Buying a house
Research what is involved
If you are new to the game then you should consider doing a little homework
on what is involved in buying a home. Hopefully most of this is covered by the
sections below, but you should consider getting some books on the subject:
These days homebuyers have a choice: they can find their ideal property themselves
or they can employ the services of an independant property search company to find it
for them. An example of one is to be found by clicking here
The basic procedure involved in buying your first property is pretty much the same as is followed by all first-time buyers, namely:-
1) Research your options regarding a mortgage. The easiest way to compare
what's on offer is online, using
a mortgage comparison site such as Money eXtra's highly regarded mortgage comparer.
Alternatively, you can pick up a copy of one of the many mortgage magazines, talk to an independant
financial adviser or approach one of the various sources for getting a mortgage directly
i.e. Building Societies, banks & specific mortgage companies. Have a meeting
with one or more mortgage advisors from these companies. They will be able to quickly let
you know whether you stand a chance of getting a mortgage or not (based on your job,
salary etc) and if so, how much you can have. By seeing several different advisors you
can gauge how much they are all trying to influence you. It is wise at this point to
also check that you will have the finances required for all of the other expenses that
you will occur e.g. the deposit (5% to 10% is the norm for first time buyers),
Solicitors fees, Surveyors fees, Mortgage application fees & removal costs.
2) If all looks well on the finances front it is now time to start looking. Most people will simply visit the Estate agents but you could also look at online house price information such as mypropertyspy.co.uk or ourproperty.co.uk. In most UK towns there is generally an area near the High Street where the Estate Agents congregate. It usually costs nothing to visit them or use any of their regular services. Ask them all to put you on their mailing list for the type of property you're after. Ah?, I suppose now would be a good time to define this!
3) Find your ideal property. If you have a range of property types that you like, or a range of areas that you'd like to live in, try to see all types and view the places objectively.
4) Once you've found the place you want you must now
call the estate agent and put in your first bid. DO NOT offer the initial asking price.
The estate agent has already put a mark-up on the property to allow for a certain amount
of leverage. A good starting point is to offer around 5% to 10% less. It is unlikely that
any first offer will ever succeed, as the estate agent will always try to squeeze the most
from you as they earn commission on the sale price. If there are several properties
you like, try making offers for all of them (except in Scotland). This is particularly
effective if the properties are with different agents! This gives you a large amount of
resistance to falling for the "oh go on then, it's only £3k more than I wanted to offer but...".
Remember that making an offer in Scotland is legally binding, so you should be carefull.
5) Once an offer is accepted it is still only accepted subject to satisfactory survey and contract-exchange (except in Scotland). This is the norm & protects you. At this point you must now do two things :-
- (A) Apply for your mortgage, supplying any evaluation fees required.
- (B) Contact a Solicitor to work on your behalf.
6) The Mortgage company will discuss the level of survey you wish to have done for the property. They will then instruct the Surveyor to perform the survey. A report is then returned to theMortgage company.
7) If the survey brought up any unexpected points now is your opportunity to renegotiate the price with the seller. A good starting point is to estimate how much it would cost to put it right now, occasionally adding a little if the work will be really incovenient (such as having the roof off for two months in winter). Although you may be happy to live with some of the problems brought up in the survey, you may find you are forced to carry out some of the work by your lender anyway, so bear this in mind
8) If the survey was successful you will need to agree two dates - one to sign and exchange contracts and another to complete the contract by exchanging money and keys. A formal offer-of-mortgage will be sent to you by your mortgage lender. Once signed you are bound to this mortgage, with hefty get-out clauses. A copy is also forwarded to your solicitor.
9) Your solicitor will now draw-up contracts for the purchase & send them to you when complete.
10) The contracts for the property are then exchanged between the two parties solicitors. At this point you generally have to provide the funds for the deposit, which the solicitor handles. A completion (moving) date is then set which may be anything from a week to a month.
11) The mortgage company now sends the remainder of the purchase funds to the solicitor ready for transfer. During this time period it is now up to you to get in contact with the Gas & Electric boards, the phone company, house-insurance company & post-office to arrange the reconnection of services etc. to the property.
12) If you are going to be dropping off your old keys on the completion day, don't forget one last check round for anything left behind before handing them over
13) On the completion date your solicitor forwards the funds to the house-sellers solicitor. On this day you may then collect the keys to your new home from the estate-agent or the seller's solicitor.
14) You move-in!
When looking for a property there are lots of things to look into. To do this properly
can take quite some time - consider using a service such as Area Check
to do the tedious work for you. The things you should check into will
have different priorities for different people, but in terms of a list, try to look at
the following :-
- (1) Required Area? Is it quiet or noisy? High council tax?
- (2) Easy to work/schools?
- (3) Near good shops/schools?
- (4) Is car parking easy?
- (5) Does the place look to be in good repair?
- (6) Is there much work that needs doing on the place? i.e. redecorating or windows/central heating or even structural work?
- (7) Will the property be cheap to heat/light?
- (8) Check on what fixtures/fittings go with the sale i.e. curtains/lights
- (9) Is the place freehold (you own the property and the land outright i.e. lots of houses), or leasehold (you own the right to live in the property for a specified time i.e. most flats)?
- (10) Are there any shared expenses with neighbouring properties (such as a private road or grounds maintenance)
Mortgages are often the main source of concern when thinking of buying property.
There are several basic types and many special schemes all designed to entice you to a certain company.
There are some helpful websites that can
walk you through the mortgage chosing maze, but the basic outline of what you should consider is below :
- How Much can I/we borrow?
- The rules of thumb that almost all lenders stick to are :-
- For a single purchaser: 3 X Gross Salary
- For a couple: 2.5 X Joint-Gross Salary OR
- 3 X Higher Gross Salary + 1 x Lower Gross Salary
- What about other fees?
