We understand that buying a property is a long and stressful process. To make life easier, we’ve compiled an expert guide to buying a property, from saving for a mortgage to the handing over of the keys.
1. Make sure buying a property is for you
It might seem obvious, but it is important to make sure that you are making the right decision in buying a property. Sure, owning a property gives you total freedom and security in your living situation. But if you are a first time home buyer, you need to be sure that it is the right moment in your life to own. Renting is cheap, non-committal, and can be a great alternative to owning – HomeViews has plenty of examples of great Build to Rent homes.
So, before you embark upon your quest to buy a property, take some time to do some proper research on whether, why and how.
2. Should I sell my house first?
If you are already a homeowner, then you will need to decide whether to sell your house before, during or after buying a property. Selling a house means cash in the bank, which is attractive to prospective sellers. Plus, having the flexibility to get the right sale is a nice position to be in.
However, you may find that things slow down after you have sold, and you end up renting for a long time. Even more annoyingly, property value in the UK could rise, meaning that houses will be more expensive.
3. Do some budgeting
Financing a move can be complicated, especially for first time home buyers, so make sure you do a thorough budget before starting the process.
The most significant cost of buying a property is, of course, the amount of the property price that you put down yourself. This is called your deposit, the rest being provided by a mortgage lender.
The ratio of a mortgage loan to the value of the property purchased is called loan-to-value, or LTV. For instance, say you are buying a property worth £150,000, and you are able to provide 10% of that yourself (£15,000). The lender would be providing the other 90% (£135,000) – this is the LTV.
Before getting a mortgage, you will need to decide how much you want to spend on a deposit. On average, you will be expected to provide at least 5%-20% of the purchase price. So for example, on a £150,000 home, a deposit will generally cost between £7,500 and £30,000.
Government schemes such as Help to Buy help people with less to spend on a deposit to buy a property. Buyers of Help to Buy houses can get 20% of the purchase price from the government if they can source 5% of the deposit. Check out our Help to Buy guide here.
4. Consider extra costs
To make a budget you will also need to consider the cost of services, fees, and improvements. These sneaky factors can add up to 15% onto the price of the house.
These could include:
Stamp duty: This is a tax paid on homes costing more than £125,001. You pay 2% of the house price with homes up to £250,000, 5% for homes up to £925,000, 10% for homes up to £1.5 million, and 12% for homes costing more. First time buyers do not pay Stamp Duty on the first £300,000 for properties worth up to £500,000. You can find more information here.
Valuation fee: Your lender will value the property to establish how much money they should loan you. This can come to between £150 and £1,500.
Mortgage fee: You may encounter a booking fee of up to £250 and an arrangement fee of up to £2000
Survey costs: These cost between £250 for a basic home condition survey, and £600 for a full structural survey
Legal fees: You will need a professional in property law to carry out the legal work. Fees typically come to around £800 to £1,500.
Moving costs: The cost of hiring a removals company comes to about £300-£600
Maintenance and repairs: A survey usually reveals some problems that need to be addressed, and the average repair bill for new homeowners is £5,750. The best way to minimise the risk of repair costs is to read reviews from residents here on HomeViews! Obviously, this is not a problem for new build homes. You can read all about the pros and cons of moving into a brand new development here.
Usually, a condition of a mortgage is taking out buildings insurance, which costs around £100-£200 per year.
5. Choose a mortgage
Once you’ve decided on a deposit, you need to choose the best mortgage deal for you. You will need to determine whether you’d rather pay back smaller installments over a longer time period, or bigger installments over a shorter term, as well as work out a deal on paying interest that works for you.
Mortgages fall into two main categories:
Fixed-rate mortgage: This means that the interest you pay remains the same throughout the lifetime of the loan. If you are paying 5% interest on a £150,000 mortgage, you will be repaying £877 per month.
Adjustable-rate/variable-rate mortgage: This means that your interest rate moves in line with the national benchmark set by the Bank of England. This option usually works out cheaper in the long run. However, you run the risk of not knowing exactly what your mortgage bill is going to be month to month.
Before committing to either one, you should go online to compare mortgage rates.
