A HOMEBUYER’S GUIDE TO SCOTLAND BY DANIEL MCLARDY
Scotland’s property market functions differently to the rest of the UK in some key areas, and we see a lack of understanding being the cause of disadvantage, disappointment and wasted time for buyers on a regular basis. All too commonly we meet clients who have already “been through the mill”, suffering disappointments relating to matters such as bidding for a property when they could have made an offer, and holding the misapprehension that mortgage borrowing is based on purchase price. Here I want to list the key facts and steps you need to familiarise yourself with before you commence your Scottish home buying journey. Firstly, let’s go through the key facts to take on your journey:
KEY FACT 1 – YOU’LL NEED A SOLICITOR EARLY IN THE PROCESS
The greater majority of sellers use regulated solicitor firms who take the dual role of marketing a property and then undertaking the legal work when a buyer is found. Because of this, you need to appoint your own solicitor early in the process to make any offers, or bids, on your behalf. This brings me to key fact 2.
KEY FACT 2 - YOU CAN “OFFER” OR “BID” ON A PROPERTY
It is a complete myth that you have no option but to enter in to the sealed bidding process for a property in Scotland, and we meet too many buyers who have been placing sealed bids when it may have suited them better to make an offer. Here is the difference:
MAKING AN OFFER
A buyer is permitted to make an offer for a property up until a closing date (or deadline) is announced for sealed bids, and the seller can accept such an offer even if other buyers have noted interest. However, when the selling solicitor sets the closing date for all bids to be submitted no advance offers can be accepted from this point onwards, and the sale is bound to the sealed bidding process.
MAKING A SEALED BID
If you like a property you may decide to make a sealed bid. To be given this opportunity you’ll need to be sure that you’ll be informed when the seller sets the deadline for all bids to be submitted. You do this by “noting interest”, which is in effect your solicitor sending an email to the seller’s solicitor asking them to let you know when bids are due. After the bidding deadline, or closing date (and time), the bids are revealed to the seller who will choose the buyer. The winning bid is usually the highest, but not always, and the seller isn’t obliged to choose the “winner” on the basis of price alone. Remember, however, that it may not serve your interests to wait for a property to go to sealed bids, because a competing buyer may have an offer accepted before a closing date is set. This is why it’s important to discuss a strategy with your solicitor.
KEY FACT 3 – A BID OR OFFER IS NOT LEGALLY BINDING WHEN INITIALLY ACCEPTED BY THE SELLER
It is not encouraged to offer or bid on a property if you are not sure you would wish to proceed if successful. Generally there is a good culture in Scotland, and with the guidance of solicitors buyers tend to bid on a committed basis. However, it’s important to note that you are not legally bound to the purchase until the “conclusion of missives” which is similar to the milestone of exchanging contracts in England. We often meet clients who are intimidated by the buying process, led by the misconception that any bids or offers made are immediately binding. This is not the case.
KEY FACT 4 – SCOTLAND HAS A HOME REPORT SYSTEM WHICH CREATES A PRICE VERSUS VALUE ISSUE
This is probably the most important key fact of them all because it causes the most disappointment, particularly in a strong market. It is a legal requirement for resale properties sold on the open market to have a home report made available to prospective buyers. Within the report the surveyor states the market value for mortgage lending purposes, and your mortgage provider will base their lending on the lower of the agreed purchase price or home report value. This means that if you buy at a price above home report value, you must bridge the gap with you own resources. Confused? CLICK HERE to view our dedicated article on price v value.
KEY FACT 5 – SCOTLAND HAS GENEROUS ZERO-INTEREST SHARED EQUITY SCHEMES
Scotland also has its own take on shared equity, currently offering assistance to homebuyers through the LIFT, Help to Buy, and First Home Fund. None of these equity loans charge interest, and not all of the schemes are means tested, or solely for first time buyers. We meet many clients who assume they are not eligible for a Scottish shared equity scheme, or that it would be too difficult to apply, only to discover that neither is true. Our message here is not to rule out a shared equity scheme without apprising yourself of the possibilities, and we can help with this.