- The lender is likely to charge a High-loan-to-value fee if you are borrowing more than 75% of the property cost. This may be anywhere between £200 up to several thousand depending upon property price. Note that this cost is often added onto the mortgage itself and so is not incurred in one hefty lump sum.
- Certain types of mortgage will also incur separate charges, termed application fees, for setting up the mortgage.
- What type of Mortgages can I get?
- There are basically three types of mortgage to look into.
- (1) Repayment Mortgages
This is the simplest and safest form of mortgage.
Essentially just like a large loan. This mortgage ensures that the full mortgage will be paid off
in full at the end of the mortgage period (normally 25 years).
- (2) Endowment Mortgages
This type is complex and merits
a WWW site of its own!
Endowment mortgages typically comprise two separate payments, one is the interest on the loan and the
other a premium on an endowment held with a life assurance policy (although not 100% of endowment policies have one of these). This is done so as to build
up a lump sum which aims to repay the mortgage. The risk is that after the mortgage period has
elapsed there may not be enough to pay the mortgage off. This type of mortgage is very flexible
however and is more easily added to, to accommodate house-moves etc.
- (3) Pension Plan Mortgages
This is a popular choice for self-employed people and people who cannot join company based pension schemes. It basically combines mortgage payments with pension payments. There are also various tax savings for a mortgage of this type.
There are other types of mortgage such as Investment-linked mortgages & Interest-only mortgages but they are far less common. Details of these types can be obtained from any lender.
Other mortgage choices. For any standard variable-rate type of mortgage the interest rate on the mortgage will fluctuate with the economy. It is approximately 7.5% at the present time. There are special options however to reduce this figure for a short period of time. There are basically three types :-
- (1) Discounted rate mortgages.
This rate will reduce whatever the present mortgage rate is (e.g. 7.5%) by a fixed percentage (say 2%) for a fixed pre-agreed time, say 2 years.
- (2) Fixed rate mortgages.
Fixes the interest rate that you pay for a specified time period. The reduction possible is less than that of discounted schemes but has the main advantage of rigidly setting your monthly payment for a reasonable period.
- (3) Capped rate mortgages.
Combines the above two ideas to give a slight reduction in rate under normal circumstances but prevents your rate rising suddenly. These mortgages run for a preset time period.
The only downside to any of these options is that it is generally difficult to move house in the allotted time period, and these types generally incur a fixed charge to set them up.
Note: All high-street lenders print leaflets describing house purchasing procedures and
mortgage offers & types. It is well worth getting all of these to browse through and
As a buyer, the estate agent's services to you are free. It is the seller who pays fees and service costs.
One good thing to come out of the housing market explosion/implosion of the 1980's is that estate agent's are no longer legally allowed to describe properties resembling third-world-shacks as "sought after character properties!".
The only money you may have to spend with estate-agents is leaving them a small holding-deposit (£200). This is to show good intention regarding buying the property. You do not have to do leave a cheque but it may (or may not) speed-up the buying process. The cheque will be cashed by them and sit in their bank-account until completion (earning them interest), when it will be refunded to you.
Buying a house involves lots of legal work. This is known as conveyancing. A solicitor or licensed-conveyor can do this for you. In the current poor housing market it is well worth shopping around as many are doing special deals. The solicitor will check contracts, perform local-authority & title searches, liase 100% with the seller/their solicitor and look into lease's for leasehold properties. Even for the cheapest of houses expect to pay several hundred pounds in costs, much of which you will not see the benefit of as they are hidden. If you're buying a property valued at over £60,000 you will incur stamp-duty.
When to Pay:- Apart from search fees which are paid as you go along, you pay the main costs of the solicitor just a day or so before completion.
Before buying a property a survey must be completed. The purpose of this is several fold:-
- (1) For the Lender - to satisfy the mortgage company that the property is worth the asking price, that it is re-saleable and that it will not fall down over-night!
- (2) For you - To ascertain how much work is required on the property.
These ideas give rise to three main survey types:-
- (1) Valuation for Mortgage purposes.
This is the minimum required and is purely for satisfying the lender of worth etc.
- (2) Report on condition & valuation.
Encompasses the search above and also looks at basic state of repair and condition of the property.
- (3) Structural survey.
The most thorough survey checks the property for all major and minor defects. This type of survey may take several days to complete overall as there is a large amount of paper- work to produce.
Surveyors are bound by law to tell you every detail. In full-surveys this will be pages & pages of information. This is because that if you latter find out a defect in the property that the surveyor should have found but missed, you can take legal action against them.
The level of survey that you take is dependant upon the type of property you're buying. For a fairly new property (say less than 10 years old) you probably only need a valuation. For somewhere a little older but still essentially a mainstream place a type(2) is probably wise. For old, character cottages etc a full structural survey is a must.
The cost of the surveyors fees is obviously related directly to the level of survey and the cost of the property. For a £50,000 property a basic valuation will be around £150.
The are principally three type of insurance recommended for a homeowner:-
- (1) Building Insurance.
To protect you against fire, flood, storm damage etc to
the actual building itself. This may be provided in any building-
maintenance charges levied by the free-holder for leasehold flats.
- (2) Contents Insurance.
To protect you against the loss of your belongings in
- (3) Mortgage Repayment/Loan Repayment insurance.
This ensures that if you are no longer able to pay the mortgage for some reason i.e. ill health or death, the mortgage will be paid-off in full preventing hardship to family etc. Endowment & pension-plan mortgages have this insurance built-in.
The amount that it costs to insure is dependant upon property price and area.
Copyright © 1996-99 Marc Drucod