What to consider when climbing the property ladder
1. Set a realistic budget
The first step is to understand how much money you have available with which to buy a property.
Typically, you will need at least 10 per cent of the cost saved up to use as a deposit. Depending on your personal circumstances including your credit history, the type of home you want, and the type of mortgage you want, this figure can vary.
Typically you will need at least 10 per cent of the cost saved up to use as a deposit
The UK’s average house price is currently £161,793. 10 per cent of this would therefore be £16,179. If you have a larger deposit, say 20 per cent, you are likely to be able to secure a cheaper mortgage. For an average home, a 20 per cent deposit would be closer to £32,500.
Use an online mortgage calculator to get an idea of the maximum amount you are likely to be able to borrow against your current income and expenditure. Be honest, as you don’t want to burden yourself with payments you may struggle with.
Consider whether you will want to choose a repayment mortgage, where you repay both the amount borrowed – the capital, and the interest on it; or an interest-only arrangement.
Some lenders also offer a halfway house between these options known as part and part. Bear in mind that if you choose interest only or part and part, these will be more expensive over the long term and you will still have to settle your debt at the end of your term. Interest-only borrowers need to provide evidence of an investment vehicle which will be used to repay the capital at the end of the term and there may be other restrictions on these types of mortgage.
A mortgage term is the length of time it will take for you to repay a mortgage in full, typically around 25 or more years for a first mortgage deal. The longer the term, the cheaper the monthly repayments, but most homeowners aim to be mortgage free by the time they retire.
Many lenders offer maximum terms, though some will lend over 40 years. Your age when you take out the mortgage may also have a bearing on the maximum term you can go for.
Once you have a borrowing figure, add this to your deposit amount and you have a maximum purchase price. Don’t forget to set aside some of this for furniture, décor and any appliances you’ll need to start out. If you are moving from a rental, you may already have much of this.
Don’t forget that buildings insurance will be a condition of your mortgage, so factor this in as well as solicitor’s fees, mortgage fees and any taxes such as Stamp Duty Land Tax, which applies if you pay more than £125,000 for a property. The percentage you have to pay in tax increases incrementally the higher the purchase price.[table id=1 /]
Note all of the costs down and keep track of them in your budget plan:
2. Narrow it down
Now you know how much you have to play with, research the types of property and areas in which you may like to buy. Be realistic about what you will be able to afford.
There are many property options – flats, houses, maisonettes, studios and bungalows. How many bedrooms will you need? Do you need a garden or a yard? And what about storage? Remember to consider the needs of any pets, children or other relatives – both now and in the future.
We’ve all heard the phrase, Location, Location, Location. But this really is vital. What amenities are crucial to your lifestyle? For example, if you don’t drive, where are the nearest transport links? Are there good schools close by? Is there a shop, supermarket or pub within walking distance?
3. Making choices
Once you have done a little research and feel confident about the type of home and location you want, you will need to get a mortgage Decision in Principle from your chosen lender.
This is an agreement, in principle that based on your current financial circumstances, a lender will advance you an agreed amount with which to buy a property. It can save time to have this in place before you make an offer on a property.
Choose a home
Choose a home
It is a good idea to view lots of properties. Before making an offer on a property, view it more than once. View in the evening as well as in daylight if possible, and consider taking along a parent or friend with more experience for a second opinion.
Be prepared to haggle, not only on purchase price but also what’s included in the sale. You could save money if a buyer is willing to leave white goods, carpets and window fittings behind. Don’t get disheartened if you don’t get the first property you make an offer on.
Once you have had an offer accepted, the property will be taken off the market and it is yours, subject to a satisfactory survey and contract exchange. Do not get a survey confused with a valuation. A mortgage lender will carry out a basic valuation on a property to ensure its value is likely to be enough to recoup their investment.
