Before purchasing a property there is a lot to consider, to plan and to put into place. So the thought of going through this process, especially if you’re a first time buyer, may be very daunting.
Choosing the Right Property Questions to ask the estate agent Making an Offer Appointing a Solicitor Finding and Choosing a Mortgage Understanding the Different Types of Mortgages Surveys The Costs of Buying a Property Exchanging Contracts Available Government Schemes If you Need Help
Before you make a decision on the property you want to buy, a lot of things should be taken into consideration.
Price: Right from the outset, you need to decide on a price you can afford. This way you will only look at properties that fall within that budget so you don’t fall in love with properties you can’t buy. You need to plan how much you are prepared to spend each month on mortgage repayments and bills.
Location: Of course the location is one of the biggest aspects to consider when you are buying a home. The first reason being that property prices are hugely affected by the area they are in. The price of a property in London, for example, will be far greater than a property of the same size in Devon.
If you are planning on living in the property long-term, you should also think about the distance of the property from your work, schools if you have children, shops, hospitals, transport links and any other facilities that you and your family need or may need in the future. Unless, of course, living in a rural area is what you desire.
Condition: Unless you are keen to develop the property yourself, buying one that is already in a good condition is crucial. You don’t want to be 6 months down the line and having to replace the boiler or rip out the bathroom. Aim to find out everything you can about the property, including; structure, insulation, windows, boiler and anything else that is important towards the general condition of the property.
Size: This may seem like an obvious one, but a lot of people purchase properties that are suitable for them now, but then find themselves having to sell and repurchase another one when circumstances change. If, for example, you are planning on having children in the future, buying a bigger property now would save you a lot of time and money in the long-run (if you can afford to do so).
Future Re-Sale Price: Another thing to consider is the possible future sale price of the property. Properties tend to increase in value over time so it is possible for you to make quite a lot of money if you re-sell it after a number of years. Something that will help this is if the property is in an area where there are plans for development, like adding a new train station or sports complex. This shouldn’t ultimately affect the property or area you choose to purchase in, but it is something that’s worth bearing in mind.
Once you have found your dream property, it is time to put forward an offer.
This should be a relatively simple process.
First you simply need to phone the estate agent, tell them you want the house and tell them what price you want to pay. This will need to be followed up with a written confirmation, an email is usually acceptable. The estate agent is legally obliged to pass on any offer to the seller.
Don’t be afraid to start low, this will give you room for movement if the seller doesn’t accept your first offer. Plus, you never know, they could accept the lower offer which could save you a lot of money!
Although it is obviously the main aspect, the money isn’t the only thing the seller will take into consideration. They will also be interested in you and your circumstances so it will help if you can tell them some reasons as to why you are a good buyer.
Having Evidence you Can Secure a Mortgage
If you can show a ‘mortgage agreement in principle’ this will eliminate any doubt of you being able to maintain a mortgage, giving the seller more confidence that the sale will go through. A mortgage agreement in principle is where a lender takes some basic information and checks your credit score and history. From this they can give you a figure that they would be able to lend you if you were to go forward.
Also, if your offer is accepted and you want to go ahead, the next stages will be much quicker.
A property chain is where you own a property already, you are looking to buy another, but can’t buy until your current property has sold so you are all waiting for each other. If you are not in a chain (if you are a first-time buyer) then this make things less complicated and less time-consuming. This will definitely appeal to the seller if they are in a chain themselves.
If your first offer is unsuccessful, this is where you can go back in with a higher one. It isn’t unusual to go back and forth a few times before an agreement is made. Your estate agent should also be very transparent with you and tell you whether there are other buyers you are competing with.
Be clear with a budget and stand firm. If the seller refuses to budge, don’t let yourself get carried away with making higher offers if it is something that you can’t afford.
Nothing is legally binding until you exchange contracts with the seller. Before that, even if the offer is accepted, you can still pull out at any time if you change your mind. Although, I would try avoiding this if you can by only making an offer on a property you truly want to buy.
Once you’ve had your offer accepted, you can ask the seller to take the property off the market. They don’t have to agree to this but it is definitely worth asking.
If the property remains on the market, this enables someone else to come in and make a higher offer which, assuming the seller takes the offer, will take the property away from you. This isn’t nice, but completely legal.
Your solicitor will act on your behalf of the purchase and will be responsible for handling all of the legal aspects. You will be responsible for appointing your own solicitor and this should be done before you make an offer on a property.