KEY FACT 6 – MORTGAGE BROKERS PLAY A KEY ROLE IN SCOTTISH HOME BUYING
Scotland’s home buying process, in our opinion, functions better when a good mortgage broker is involved. This is because, quite often, a certain degree of complexity is involved. In a strong market you may have to pay a price above home report value, which requires special treatment on making the mortgage application. The lender also needs to be made aware of the home report itself, which must be in date and published by a recognised surveyor. If not, a mortgage broker will address these issues to keep the transaction flowing. This is not an exhaustive account, but I believe the case for mortgage brokers in Scottish home buying is compelling.
With our key facts in hand, here are the 3 steps to buying a home in Scotland:
STEP 1 – FIND A GOOD WHOLE-OF-MARKET MORTGAGE BROKER – THAT’S US!
A mortgage broker will help you set your budget and acquire a “Mortgage Lending Decision in Principle” for you, so you have confidence that you can get the funds to make your home purchase. We can also put you in touch with a solicitor from our panel of recommended firms, which brings us to step 2.
STEP 2 – APPOINT A SOLICITOR
This really needs to happen soon after discussions with your mortgage broker, so you have the means to note interest and offer on properties that suit you. You will lean on your solicitor for guidance on the property market, and formulate offer strategies for the properties that take your interest. Again, we can put you in touch with a solicitor, or you can find one yourself.
STEP 3 – GET HUNTING FOR A PROPERTY WITH A POSITIVE ATTITUDE TO FAILURE
Searching for a home in Scotland commonly involves failure. A significant proportion of our clients will unsuccessfully offer on properties numerous times before the tide turns in their favour. In our experience it is the homebuyers with resilience, persistence and a philosophical attitude to failure who succeed. When a client tells us they don’t think it will be possible to buy a home we sometimes ask them, with sincerity, “do you think you could increase your failure rate?”
QUESTIONS FROM THE PUBLIC WHO HAVE CONTACTED US AFTER READING THIS ARTICLE
If I bid on a property and it's not high enough to be successful, can I go back to the seller with an increased offer to compete with the successful bidder?
No, this would defy the point of the sealed bidding process, which is for all buyers to submit their "best offer" for consideration by the seller. Under the rules set out by the Law Society of Scotland, the seller's solicitor would refuse to accept a different offer after agreeing the sale with someone else.
I have just had an offer for a property verbally accepted, but now I think the price might be too high. Can I go back to the seller with a lower offer?
Your solicitor would refuse to action this instruction under anti-gazundering rules set out by the Law Society of Scotland. There are certain legitimate circumstances where this is may acceptable, but not for the simple reason that you would prefer to pay less for the property.
I am from England and have just had an offer accepted on my dream home in Edinburgh. However, I'm worried that the seller will gazump me. Is this possible?
Gazumping would occur where the seller accepted a higher offer from someone else after accepting your offer. This is highly unlikely in Scotland because of the Law Society of Scotland's anti-gazumping rules. A seller's solicitor will not perform an instruction to accept a higher bid (or any bid) after agreeing to sell the property to you. This rule comes in to play as early on as your offer being verbally accepted.
I placed a sealed bid on a property, but the seller has decided not to sell to any of the buyers. Is this allowed?
This is an unusual outcome, but yes it is permitted. The sealed bidding process is not in itself an obligation to sell on the part of the seller, who is free to decline all the offers made.
The seller of a property I really like is taking a long time to set a closing date for sealed bids. Is this allowed?
The seller is under no obligation to set a closing date, and may be waiting for an acceptable offer to be made instead. You should speak to your solicitor about making an offer sooner, instead of waiting for a closing date. If the seller accepts an offer before a closing date is set, you will be denied the opportunity to make an offer yourself.
Do I need a Mortgage Decision in Principle to offer on a property in Scotland?
It's not a requirement, but it can help to have a DIP in place so you can make offers with confidence. Disappointment could arise if you secure your dream home, only to find out you can't get the mortgage finance. Preparation is key, and we can help you with this.
Why do you keep referring to the vendor of a property as "the seller"? Don't you need to brush-up on your terminology?
We are fully brushed, thanks ;-). In Scotland the seller of a property is conventionally referred to as "the seller". But does it matter - not really.
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