In recent years, the UK has become one of the most popular destinations for Hong Kong residents to immigrate to. Before purchasing property in the UK, it’s important to understand the buying process, mortgage arrangements, taxes, and associated fees. There are many details to pay attention to, and experts have outlined 12 key points to consider.
For Hong Kong residents looking to purchase property in the UK, although they need to hire local real estate agents or agencies to handle the transaction, it is crucial for potential buyers to understand the basic procedures involved in buying and selling property in the UK. This will help avoid falling into potential pitfalls. Whether to choose a new or second-hand property is a personal decision, but it’s also necessary to understand the differences in the purchasing process between the two.
Wong Po-Hang, Director of Ricacorp Overseas Properties and Investment Immigration Consultant, outlines the key considerations at each stage of the process.
UK Property Buying Process:
1. Research the Developer’s Background for New Properties
When looking for a property, it’s important to pay attention to the developer’s background, especially for new developments. Many new properties are often marketed through exhibitions held in Hong Kong, showcasing mostly pre-sale developments (off-plan properties), though some ready properties are also available.
Buying a New Property:
- Investigate the developer’s reputation and financial stability. A listed company tends to be a safer bet. Be cautious if the company specializes in subdivided units or bed and breakfast accommodations.
- Understand the city where the property is located. Look out for undesirable facilities nearby, such as cemeteries or railways. It’s not enough to focus solely on the zone of the property—use tools like Google Maps to gather more information.
- Be mindful of the management fees, which can vary significantly, ranging from £1 to £10 per square foot.
- Not all fixtures and fittings are included when purchasing a UK property. Items such as washing machines, refrigerators, and even flooring might not be provided, so make sure to check.
Buying a Second-hand Property:
- Demonstrate your financial capability to the seller to engage in price negotiations. If you’re borrowing funds, it’s wise to apply for a pre-approval from a bank in advance, showing the seller that you’re serious.
- In local second-hand transactions, the seller typically pays the commission to the real estate agent, so the buyer does not need to worry about this cost. However, this can lead to higher asking prices from sellers. Buyers should research comparable property prices online to avoid overpaying.
2. Sign the Sales Documents
If you find a desirable property at an exhibition, the next step is to sign a reservation form with the developer or agent. This form indicates the buyer’s interest in the unit, and a reservation fee is paid—typically between £1,000 and £2,000, though this amount can reach £5,000 for higher-priced properties. After this, the buyer will appoint a solicitor to handle the sales contract, which is usually signed 28 days later.
New Property:
- If the transaction doesn’t go through, the reservation fee can be refunded. If the transaction proceeds, the fee becomes part of the deposit.
Second-hand Property:
- After selecting a property online, buyers can attempt to negotiate with the seller. Once a price is agreed upon, the agent will request the buyer to sign a sales memorandum outlining the agreed price and other transaction details.
- In some cases, the seller may need to find another property before they can complete the sale, which will be noted in the memorandum.
3. Pay the Initial Deposit
New Property:
- It is recommended to hold the deposit in escrow with a solicitor rather than paying it directly to the developer. The deposit typically ranges from 10% to 30% of the property price. Some reputable developers may even offer insurance on the deposit.
Second-hand Property:
- Buyers pay a deposit, generally around 10%, upon signing the contract, which is paid directly to the seller.
4. Arranging a Mortgage
In Hong Kong, banks like HSBC, Bank of China, and Bank of East Asia offer mortgage options for overseas properties, including both new and second-hand homes. If you secure a mortgage through a local bank, the bank will collect your documents and send them to their UK branch to follow UK guidelines. However, not all UK regions are covered by local banks. HSBC and Bank of China cover a broader range of areas, while Bank of East Asia only offers mortgages for rental properties.
New Property:
- Buyers can apply for a mortgage once they receive a reservation letter from the agent. If the property is an off-plan development, the mortgage application only needs to be submitted six months before the property is completed.
Second-hand Property:
- Buyers can apply for a mortgage once they receive the sales memorandum. The process usually takes at least two to three months.
5. Completion and Handover
New Property:
- If the property is off-plan, the developer will request that part of the purchase price be paid six months after signing the contract. Upon completion, the solicitor will notify the buyer for inspection and provide a handover date. On the day of handover, the bank will transfer the full mortgage amount to the developer, completing the transaction.
Second-hand Property:
- Buyers arrange for a surveyor to inspect the property and provide a detailed structural report. Once both parties sign the contract, the buyer pays the remaining balance, completing the transaction.
Leasehold Properties:
Buyers need to pay attention to the ownership type of the property—whether it’s freehold (permanent ownership) or leasehold (time-limited ownership). For leasehold properties, there is a risk of the land being reclaimed at the end of the lease term, and the owner must pay ground rent annually.
Types of Mortgages Available:
- Tracker Mortgage: Based on current market interest rates, the repayment rate fluctuates.
- Fixed Rate Mortgage: Offers a fixed interest rate for 2-3 years, protecting against rate fluctuations.
- Interest-Only Mortgage: Allows borrowers to pay only the interest without repaying the principal.
Taxes and Fees:
- Deposit: Typically 30% of the property price
- Solicitor’s Fees: £400 to £1,500
- Bank Mortgage Arrangement Fee: Around £2,000
- Mortgage Broker Fee: £500 to £800
- Property Valuation Fee: £150 to £700
- Structural Survey Fee: £350 to £500
Understanding these procedures and costs will help ensure a smoother property purchase in the UK.