The solicitor will:
When you want to source a mortgage, you can go one of two ways. The first is directly through the lender and the second is through a mortgage advisor/broker.
If you approach the lender directly, a representative of theirs will help you to source the right mortgage product and fill out the application form. Or, if you are absolutely sure on what product you want, what you can afford, the deal and the term you want, you can do it yourself without receiving any advice at all. This is known as ‘execution only’.
A mortgage is a massive commitment so I wouldn’t recommend going in and doing completely on your own, unless you 100% sure on what you are doing.
If you choose to go through an advisor or a broker, they will source the right product for you and take the application to the lender on your behalf. They will advise you and guide you through the process every step of the way. Just be aware that this may add an additional fee.
However, a small fee could turn out to be insignificant compared to the amount you could save in the long term. This is because experienced brokers know what is available in the mortgage market and are more likely to source a better mortgage deal for you. A small fee in the short term could save you thousands in the long term.
Choosing a mortgage product isn’t as simple as deciding the amount of money you want to borrow and how long for. There are different types of repayment and interest elements to consider.
Repayment Mortgage: Repayment mortgages are the most common and most popular types. Each month your repayments will go towards paying back the interest added onto the loan in addition to the capital (the original amount borrowed). This means that at the end of the mortgage term, your mortgage will be paid off in full.
Interest-Only: With interest-only mortgages, the monthly repayments only go towards paying back the interest of the loan and none of the capital. This will make the monthly repayments much less than a repayment mortgage. However, at the end of the mortgage term, you will still owe the full capital amount which you will have to source other funding to repay.
Standard Variable Rate (SVR):A lender’s standard variable rate is the standard rate they charge on their products, usually based off of the Bank of England’s base rate. This means the interest you are charged can move up and down throughout the term of your mortgage. Your monthly repayments will move up and down to reflect this.
Fixed Rate: A fixed rate mortgage is an offer which usually lasts for the first 1-5 years of your mortgage term, before moving to their standard variable rate. The interest you are charged will remain at the same rate for this period of time, regardless of whether the lender’s SVR goes up or down.
Discounted Rate: This is where the lender will apply a percentage discount off of their standard variable rate for a fixed period of time.
Capped Rate: The interest rate will remain variable (able to move up and down) but will never be able to rise above a specific limit (the cap). This will help you if you need to stick to a strict budget.
Low Start: For an initial, fixed period of time, the monthly repayments will kept at a lower amount during which time no capital is repaid, just interest. After this time, the payments will increase to achieve the repayment of capital (only available on repayment mortgages).
Flexible: A flexible mortgage will suit you if you need to alter your monthly payments to suit your ability to repay the loan. You will be able to make overpayments without incurring any charges if you want to pay off the loan more quickly, and you will have the facility to underpay or take payment holidays (under certain terms set out when the mortgage was arranged).
The property valuation will be carried out by a professional surveyor, appointed by the mortgage lender. The aim is to carry out a survey of the property you are purchasing to make sure it is worth the amount you are borrowing and is suitable security for the loan.
They will be checking for anything major that may adversely affect the value, for example, damages to the structure or if it’s in an area with a risk of flooding.
It is in your best interest to conduct a property survey. There are a few different types which you should choose based on the condition of the property you are purchasing, not the price of the survey itself.
Spending some money on a survey could save you a huge amount of money in the future as if you find faults with the property that need to be fixed, you may be able to negotiate with the seller and have them drop the price by that amount.
This report will describe the general condition of the property, identify any risks or potential legal issues and highlight any urgent faults. It is most suitable for new-builds which have a conventional structure and are in good condition. You will not receive a valuation of the property or any advice.
This report will identify if there are any structural problems with the property, such as dampness or subsidence. It won’t identify if there are any problems beyond the floorboards or behind the walls. This report will be most suitable for conventionally built properties which are in reasonable condition.
Some home buyer’s report will include a valuation of the property, so, if this varies from the lender’s valuation, you may be able to revise your offer.
This report will provide you with a very in depth inspection of the property’s condition, including any structural problems. It will also provide you with advice on how to repair or maintain the problems, as well as the potential consequences if they are not dealt with.
This is the most extensive survey and it is suitable for all residential properties. It is particularly good for older properties.
Unfortunately, buying a house is an expensive process.
Stamp Duty is a lump sum charged when you purchase any property or land. The amount payable will depend on the price and type of property you are purchasing.
