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A Christmas bonus for shared ownership buyers

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First-time buyers who bought a shared ownership property in the last twelve months should check if they are due a refund on any stamp duty paid.  

That’s because when Chancellor Hammond extended the stamp duty relief available to first-time buyers of shared ownership property in his Autumn 2018 budget, he also applied the extension retrospectively to any qualifying transactions that took place between 22 November 2017 and 29 October 2018.

Since November 2017, relief has been available to first time buyers of shared ownership property who opted for the full market value election, paying stamp duty on the value of the whole property not just their share. Now, the relief has been extended to the first premium for those opting to pay their stamp duty in stages, and, in the case of a newly granted lease, to the portion calculated on net present value of rent.

For those paying in stages, first time buyer relief will continue to be excluded from subsequent stages of any so-called ‘staircasing’.  And for those purchases of a property with a market value in excess of £500,000, normal stamp duty rates will apply.

Stamp Duty Land Tax (SDLT) is payable in England on residential property transactions where the market value is more than £125,000, with a tiered scale related to the purchase price, but there are different rules if you’re buying your first home and the purchase price is below £500,000.  These provide a complete exemption from stamp duty for qualifying first-time buyers where the full market value of the property they’re buying is £300,000 or less, and a reduced bill when the full market value is £300,001 and £500,000.  Overall, this can make a saving of up to £5,000 on the stamp duty payable.

When the property is being purchased under an approved shared ownership scheme, the calculations are more complex, and buyers can choose whether they pay SDLT on the full market value or just on the value of the share they have purchased.  Also, when buying a new lease for a new build shared ownership property, SDLT is due on what is known as the ‘net present value of rent’.

Said property law/conveyancing expert Sarah Avern of Band Hatton Button solicitors in Coventry:  “Any first time buyer who completed on a shared ownership purchase on or after 22 November 2017 and opted to pay stamp duty in stages, can now make a claim for a refund of stamp duty.  And those who elected to pay the full market value option should also check where they stand, if the purchase involved a new lease, as they may be due a rebate on the rental element, to which the relief has also been extended.

“Many first-time buyers could stand to benefit from the changes, as they are less likely to have opted for the market value election.  It involves paying out a large sum up front in expectation of later staircasing, and it’s often not a viable option for those starting out on the property ladder.”

Any claim must be made to HMRC no later than 28 October 2019.  Refunds will also attract repayment interest at 0.5% for the period involved.

Saah added:  “For those not yet on the property ladder and considering shared ownership, it’s worth getting some guidance in advance to understand what costs will be involved at each stage as it can involve a complex set of calculations.”

 

Understanding the options on stamp duty for shared ownership purchases
Market value Election : pay up front

You use the total market value of the property to calculate how much to pay, no matter what size share you are buying.  You don’t pay any more SDLT after this, even if you buy a bigger share in the property later.

 

Paying in stages : pay as you go 

You use the price you pay for the lease – known as the ‘lease premium’ – if it’s above the SDLT threshold.  If the lease premium is below the threshold, you don’t pay SDLT at this point.   Those who qualify will receive the first-time buyer exemption on the SDLT against the lease premium, but will not qualify for the exemption if they buy a bigger share of the property later.

 

Staircasing 

If you buy any more shares in the property, you don’t have to pay any more SDLT or send a return to HMRC until you own more than 80%, but once your share of the property goes over 80% you must send a return and pay SDLT on the transaction that took you over 80% and any transactions after that. Once you own over 80%, earlier purchased shares may become linked and so SDLT might become due on those previous shares. No first-time buyer relief will apply to staircasing share purchases after the initial lease premium transaction.

 

SDLT on new leases 

This is the complex part of the calculation when a new lease is involved, as you may have to pay SDLT if the total rent over the life of the lease is more than £125,000. This is known as the ‘net present value’ and SDLT is due at 1% on the amount over £125,000 and must be added to any SDLT being paid on the lease premium.  It is calculated by working out the current value of the rent you will pay to the housing association over the full length of your lease.

