Overview of topic 

Welcome to our property blog.

We’re delighted that so many of our clients have seen their businesses grow while working with us. Many of these clients are considering a foray into property, whether for investment or personal purposes. We have designed this series to help business owners, and others, understand property and how the property buying process works, with a focus on residential property in England. 

We explore how business owners and entrepreneurs can use property as part of their wealth management plans. 

The property purchasing process can seem complex at first glance, especially for those who are self-employed or business owners. There’s a lot to consider, including the impacts of how you’re paid and who will be living in the property. We will cover it all in this series but you’re also welcome to get in touch with us. 

By the end of this series, you should understand what to look for, the difference between residential and buy to let mortgages, and how the rules differ for business owners and those that are self-employed. 

The Basics of Property

In England, most property falls into one of the two main use cases:

• Residential - Properties designed for people to live in
• Commercial - Properties or land that can host companies and trade

Residential property is further broken down into 2 sub-categories depending on the intended end user. 

• Buying the property to live in it - Owner Occupier / Residential 
• Buying a property to rent out - Buy to Let 

Most that are new to property will use a mortgage to buy. This is a secured loan taken from a lender. 

Over 80% of 16–54-year-olds used a mortgage to buy their home in 2023. This is also mirrored by investors buying property in their own names, with up to 80% of buy to let properties purchased in personal names using a mortgage.

The buying process is predominantly the same regardless of whether you are buying a property to live in or rent out. The main differences being: 

• The type of mortgage that will be used
• How the mortgage size is calculated

When buying as an investment, you can buy the property in your company’s name or in your personal name. Get in touch with us if you’d like to discuss the benefits and drawbacks of each approach. 

‍The Process

The process can be broken down into 3 stages.

1. Establishing a Budget
2. Finding a Property & The Mortgage Offer
3. Conveyancing 

Establishing a Budget

You need to establish how you intend to buy the property, whether using a mortgage, or with cash. Since most under 55 year olds use mortgages when buying, we’re focusing on that.

The funding of a purchase has 3 main components.  

• The Deposit 
  • Your funds that cover the shortfall between the purchase price and the mortgage.
  • Typically 10% of the purchase price for residential and 25% for buy to let. 

• The Mortgage
  • Often 75-90% of the purchase price. 

• Disbursements, Fees & Taxes
  • Funds to pay for conveyancing, surveys, searches and stamp duty. 

The Mortgage

The type of mortgage you use is usually linked to the reason for purchase. The 2 main types of mortgages are:

• Repayment Mortgages
  • Typically used by those buying a property to live in - Owner Occupiers
  • Monthly payments consist of interest and capital repayments
  • The loan is paid off by the end of the mortgage term
• Interest Only Mortgages
  • Typically used by investors - Buy to Let
  • Monthly payments are purely interest
  • The loan balance remains constant throughout the mortgage term

The main difference between the two is what happens to the loan balance over time. Only repayment mortgages see the loan balance reduce over time. 

To understand how much you can borrow, you’d obtain a Decision in Principle. This gives you an indicative mortgage sum and requires a soft credit check.. You can get this using an online tool, or by speaking to a mortgage broker.

Employed vs Self Employed & Business Owners 

For those that are company owners or self employed, there are a slightly different set of rules, especially when buying a property to live in.

Buy to Let

Lenders typically require a minimum income of £25,000 for the applicant making the application.

The maximum loan size will then be determined by the expected rent of the property being purchased.

Owner Occupiers

Employed workers can typically expect to receive 4 to 5 times their salary as a mortgage. 

For the self-employed and business owners (with a shareholding larger than 20%), lenders usually use your net profit, rather than any declared income. Typically they will average your last 2 or 3 self-assessment tax returns to establish this. The income multiples are usually a bit lower compared to employed people, averaging about 3.5 to 4.5x of net profit. 

Finding a Property & The Mortgage Offer

Finding a property consists of 3 main steps:

1. Determining the search criteria 
2. Viewings & Offers
3. Mortgage Application & Offer

Determining the Search Criteria

You’ve established a budget. Now to decide which properties suit your needs. 

