borrowing with a number of other people
- you are short of time to make applications
Mortgage brokers may be able to offer advice about the whole mortgage market or alternatively may be restricted to certain providers.
A fee may be payable to the broker if you do not proceed so you should be clear about this before you commit yourself. All mortgage advisors/brokers must comply with rules issued by the Financial Services Authority.
Home report
Although in England & Wales the Home Information Pack was scrapped on 21st May 2010 with the change in government and is no longer required, this did not affect Scottish legislation. Since December 2008 sellers of most houses in Scotland are required to commission a Home Report before the house is put on the market. The Home Report contains a single survey, an energy report (Energy Performance Certificate – EPC) and a property questionnaire. A surveyor is required to complete the single survey and the energy report.
The EPC will provide an energy efficiency rating for the property together with suggestions for improvements which could reduce energy consumption. The Home Report must be made available to prospective buyers free of charge.
All sellers, including those who are not required to produce a Home Report are expected to provide an EPC (Energy Performance Certificate).
Valuations and surveys
Although the Home Report provides some of the information about the property you need to make a decision, you will need to arrange for a more comprehensive valuation or survey prior to making your offer.
- Mortgage Valuation Report – The lenders valuation will consider the general condition of the property; however the main purpose of the valuation is to establish the value of the property only and it should not be relied upon a way to establish that there are no major structural problems with the property. If the surveyor makes a mistake, the buyer cannot sue for compensation.
- Home Buyers Survey and Valuation – this is a more comprehensive survey and should provide you with an indication of the condition of the accessible parts of the building. Crucially, the surveyor can be held to account for any negligence.
- Structural or other specialist survey – may be required if a detailed inspection of one particular area of concern, such as rot, subsidence, or some other structural defect is needed.
- Seller’s survey – a Home Buyers Survey type report but arranged by the seller and made available to potential purchasers. The successful purchaser normally agrees to pay for the full cost.
If your survey reveals something that had not been anticipated, you are free to try to renegotiate the price with your seller or even withdraw from the proposed purchase altogether provided you have not already made an offer.
Deciding how much to offer
It is important to note that there are fundamental differences between the Scottish system for house sale and purchase and the system in England and Wales. As a result, an offer made in Scotland becomes legally binding at an earlier stage and irrespective of any subsequent change in circumstances of the buyer or the property being purchased.
The property will either be marketed at a fixed price or for ‘offers over’. If it is a fixed price sale this will be the amount that the seller is expecting. ‘Offers over’ has in the past been viewed as a guide to the minimum price which will be considered by the seller. However, in reality it is likely to be part of the marketing strategy of the estate agent to maximise the selling price. At the end of the day the actual value of the property will depend on a range of factors and the sale price is not fixed until an offer has been accepted. You will need to express an interest with the estate agent prior to making a formal offer. A closing date for offers will usually be announced although offers can be made and accepted before this. It can be really helpful to have access to independent advisor like a lawyer with local knowledge of the housing market in the area you are searching to help guide you in the area of relative value of property.
Making a formal offer
Once you have identified a property you wish to purchase, you will need to instruct your lawyer who convey your offer to the seller’s estate agent or lawyer.
In Scotland there are two types of offer:
- Firm/unconditional offer –As the name implies you are making an offer without conditions. To make an unconditional offer you will need to have completed your preliminary enquiries and be confident about your ability and intent to proceed with the purchase. You will normally only make a Firm Offer after you have considered the findings of your valuation/survey and have agreed your financial arrangements in principle with any proposed lender in advance. You will need to ensure that the proposed date of entry allows sufficient time for you to complete everything. The final binding contract is likely to take a week or two to finalise.
- Conditional Offer “subject to survey” – The option to make a conditional offer does exist in Scotland although some sellers view this type of offer as a waste of time and it is rarely agreed to.
Acceptance of an offer
Once a firm offer is made, verbal acceptance from the seller’s representative usually follows quickly. However, written acceptance will be made subject to certain conditions and the contract will not be binding until all of these have been agreed between the buyer and seller. A series of letters known as missives are a preliminary to acceptance and once these are concluded neither party can withdraw from the deal.
The necessary legal procedures are then carried out by the two solicitors: drafting the deeds which transfer ownership and secure the loan and checking the title and searches.
Settlement
On the day of the purchase the buyer’s money is paid to the seller’s lawyer, and the keys to the property are released to the buyer in exchange. This is known as settlement. The buyer’s solicitor will require confirmed funds from the buyer for all money required in excess of that provided by the mortgage. The buyer will need confirm arrangements for the exchange of keys, money etc in advance to reduce pressure on the day. This can be a stressful day!
If things go wrong
Although most property transactions are completed relatively smoothly without any major difficulties, occasionally problems can arise. These can include:
- The house you move into is not left in a satisfactory condition however remember the seller does not have to clean the property, only remove all the agreed items and furniture.
- Damage has occurred in the period between viewing the property and settlement – missives will usually define that it is the responsibility of the seller to insure the property during the period of the sale proceedings and maintain it in this condition
- Furniture or other items are left behind. If this happens you may have to arrange for them to be moved or disposed of yourself and try to recover the cost from the seller
- Fixtures or fittings are missing. All of these things should have been defined in the contract. If contractually agreed items are missing, contact your solicitor
- If the property is a new-build and there are problems during the warranty period – most builders will endeavour to sort out these although not always within the time-scale you would prefer. If there is a major issue this can sometimes be sorted out with the help of the National House Building Council if the builder is a member of their scheme.
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