Buying a new house can be a daunting process whether you are a first-time buyer or a seasoned pro! This blog offers a guide to help you navigate the process of getting on the property ladder, end-to-end. There are 6 key stages.
How much can you afford
Before you start house-hunting, it’s a good idea to work out what you can afford to spend on buying a house or a flat and your monthly mortgage payments. Use our on-line mortgage affordability calculator to work out how much you might be able to borrow.
Think about all the costs
Consider how you’ll cope if your financial situation changes, or interest rates rise, and be careful not to overstretch yourself.
Remember, your savings will have to cover not just the deposit, but expenses such as mortgage fees (typically anything between £0-£2,000) and Stamp Duty on properties costing more than £500,000 in England and Northern Ireland. In Wales, you will need to pay Land Transaction Tax on properties over £250,000.
Choosing the right mortgage
It’s never too early for you to start thinking about arranging a mortgage as this can be time-consuming if you do it yourself. You can get a mortgage from a lender directly or through a mortgage broker. If you use a broker they will work with you to understand your situation, your financial goals and objectives before making any recommendation.
Remember to ask your broker or adviser whether they are independent and whether they cover the ‘whole of market’. Once you’ve found a mortgage product you like, agree to it as a mortgage ‘in principle’. This tells you how much money the lender is likely to offer and the interest rate you’ll pay. You might have to pay a booking fee to reserve the mortgage product you want.
Check your credit report
Before you apply for a mortgage, check your credit report for any errors and to get an idea of your score. Once again, a good mortgage advisor can help you do this. Lenders will look at your credit score when considering your application so it is best to find out what this says beforehand.
Make an offer
Once you’ve found a home you want to buy, the next step is to make an offer, usually through an estate agent. You only pay for an estate agent if you’re selling a property. The fees estate agents charge the seller usually range from 0.5% to 3%, plus VAT, of the selling price.
Arrange a solicitor and surveyor
The surveyor will survey the property to check for problems, which might affect the cost of the home.
The solicitor will handle the legal work around the property and tell you how much you can expect to pay. They might ask for a deposit upfront – this is typically 10% of their fee.
Typical cost: £500 – £1,500 + 20% VAT
Your solicitor submits searches to the local council to check whether there are any planning or local issues that might affect the property’s value.
Typical cost: £250 – £300
This survey is done by the lender to make sure the property is worth the price you’re paying before they approve the mortgage. It is not an extensive survey and will not identify all the repairs or maintenance that might be needed.
Typical cost: £150-£1,500 depending on the value of property.
Some lenders might not charge you for this, depending on the type of mortgage product you select.
Homebuyers who didn’t have the right survey faced a £5,750 bill on average after moving in, according to the Royal Institution of Chartered Surveyors (source: RICS).
You should ideally commission a survey on the property to help you avoid hidden costly problems in the long run. It’s your property, so it’s in your interest to pay for a decent survey at this stage. It can also help you to renegotiate the price.
For example, if the survey reveals a problem with the home that will need £5,000 to pay for repairs, you could ask the seller to lower the price by that much.
There are 3 main types of survey available:
- RICS condition report – basic ‘traffic light’ survey and the cheapest. It’s most suitable for new-build and conventional homes in good condition. No advice or valuation is provided in this survey. Cost is about £250.
- RICS homebuyer report – suitable for conventional properties in reasonable condition. This is a much more detailed survey, looking thoroughly inside and outside a property. It also includes a valuation. Typical cost around £400+.
- Building or structural survey – the most comprehensive survey and suitable for all residential properties. It’s particularly good for older homes or homes that might need repairs. Typical cost could be more than £600+.
Finalise the offer and mortgage
Once the survey is complete you might want to go back and renegotiate the price of your new home. There are two reasons for this:
- Your survey might uncover problems with the property that will be expensive to fix. You can use this information to ask for a reduction in price.
- The lender might value the property at a lower price, leaving you with a shortfall. This means you won’t be able to match the asking price or what you originally intended to offer.
It’s this stage in the process that is often most stressful. Delays and problems can arise from such situations as:
- your mortgage application being rejected
- the seller withdraws the property from the market
- the seller accepts a higher offer from another buyer (known as ‘gazumping’).
Communication is important if things go wrong
- A good mortgage advisor can be invaluable during these stages.
- When problems occur, it’s worth making the effort to stay in touch with the seller via your solicitor and estate agent.
- It’s often possible to rescue the situation by keeping the lines of communication open.
Finalising your mortgage
If everything has gone according to plan, contact your lender or mortgage adviser to proceed. There is often a fee, usually called an arrangement fee, to set up the mortgage. This can be added to your mortgage, but if you choose this option, bear in mind you’ll pay interest on it for the life of the mortgage.
After you have received a binding mortgage offer, your mortgage lender must give you at least seven days to think about whether or not this is the right mortgage for you. You can use this time to compare this offer with other mortgages. If you’re sure that this is the right mortgage for you, you can let the lender know in less than seven days that you want to go ahead.
It’s still not too late to change your mind
It is better to pull out rather than risk buying a property that might cost you more than you can afford in the long run. If you decide not to buy, you can pull out and cancel your mortgage application before you have exchanged contracts, but you might lose some of your money depending on how far you’ve gone in the process.
If there are no problems or delays, then you should receive the contract to sign and complete the sale. Before signing the contract, go through it with your solicitor to check that all the details are correct. Make sure you’re happy with what the sellers have agreed to leave in the property and that all your queries have been answered.
At this stage, you and the seller are committed to the sale. The seller might also ask you to pay a holding deposit – typically £500-£1000 to show intent. Once you’ve exchanged contracts you’ll need buildings insurance in place to cover the structure of the property.
Completion and final steps
The remaining money owed to buy the property is now transferred from your solicitor’s account to the seller’s solicitor’s account. Since some of the money comes from the mortgage provider there will be a money transfer fee.
You might also have to pay a mortgage account fee. The lender charges this fee for setting up, maintaining and closing down your mortgage account. It’s often added to the mortgage, which means you’ll pay interest on it, so consider paying it upfront instead. Cost: £100-£300.
You’ll now need to pay your solicitor’s bill (minus the deposit and local searches if you’ve already paid them). Your solicitor will register the sale with the Land Registry for properties in England and Wales.
Sellers will need to pay their estate agent on completion. The fee is agreed at the outset and is typically a percentage of the purchase price, usually 1% to 3% of the sale price plus 20% VAT. Buyers don’t have any estate agent fees.
Buyers of residential homes costing over £500,000 (until the end of June 2021) have 14 days from the completion date to pay Stamp Duty in England and Northern Ireland. Your solicitor will usually arrange this for you. In Wales, you will need to pay Land Transaction Tax on properties.
We hope that this blog has been useful – tell us what you think in the comments below.
Ready to Talk to the Experts?
We’re here to talk through any questions you might have about finding the perfect mortgage deal for you.