 

The difference between freehold and leasehold

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To make your home your castle, be sure who owns the drawbridge – by Conveyancing expert Sarah Avern

The Government has announced plans to tackle unfair leaseholder arrangements on new build properties, but in the meantime, as the Spring housing market gets into full swing, it’s worth understanding the difference between freehold and leasehold property.  

Increasing property prices and high population densities have seen a big increase in the number of leasehold properties across the country, as houses are split into flats and new apartment blocks are built, so there are now 1.4 million leasehold houses across England.  

And while leasehold arrangements are generally seen as a simple route to managing multiple occupancy buildings, over the past twenty years there has been a big increase in the number of houses being sold by developers on a leasehold basis.  These sales have seen ground rents being set at much higher levels than the ‘peppercorn’ arrangements that were typical previously, and with scheduled increases.  In the worst examples, leases include terms to allow the ground rent to double every ten years.  

The new measures announced by the Government will target such practices, including a ban on leaseholds for almost all new build houses, and changes will also be made so that ground rents on new long leases – for both houses and flats – are set to zero.  The government say that it will also make it cheaper and easier for existing leaseholders to buy-out their freehold, and that there will be routes to redress for those facing the most onerous terms.

We must wait for the detail and timetable for the introduction of these changes, which are anticipated to happen during 2018, but in the meantime, whether buyer or seller, it is worth being prepared by understanding the basis on which a property is being sold.  For prospective buyers, knowing the right questions to ask could save a lot of wasted time and resources.  And for sellers, it can ease a sale if you pre-empt any concerns and know the answers to the questions you may be asked.  

  • What form of ownership? 

It’s important to check exactly what form the ownership takes, and then ask the right questions. If it’s freehold, you will own the property and the land it sits on, but there may be other responsibilities that are not so obvious, such as contributing towards maintenance of a private shared access road.

If it’s a shared freehold, then you will own your personal space in the property, and generally a share of the land and the shared spaces.  Any maintenance is likely to be subject to agreement between all the freeholders, and the cost shared between everyone.  

If it is leasehold, then you will be buying the right to live in the property for the remaining duration of the lease, with the land, the structure of the building and shared spaces owned by the freeholder, who may be an individual landlord or a property management company.  They will hold the buildings insurance and will consult with leaseholders about any works that are required, collecting service charges from each leaseholder to pay for all maintenance and managing such work. The owner of a leasehold property is effectively a tenant in a very long-term rental, having to pay an annual ground rent and ask for consent to make any changes to the property.  

  • It’s a lease, so how long does it have to run? 

Leases of between 99 and 999 years are commonly granted and generally the value of a property will reduce as the lease gets closer to the end, but don’t expect to snap up a bargain if you’re looking for a mortgage as lenders are unlikely to make a loan on a property with anything less than 25 years left to run.  If a property has only a short time left on the lease, you can ask the seller to seek an extension, but expect to pay for the benefit.  A lease extension can be requested at any time by a leaseholder.

  • How much is the ground rent? 

Normally ground rent will apply only if it’s a leasehold property.  Ground rent can be a fixed charge or one that will change over time, so check out how much is being paid currently, but look through the small print as well, to be sure there are no big increases on the way. If any escalation is written in, then it should not allow for a rise that is more than the retail price index. Again, if you are seeking a mortgage, a lender will be looking to see affordability not just in the headline purchase price, but also in the ongoing costs of ground rent and the service charges. 

  • How much are the service charges? 

Service charges can strike fear in the hearts of leaseholders, even when they have very deep pockets, as all work is likely to be relative to the size and standing of the overall building. Be quick to ask for evidence of the service charge budget and the accounts for the past three years and don’t be afraid to ask around about the freeholder. The agent may assure you it’s a big property management company with the right infrastructure, but if research shows they have a poor reputation in getting work done, or in the amounts being charged on, you’ll be glad you checked.  

  • Are repairs and maintenance up to date?

Take a good look at how well things are maintained as you view the property and then check it out against those service charge accounts you’ve asked for. If everywhere is looking a bit run down, there’s no evidence of regular work being done in the accounts, and there’s very little being held in the pot for future works, you can expect a big bill, or an increasingly rundown environment. A survey is just as important when buying a flat as when buying a house. And importantly, be clear about the proportion you must contribute.