There are many more types of mortgage within these categories, for example:
Discount mortgages
Tracker mortgages
Capped rate mortgages
Offset mortgages
Cashback mortgages
As well as ones catering specifically to first time home buyers, including:
Guarantor mortgages
Help to Buy mortgages
Shared ownership mortgages
As for your mortgage term, the typical lifetime of a mortgage is 25-35 years. The faster you repay your loan, the less interest you will pay, but the larger the repayments will be each month.
6. Apply for a mortgage
When applying for a mortgage, the lender will assess your salary and additional income such as benefits, commission or bonuses. They will also look at outgoings and debts to determine whether you will be able to afford the monthly repayments. Finally, they will also do a ‘stress test’ to see if you would be able to keep up repayments if your situation should change, and a credit check to assess the risk of lending to you. There are plenty of online mortgage calculators, like this one, that will give you an idea of how much money you would be eligible to borrow.
If you feel you would benefit from some tailored advice, consider a mortgage advisor. These are industry professionals who can do a thorough mortgage comparison to find the best one for you, taking into account circumstances such as being self-employed or buying a new build home.
Few lenders offer mortgages until you choose a property, however, so you might get an MIP – a ‘mortgage in principle’. This is a written statement from your lender saying that they will lend you a certain amount, and can give you an edge over other buyers when putting in an offer.
7. Select a property
Think about your criteria for buying a property. Would you rather live in a house or a flat? In a city centre or a suburb? How many bedrooms do you need? Do you want a new build home or an older property?
Another thing to think about is whether the property is freehold or leasehold – it is important to know the difference:
Freehold: This means that you own the property and the land that it sits on. Almost all houses are freehold.
Leasehold: This means that you own property for a fixed term (usually 90-120 years), but not the ground on which it stands – you therefore pay an annual ground rent to the freeholder. Almost all flats are leasehold.
In terms of finding a specific property, gone are the days when the only way to scope out the London housing market was to browse local estate agents. The internet is a fantastic resource – check out the HomeViews site for information on hundreds of London developments!
Finally, before settling on a place, do some digging. You wouldn’t book a hotel or holiday home without reading reviews, so why buy a property without this inside knowledge? Make sure your estate agent or developer is being transparent with you by reading resident reviews on HomeViews.
8. Arrange a property viewing
Once you’ve seen a property that you like, get in touch with the estate agent to arrange a viewing. It is worth bringing a list of things that you want to ask. For instance, why are the current owners moving? Who lives upstairs/downstairs/next door? What renovations have been done to the property? How old is the boiler? Are white goods included? What is parking like? Don’t be afraid to grill your estate agent or developer!
Keep an eye out for things like damp walls, cracks or stains, broken windows and doors, and electrical problems such as faulty lights. Count the electrical sockets, check the water pressure and temperature, turn on the central heating, check your phone signal… These are all things that you can ask the seller to fix before you buy a property.
Reading reviews is also an invaluable resource for revealing issues with a property before moving in.
If everything seems fine, this is the moment to make an offer.
9. Hire a conveyancer and a surveyor
Once an offer is accepted, conveyancers are brought in to hash out the legalities. Conveyancers are legal experts specialising in property who will handle Land Registry and local authority searches, draft the contract, manage the exchange of cash, and transfer ownership of the property.
As well as a conveyancer, you may want to bring in a surveyor. A survey will tell you if there are any structural problems before you buy a property, such as unstable walls or subsidence. You can either opt for a homebuyer’s report, which is typically suitable for properties less than 50 years old, or a full structural survey, which is more comprehensive. You probably won’t need a survey for a new-build home, which usually comes with a 10-year NHBC guarantee.
Having a survey before you buy a property is a good idea. Identifying problems can give you the justification to haggle down the price of a property.
10. Exchange contracts
Once your offer has been accepted you become legally committed to buying the home, with the deposit as forfeit if you pull out. Before the exchange of contracts, you should agree on a completion date with the seller, make sure that the conveyancer is happy with the survey, and receive a formal mortgage offer. Once the contracts have been exchanged, you will need to take out buildings insurance – this is usually a condition of the mortgage. Read more about buildings insurance here.
You will then pay for the property to complete the sale, and it is legally yours. Time to find a man with a van and pack up the moving boxes!
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