Choose a survey
Choose a survey
A survey is for your benefit. It ensures the agreed price offers fair value, and should help reassure you that there won’t be any repairs needed in the near future that fall outside your budget. A basic Condition Report is the cheapest option and will highlight urgent defects only. A Homebuyer Report is a little more expensive and highlights defects, as well as giving advice on repairs, ongoing maintenance and value.
A more detailed structural survey, also known as a Building Survey, is needed for large or old properties, or if major works are planned. If the survey reveals significant work is required, you may be able to renegotiate the agreed sale price. But you aren’t legally obliged to go ahead with the sale until contracts are exchanged.
Choose a mortgage
Choose a mortgage
Choosing a mortgage can feel like a minefield as there are so many options. You may wish to use an independent mortgage adviser who can help narrow down the options. But a key consideration is whether you want to fix your rate to safeguard against interest rate rises, and how long for.
Many products include flexible options such as overpayments to reduce your term, payment holidays to cover periods of reduced income, such as maternity leave, and borrow back facilities, which allow you to borrow back previous overpayments, to fund home improvements for example.
Choose a solicitor
Choose a solicitor
When choosing a solicitor to carry out the legal work or conveyancing needed to buy a property, get quotes from several providers. Don’t be afraid to ask for testimonials from previous clients. And ask friends and relatives for recommendations.
Buying a home can be stressful, so it’s important to be confident in the service you’ll receive.
You can find a solicitor and an independent mortgage adviser through website unbiased.co.uk.
Buying in Scotland
The purchase process in Scotland is a little different, because offers on a property are legally binding, and are made in writing via your solicitor.
You’ll need to research the market thoroughly before you think about making an offer on a property. It is possible to make informal or speculative verbal offers. But you’ll need to be sure of your budget, the type of property and area in which you’d like to live, and the type of mortgage you would prefer before you can make it official.
It is worth seeking advice from estate agents and an independent mortgage adviser before arranging any viewings. It could also be useful to have a Decision in Principle in place. But you must instruct a solicitor through which you will make any offer. This decision is crucial as the onus is on you as purchaser and your solicitor to thoroughly look into a property. Make sure you are 100 per cent happy to buy. You may wish to arrange a survey prior to making an offer.
To formally indicate your interest in a property, your solicitor will send the vendor’s estate agent a ‘note of interest’. But a full offer comprises a proposed purchase price, a list of any items you’d like included, like furniture, fixtures and fittings, and a preferred date to move in.
A seller may choose to take the sale to a ‘closing date’. This happens when there is more than one party interested in the property. Offers in these circumstances must reach the vendor’s estate agent by a specified time and day.
The homeowner will arrange for their estate agent to contact the successful buyer’s solicitor to accept the chosen offer. This won’t necessarily be the highest in monetary terms and there is no obligation on the seller to accept an offer. There may be some negotiation between the two parties.
Once an offer is accepted, you must arrange your mortgage and insurance. Ensure you sign any paperwork in a timely fashion to avoid delays. Remember, the date of entry will have been agreed with the seller as part of your offer.
Formal contracts or ‘missives’ will outline the full terms of the sale and once these are exchanged between the parties’ solicitors, both buyer and seller are bound by them.
4. Make Arrangements
The purchasing process can take weeks or months, depending on whether there is a chain involved in the sale.
This gives you plenty of time to arrange things like life insurance. This is needed to ensure that your partner or spouse and any dependants can pay off the mortgage should anything happen to you.
You will also need buildings insurance as a condition on your mortgage, and you may wish to insure your contents also.
If you have furniture to move, arrange how you will get this to the property on completion day. Get several quotes for each of these and ask for recommendations from people you trust.
Once you agree a completion date with the seller or vendor, you can also give notice where you are living and arrange to make your deposit monies available to transfer.
4. Sign on the dotted line
Once contracts are exchanged you are legally committed to the sale. You need to sign the contract and have this witnessed.
Your deposit will be paid and held by your solicitor. On the agreed ‘completion date’, you will be able to collect the keys to your new home.