And finally, for the seller, it’s always a good idea to get your ‘house in order’ by tackling paperwork before the sale board goes up. There are forms requiring detailed information about the property itself and one covering all the fixtures and fittings. If it’s a leasehold property you will have to complete one covering details around the lease such as the rent, service charges, insurance and future work. By working with your lawyer in advance to prepare all the forms that will be required, you’ll be well prepared to answer all the questions your potential buyer may have for you.  

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Our new Online Conveyancing Tool is Live!

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We are excited to launch a new product which enables clients to get quotes for residential conveyancing services at the touch of a couple of buttons.

Band Hatton Button have teamed up with ‘Perfect Portal’, a LawNet partner, to launch a web tool which gives clients a full quote for their legal needs based on a few quick questions. The quote is then emailed to the client outlining what the legal fees for their conveyancing will be, and it also includes all of the extra costs involved in a transaction such as stamp duty, land registry fees etc.

The conveyancing market is hugely competitive and we are well aware that we constantly need to adapt and evolve to remain up to speed and keep up with the our peers. We are hugely committed to interacting with clients in the way they wish, and also to developing technology, so this solution ticks two huge boxes for us. Research also shows that generation Z (those born in 1995 or later and a generation that are a big target market for us) are huge users of technology and with the average age of someone in the UK buying their first home being 30 years old embracing technology is very key for us.

As a firm we strive to make the conveyancing process less stressful, speedy and efficient and so launching this product ties in perfectly with our approach. We are also passionate about being open and honest about our pricing and the quote that clients receive is clear, transparent and contains no hidden extras.

This new product means clients can get an instant quote any time of the day using any device. They can also then instruct us if they wish by clicking to do so and then we will start the ball rolling at our end.

The system will also be hugely beneficial to us internally as our Client Relations Team will be using it to provide clients with instant quotes when they call us so it streamlines the whole process.

Perfect Portal also share our ethos of “providing a human touch” so we know this will be a perfect partnership!

The ‘One Minute’ Conveyancing Quote!

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Property sellers and purchasers can now receive a conveyancing quote in one minute thanks to a new online tool.

Solicitors Band Hatton Button, who are based on Warwick Road in Coventry city centre, are teaming up with Perfect Portal to launch an online system which asks prospective clients some simple questions relating to their transaction.

This information is then analysed instantly before a quotation – including stamp duty and other extra costs – are emailed to the prospective client, who can then decide whether to instruct a solicitor at the click of a button.

Sarah Avern, Head of Residential Property at Band Hatton Button, said: “This is the tool that Y and Z generations have been crying out for when it comes to buying or selling a home.

“Those born in the late 80s and early 90s are currently setting out to buy their first home and are big technology users, but they’re also time poor, so this tool will help us to connect with what is a massively competitive market.

“It is also designed to make the house-buying process much less stressful and more efficient.

“Comparing conveyancing prices can be a lengthy and complicated process as extra costs aren’t always added on, but the Perfect Portal service includes everything up front within a minute.

“This service will further improve our overall efficiency as our Client Relations Team will also be able to provide quick quotes over the phone using the online system, freeing up our solicitors’ time to focus on their clients’ matters.

“Adapting to reflect consumer behaviour is vital for us as a firm, and we are expecting this new approach to conveyancing to become the norm in the future.”

The online service is being launched on www.bandhattonbutton.com from 22nd March.

Breakfast Workshop Event

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 Breakfast Workshop: Conveyancing Conundrums!

Ever wondered about the conveyancing process from a lawyers’ perspective? Or been frustrated with timescales or confused by legal terminology?

Come along to our informal breakfast session where we’ll talk through the conveyancing process from our side and will explain how it works and what we do on a typical sale and purchase. We’ll also go through some of the common conveyancing terms and will talk to you about some of the current trends we are experiencing regarding processes and charging.

The session will be very informal and with plenty of time and opportunity for discussion and questions.

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