When searching, you should always think about who will be using the property the most. It sounds simple, but is often overlooked.

Key considerations:

• Location - Do you have a set area that you want to buy in?
• Property type -Do you mind if you buy a house or flat?
• Timing - Do you have a firm timescale on when you need to complete?
• Ownership - How long do you intend to keep the property?
• Use - Do you expect the use of the property to change over time?
• Necessities - What does the property have to have?
• Desires - What would you like the property to have?

We’d recommend setting up alerts on all the major housing portals, and registering with some local estate agents. This will ensure you see any new properties coming onto the market.

Viewings & Offers

When it comes to property, pictures can at times be deceiving. With wide angle lenses and a bit of editing, some adverts show properties in a far more positive light than they appear in real life.

The best way to get to know the housing stock is to go to viewings. While there, you can also speak to agents in person to get a better idea of what the owner is looking for.

We’d recommend viewing several properties that could be of interest. This will help you realise what you do and don’t want, and how each property could be adapted to take the positives of another.

When you see something you like, put an offer in. Depending on your aptitude for risk, you may want to offer below the asking price, particularly if you’re in a strong position to complete the purchase quickly.

The Mortgage Application 

Once you have an offer accepted, it’s a major milestone at the start of your home ownership journey.

You will need to instruct solicitors and submit your full mortgage application.

The process has 2 main parts. 

• Assessing the borrower(s) 
• Assessing the property 

Assessing the Borrower

The lender will conduct a hard credit search on you, looking into your financial and criminal history. An assessment of your current financial position will be carried out to determine how much you can afford to pay monthly, and you will need to submit documents to confirm your ID.

Assessing the Property

The lender will value the property and determine if it’s sufficient security for the loan.This can be done in person by a surveyor, or using an AVM (automated Valuation Model)

Mortgage Offer

If they’re happy that both you and the property are fit to lend, a mortgage offer will be made.

The mortgage offer typically lasts for 3 to 6 months, and is binding on the lender.

Lenders can only withdraw offers in exceptional circumstances, such as discovery of misrepresentations on the mortgage application. 

While the mortgage application is being made, your solicitor should be progressing the conveyancing process.

Conveyancing

Conveyancing is the legal process of transferring the ownership of a property from one party to another. This is carried out by a solicitor.

There are 3 steps:

• Preparing for Exchange
• Exchange
• Completion

Preparing for Exchange

Your solicitor will receive a contract pack from the seller’s solicitor. This includes information about the property and what is to be included in the sale.

Your solicitor will raise enquiries against the pack, looking for clarification on a number of issues.

They will also carry out searches, which gives current and historical information on the property and local area, including making sure the people selling you the property have the right to do so!

You should be provided with a report summarising the key information from their enquiries and searches, and prepare for exchange.

Exchange

This is the first legal commitment made by both parties. 

Before you can exchange, a completion date is agreed.

Contracts are signed, detailing; the property details, transaction price, the parties involved and the expected completion date. 

A 10% deposit is paid to your solicitor, which will be held ready for completion.

The deposit is non-refundable to the buyer, except if the seller pulls out. 

Completion

Completion usually takes place 1 week to 4 weeks after exchange.

In preparation, your solicitor will send you a completion statement outlining the balance of funds required to complete the purchase.This will include the remainder of your deposit, stamp duty and their fees and costs.

Your solicitor will also request funds from your lender 5 days before the expected completion date. 

Once all funds are in from you and the lender, they are sent to the seller's solicitor. They will confirm receipt and confirm that the transaction has completed, sending registration documents for your ownership to the Land Registry.

YOU JUST BOUGHT A HOUSE!

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Summary

The property purchasing process can be broken down into 3 stages; work out how much you can spend, find a property, then buy it.

In general terms, this is how most property transactions in England work. There are nuances to each step, which we explore throughout this series.

In terms of mortgages, there are different rules for the self-employed and business owners, with the banks taking a slightly more risk averse approach to lending to them.

The first legal commitment is at exchange, but this doesn’t mean you can’t lose money beforehand!

For more information, or If you have any questions, get in touch. 

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