London a hotspot for expats, but watch those quirky property speed-bumps

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“What do you mean no one will accept a deposit?” my husband asked incredulously. We were negotiating to buy a holiday pied-a-terre in London, England, when we were informed that neither the real estate agents, nor the seller, nor our legal counsel were able to accept a deposit to secure the transaction.

“That’s not how it’s done here,” they said.

In hindsight, we ought not to have been surprised. This was just one of several peculiarities that can catch Canadian buyers by surprise when purchasing property in the United Kingdom.

And growing numbers of us are. London estate agents report an influx of international buyers, ranging from those seeking homes in prime neighbourhoods to others purchasing residences for children who are studying or working in London.

It’s easy to understand why. London is undeniably one of the great cities of the world, highly international and a relative bargain for foreign investors currently.

Since 2014, residential real estate prices in Prime Central London (PCL) have slumped, hammered by increased taxation, Brexit and the pandemic. These factors, combined with the plunge in the value of the British pound last year, have ignited new interest from overseas buyers hoping to snap up properties at a 20-per-cent discount.

For anyone contemplating a U.K. real estate purchase, here are some of the quirks we discovered in buying our London property.

There is no central listing service

Unlike the multiple listing service (MLS) in North America, the U.K. does not have a central industry database to provide information about properties for sale. Listing and selling brokers do not consolidate and share information typically; they generally show only their listed properties and not others. What this means for buyers is they must contact individual agents to enquire about their book of properties for sale – and understand that the agent’s interests lie with the seller.

The search process is made somewhat easier through Rightmove, an advertising portal on which listing agents pay to market their properties. However, not all listed properties are advertised here, and in our experience many listings were “stale” – unsold for more than six months – leading one to believe they were mispriced or flawed in some way.

Properties are sold off-market

The PCL real estate market is unusual in that an estimated 20 to 30 per cent of transactions are done “off market,” meaning they are sold without ever having been publicly marketed for sale.

While once the exclusive practice of security-conscious, privacy-obsessed oligarchs and celebrities, off-market sales are now common at all price points. In fact, the flat we purchased was an off-market transaction. The only way to penetrate the off-market market is to have someone within the system sleuthing for opportunities on your behalf.

You’ll need a buying agent

My husband and I spent about 18 months searching for properties online and had viewed numerous homes with agents before we discovered what informed buyers of London real estate know: We needed a buying agent.

A buying agent is a consultant who works exclusively for – and is paid by – the buyers to help them find a home and negotiate the purchase. A good buying agent will use his or her connections to uncover off-market opportunities, including some that are not even contemplated for sale.

Buying agents know the neighbourhoods and buildings inside and out and will guide you on everything from which floors of a building are desirable – and which are not – to where transformative change is taking place that will enhance or devalue your property.

Once the agent identifies a home the client would like to buy, they will research and advise on the fair market value and negotiate the transaction. Buying agents typically charge a work fee and 2 per cent of the purchase price, although this percentage may vary.

In our case, we invested as much time in choosing our agent as we did searching for the perfect flat. We started with a list of the top 50 buying agents in London, interviewed six and selected one, Caspar Harvard-Walls of Black Brick Property Solutions LLP.

Our efforts paid off: Not only did Caspar and his team uncover an off-market flat for us, they introduced us to Chelsea, a neighbourhood that had not been part of our original consideration set. Today, we couldn’t be happier with our choice.

It’s not final ’til it’s final

Perhaps the most nerve-racking aspect of buying property in the U.K. is the lack of certainty prior to closing. The buying process goes something like this: Your buying agent will submit an offer letter to the listing agent. Assuming the offer is accepted, usually after some routine back-and-forth, you will have reached an agreement to buy/sell on certain terms.

What is astonishing for North Americans is that the offer agreement is not legally binding. And, as I mentioned at the outset, there is no provision for making or accepting a deposit. Quite simply, the deal does not become final until “contracts are exchanged” some weeks later, after a lengthy process of due diligence.

Until such time, you wait on pins and needles hoping your deal doesn’t fall apart. It could fail for any number of reasons: The seller can pull out. Another buyer can come along, after your offer has been accepted, and bid more. When this happens, the British call it “gazumping,” and it is common in markets where supply is tight and buyers are competing.

You can imagine the disappointment of seeing your purchase fall through only weeks before you were to move in. Imagine, too, the ripple effect on other transactions that are part of the chain. As foreign buyers, we were able to use the fact that we were not part of a “chain sale” to our advantage – providing a measure of certainty to the seller that we would close, thereby making our offer more attractive.

You don’t actually own your property

Most people don’t know that huge swaths of central London are owned by a handful of families – the Grosvenors, Cadogans, Portmans, to name a few. These families own the residential, commercial and retail properties on their lands, which in most cases have been in their families for hundreds of years.

When you buy a London apartment – or flat as they are known – in most cases, you are acquiring a lease to occupy the unit. This is known as the leasehold. You do not own the property or the flat, which is something North American buyers sometimes have trouble wrapping their minds around. Lease terms vary widely, and while there are provisions for extensions, negotiating new terms can be complicated and costly.

Houses, on the other hand, are bought freehold – you own the building and the land it sits on. A minority of apartments are also structured this way, in which case the purchaser owns a proportionate share of the property and building.

Be mindful that freeholds bring their own set of complications. Instead of dealing with a professional landlord like the Grosvenors, for example, decisions about property management – from the renovation of common areas to how to dispose of garbage – are in the hands of you and your fellow flat owners. Buyers would be wise to interview a few of the owners/residents prior to submitting an offer.

Buying London real estate is not for the faint of heart, but it is rewarding in so many ways, with financial and lifestyle benefits. We had high expectations that London would feel like a second home for us, and it has exceeded them.

Kelly Willis Green is an independent marketing advisor to organizations seeking to better understand, reach and satisfy the unique needs of high-net-worth individuals. She is the creator and host of Serious Coin, a podcast that explores the financial, emotional and lifestyle benefits and challenges of coming into wealth.

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