The process of buying your first property can be daunting. The different aspects can be complex and lengthy, so it is a good idea to know in advance what to expect. This article will explain the steps involved, offering advice and information to enable the purchase to progress as easily as possible. (NB the process of buying a property in Scotland is different).
When you begin the process of buying your first home you should be clear on two things: your budget and your ideal location. When thinking about your budget, remember that you will need to set aside between £2000 and £5000 to cover various fees (more about these later).
Ideally you will have saved a deposit of 10-20% of the value of the property you intend to buy. If not, the government’s Help to Buy Scheme means that your deposit can be a minimum of 5% of the value of the property. So with £15,000 of savings you would have a budget of £10,000 for a deposit.
Go to a mortgage broker or independent financial advisor for information on the mortgage deals available to you. With a £10,000 deposit, the maximum cost you could afford would be £200,000. At this stage it is good to get a ‘decision in principle’ from a mortgage lender, as this will confirm to sellers that you have funding in place to buy.
The price you can afford will probably determine where you decide to live. When working out your ideal location, think about all the things that matter for your lifestyle, such as transport connections, schools or amenities. If your first-choice location proves too expensive, look for locations with similar features nearby. If buying a property in these areas is out of reach, think about looking further afield or consider a shared ownership scheme where you buy part of the property and rent the remaining portion.
Save yourself time and money by sticking rigidly to your budget and preferred locations. When you find a property you like, make sure that you view it more than once, at night and during the day. Make notes on each property you see to compare what’s on offer elsewhere, and what typical asking prices are. Try not to get carried away at this stage – don’t show the seller or agent how keen you are as they may try to take advantage of this to encourage a higher offer.
Making an Offer
The process of buying a house really begins when you are ready to put in an offer. You should make the offer in writing, offering 5-10% below the asking price as a starting point and making it ‘subject to survey and contract.’ There can be some negotiation on price before the offer is accepted. You may want to offer the asking price if you think you are in danger of losing out to a lower offer. Once the offer has been accepted, demand that the Estate Agent takes the property off the market otherwise you risk being ‘gazumped’ if someone makes a better offer before the sale has gone through.
Contacting a Solicitor or Conveyancer
At the same time, you should contact a solicitor or conveyancer to handle all the legal aspects of the sale. You can find a list of solicitors through the Law Society or via Yellow Pages, but the best thing to do is ask for a personal recommendation. Remember that you cannot use the same solicitor as the person selling the property.
You should give your chosen solicitor or conveyancer the details of the property you want to buy, its location and the contact information for the estate agent. Your solicitor will then contact the seller’s solicitor to request the title deeds and will start contractual proceedings.
When buying a property it is important to get a survey done to check that it is structurally sound and that there are no hidden problems such as subsidence, dry rot or damp. If you don’t do this and problems are discovered later, insurers may refuse to insure you and your mortgage might be in jeopardy.
The cost of a survey varies depending on the type you ask for, from about £250 for a shorter Home Buyers Report to £1000 for a full structural survey. For properties that are more than 75 years old you should get a full survey, and it is also a good idea if there have been alterations to the property since it was built. The cost of a survey varies by surveyor and according to the size of the property, so shop around. If you’re not sure which surveyor to choose, your solicitor may recommend one.
Your lender will ask you to pay for an independent valuation of the property to ensure that is worth the asking price. You have to pay the costs and are unlikely to receive a copy of the report unless you ask for it. The valuation will not include a structural survey, but a full structural survey will include a property valuation, so it is worth asking your mortgage lender if they would be willing to accept a full survey to cover both situations. It may save you money, as valuations cost approximately £125 for a £50,000 property and £165 for a £100,000. Once the valuation is agreed your mortgage lender should agree to lend you the mortgage.
After the Survey
You should send a copy of the completed survey to your solicitor and arrange to meet to talk through the findings. You may be able to ask for a price reduction based on repairs that need to be made to the property or you might decide at this stage to walk away.
Assuming all is well, the solicitor will carry out searches on the property (allow at least £60 for fees), checking for planning applications with the local authority, whether there are plans in place for new buildings or roads near the property and that the property has been registered at the Land Registry (there may be a problem proving who owns unregistered properties).
Assuming the checks all come out fine, you should negotiate which of the fixtures and fittings in the new property will remain after the sale. Your solicitor will finalise the details of the contract with the seller’s solicitor and will confirm the mortgage details with your lender. At this point you pay the deposit into the solicitor’s bank account and he or she holds it until the exchange of contracts.
On the agreed day, your solicitor exchanges contracts with the seller’s solicitor and sends over your deposit. The date of completion is agreed. At this point your solicitor will also contact your mortgage lender to confirm that the mortgage will be available on the completion date. After this your solicitor will complete the property transfer deed, get it signed by you and the seller and leave it with the seller’s solicitor until completion.
On the day of completion your solicitor will transfer money in exchange for the transfer deed, Land Registry information and the keys to your new home. The sale is now completed.
They will also arrange for the transfer deed to be stamped, pay the Stamp Duty (currently 1% of the value of properties worth more than £125,000, rising to 4% on properties valued over £1m) and send the transfer deed to the Land Registry to record you as the owner of the property (this fee is £100 for a property costing £100,000). Then the solicitor passes the deeds to your lender to act as security on the loan.
Finally, the solicitor will send you a bill for his or her services. The cost of this depends on the complexity of the sale and what was required. For example leasehold deeds (for flats etc.) are often very complex and need specialist legal knowledge to understand and negotiate.
Once you own your own home you will need to have building and contents insurance to safeguard your possessions. This is often one of the conditions of your mortgage. Arrange your insurance to begin on the day of completion so that you are covered during your move. If you are moving into a block of flats check whether there is a joint insurance scheme you can join. Shop around for deals and pay close attention to what is and isn’t covered, you might not want to pay extra for cover you don’t need.
Legal expenses insurance can prove very useful if you need to sort out a legal issue regarding your home. It is often included in buildings and contents cover, so check it out before you decide on your insurer. In the same way, Mortgage Payment Protection Insurance (MPPI) can insure you in case you are unable to meet your mortgage payments through illness or losing your job. Be aware that many schemes don’t cover part-time jobs, temporary work or some self-employed roles.
Most mortgage lenders will require you to take out life insurance once you have a mortgage. You should also draw up a will. Life insurance covers your mortgage payments in case you die before the mortgage is paid back. Some useful cover to include in life insurance is ‘terminal illness benefit’, which still pays out if you are ill for a time before you die, and ‘waiver of premium’, which covers your life insurance premiums if you become ill or unemployed and can no longer manage the payments. If you have a repayment mortgage, look for ‘decreasing term assurance,’ which will take into account the fact that you owe less over time. A ‘level term assurance’ is useful for interest-only mortgages, where you aim to repay the mortgage as a lump sum at the end of the mortgage period.
Once you have moved through each stage of the process, the last thing to do is move in and enjoy your new home.