Different Types of House Purchase Explained

Conventional House Sales

Buying a home can be stressful: viewing potential properties before making an offer is generally just the start of a lengthy process. If the offer is accepted mortgage finance will usually have to be secured – and then the negotiations about the contract start.

It is often said that there is no certainty to house purchases and that no sale can be guaranteed before completion takes place.

Whilst most people still take the traditional approach there are other ways of finding a home.

Buying at Auction

Buying a property at auction can be a good way to get a home at a discount and is usually a much faster way of completing a sale than a conventional purchase. However, auctions are not for the faint-hearted and careful preparation is required before taking the plunge.

Auction houses will issue catalogues listing all the properties being offered for sale. This gives potential purchasers the opportunity to visit the properties, arrange surveys, carry out searches or do other research before the auction takes place. Buyers will need to have all their finance in place before the auction. Crucially they must have their deposit ready on the day of the auction.

As soon as the auctioneer’s hammer goes down the person who made the winning bid will have entered into a legally binding contract to purchase the property. They will then have to pay the deposit and sign a contract to purchase the property immediately after the sale. Additionally they will have to be ready to complete on the sale – and therefore pay the balance of the purchase price - within 28 days of the auction.

If the winning bidder fails to complete within this time they are likely to lose their deposit and may be liable to compensate the seller for any loss they incur due to the sale falling through. Anyone new to property auctions would be well advised to attend a few auctions as an observer before taking an active part in one.

Shared Ownership Schemes

With a shared ownership property the buyer will buy a proportion of the property and the remainder will generally be owned by a housing association. The buyer will then have to pay a monthly rent to the housing association in respect of the proportion owned by them. There is likely to be a provision for the homeowner to purchase a larger percentage of the property over time.

Shared ownership schemes can seem attractive as the headline purchase price is, naturally, lower than for an outright purchase of a comparable property. However, purchasers must budget for both mortgage payments and a monthly rent. In addition it may be more difficult to sell a shared ownership property. Some shared ownership schemes may be restricted to buyers with particular occupations or on limited incomes.

Council Properties and the Right to Buy

Long-term council tenants may have the right to purchase their council home at a discounted price. The amount of the discount available is likely to be higher the longer the purchaser has lived in the property. If the property is sold on within the first five years some, or all, of the discount may have to be repaid.

Tenants of registered social landlords may have similar rights under the Right to Acquire scheme.

Shared Equity Purchases

Shared equity schemes may be available through government-sponsored home buying initiatives or through some private property developers. With these schemes the buyer is provided with a loan to help fund a proportion of the purchase – the rest of the purchase will be funded through the buyer obtaining a conventional mortgage. The buyer owns the entire property and therefore, unlike shared ownership, there are no additional rental payments to make.

The loan may be free for a number of years or may attract a low rate of interest. However, if the property is sold the buyer will have to pay back the loan and an equivalent proportion of any increase in value since the property was purchased.

Part-Exchange Schemes

Some property developers may offer to purchase a buyer’s existing home as part of the sale price of a new-build property. This can be a quick and convenient way of securing a sale – especially in a difficult property market – and may be a way of escaping the horrors of being caught in the middle of a chain. However, it is likely that the developer will value the property below its market value. Sellers will, therefore, have to weigh up the advantage of a quick, guaranteed sale against the lost profit from that sale.