The table below shows the amount of Stamp Duty you will have to pay if you are purchasing a residential property and you are not a first time buyer (you have owned a property previously).
|Purchase Price||Stamp Duty Rate (%)||Stamp Duty to Pay (£)|
|Up to £125,000||0%||£0|
|£125,001 - £250,000||2%||£0 - £2,500|
|£250,001 - £925,000||5%||£2,500 - £36,250|
|£925,001 - £1,500,000||10%||£36,250 - £93,750|
|Over £1,500,000||12%||£93,750 +|
This used to be the same for first time buyers, but in 2017 it changed to help people get onto the property ladder. Now, no Stamp Duty is charged for property purchases under £300,000.
The table below reflects the stamp duty you will pay if you are a first time buyer.
|Purchase Price||Stamp Duty Rate (%)||Stamp Duty to Pay (£)|
|Up to £300,000||0%||£0|
|£300,001 - £500,000||5%||£0 - £10,000|
|£500,001 - £925,000||5%||£10,000 - £31,250|
|£925,001 - £1,500,000||10%||£31,250 - £88,750|
Even if you are purchasing a property with a mortgage, you will still need to put down a deposit as a lump sum. The minimum required for residential properties is 5% of the purchase price, but you should aim to put down as much as you can afford.
The general rule is, the more deposit you put down, the better rates and terms you should get.
As mentioned previously, the mortgage lender will instruct a valuation on the property you are purchasing to ensure it is worth the amount you are borrowing and suitable security for the loan. The cost of this can vary between £150 to about £1,500 as it completely depends on the value of the property.
Depending on the mortgage lender, you may not have to pay for the valuation at all.
You will need a solicitor to carry out all of the legal work and to act on your behalf during the purchasing process. Most solicitors will require an upfront fee to cover the costs of searches, on average, this is around £300 - £500. The rest is usually payable at the end of the process. The amount of this can vary depending on the solicitor and if there have been any problems.
This is a fee payable to the mortgage lender to cover the costs of arranging your mortgage. This can also be referred to as an administration fee and could cost up to £2,000.
This is to cover the lender’s cost of transferring the money to your solicitor. The average cost is £40-£50.
Exchanging contracts is the last stage of the legal process when you are purchasing a house. After this has happened, it is legally bounding and you can not withdraw.
When you have completed all the necessary paperwork given to you by the solicitor during the process, you will be asked to sign the contract before sending it back to them. Then when everything is ready; the solicitor has carried out all their searches, they have had all of their queries answered and you have received your mortgage offer, you will be asked to transfer the deposit to the solicitor and they will let the vendor’s solicitor know that you are ready.
A completion date is agreed between you and the seller (the date you will receive the keys) and contracts are exchanged.
If you are a first time buyer or an existing homeowner, you may be able to benefit from one of the various government schemes if you need additional help to purchase a home.
This scheme is designed for those who only have a small deposit (5%). An equity loan form the government will allow you to borrow up to 20% of the sale price, and the rest (75%) is funded by the mortgage.
In England, this scheme is available on homes costing up to £600,000 and in Wales, homes costing up to £300,000.
You won’t pay any interest or fees on the equity loan for the first 5 years of the term. On the sixth year you will be charged 1.75%. After that, you will be charged a fee which will rise according to inflation, based on the Retail Prices Index (RPI), plus an additional 1% of interest per year.
When you sell your home, or when the mortgage has been repaid, you have to repay the full amount of the equity loan plus a share of any increase in value. You can also pay back part, or all, of the loan at any time during the term.
This scheme is designed for people who are renting their home from their local council. Qualifying tenants will be able to purchase their home at a reduced cost. The size of the discount will depend on the type and location of the property.
Usually, you need to have been renting from the public sector, e.g. local council, for at least 3 years before you will be eligible to purchase the property under this scheme. These 3 years can be non-consecutive.
This scheme allows you to purchase a proportion of a property from a landlord and pay rent on the remaining share.
The proportion you can buy can be between one quarter and three quarters of the property’s full value, which you will need a mortgage to fund. You will pay a reduced rent on the share you don’t own.
If you decided later you want to buy a bigger proportion, or all, of the property, you can do this.
To be eligible for this scheme, you much have a household income of less than £80,000 pa (outside London) and £90,000 pa (inside London).
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Last updated: 07 October 2019 | © KIS Finance 2018 |