How to play the property game: Ten steps to buying your first home
Getting on the property ladder isn't as easy as board games like Monopoly would lead you to believe.
There is more to it than deciding whether you like Old Kent Road better than Mayfair and just handing over some notes to the bank manager.
In real life there is a whole chain of people and events that need to be overcome before you can pass go and get the keys to your home.
We run through ten vital steps you need to know about buying a property below.
Don't pass go: There are several stages to buying a property
Set a budget
Knowing how much you want to spend will help you narrow down the type, size and location of a property.
According to the Land Registry's monthly figures, the average house price in England and Wales is £164,654, while the Council of Mortgage Lenders says the average deposit for a first-time buyer is between 17 and 19 per cent of the property value.
If you were to put down a 20 per cent deposit on a £164,000 property, you would need around £30,000. Average first-time buyer homes tend to be cheaper, however, and the CML's figures suggest the typical new homeowner puts down £26,000 deposit on a £142,000 home.
Prices do vary not just across the country but from town to town, so you may find it cheaper to find a property just outside where you first start looking.
You will also need to budget for mortgage, solicitor and conveyancing fees, as well as being able to afford the monthly mortgage repayments and other household costs.
Decide who you want to live with
It may be easier to manage these costs by buying a property with a friend, relative or partner.
Depending on your relationship with whoever you buy a property with, you will need to think about the structure of ownership.
Typically couples own their home as joint tenants. This means that both own the whole of the home.
You could also set up a tenants-in-common arrangement where each party owns a set share - this can either be half each, or a defined percentage. This is useful when one half of a couple puts in a bigger share of the deposit than another and wants to protect that should they split.
If you own your home as joint tenants, then if one partner dies, the other automatically becomes the sole owner of the home.
With tenants in common one member of a couple can pass on their share of the home on death, say to their children, while the other member of the couple can continue to live there, passing on their half on death.
If you move in with a friend you may need to get a legal contract drawn up to record not just the names that the property is in but how much each person has put forward.
This can help avoid problems if someone moves out or if the property is sold.
Disputes: It is important to get property ownership in writing to avoid future disputes
Find a property
You will be able to set a budget and location and can then arrange your viewings through the estate agents listing on the sites.
Estate agents work for the seller, who pays their fee, and will try to get their property sold at the best possible price.
When you have found the property you want, you typically make your offer to the estate agent who passes it on to the seller and will handle the negotiations.
It also pays to think unconventionally and set your sights further than estate agents.
If there is an area you have your heart set on, you could post notes through letter boxes to see if anyone would be interested in selling. This will turn up those who may have thought of selling but not acted and help them avoid estate agent fees and could save you money
You can also find a property through an auction. Properties may go on auction if they have been repossessed or if a landlord is looking to offload them quickly.
This may not be the cheapest route as you could get drawn into a bidding war that pushes the price up, and there will be auctioneer fees to pay as well as the usual legal and stamp duty costs.
If you don’t like any properties you have seen, there is also the option to self-build. There are websites and developers who can help with this and the set up costs are steep, but it can work out cheaper in the long run, although the process will be hard work.
Make an offer
Once you have identified the home of your dreams, it is time to make an offer.
WHEN SHOULD I GET A MORTGAGE?
You could either apply for the mortgage before finding the property, and get a mortgage in principle, or after making an offer.
David Hollingworth, of broker London and Country says: 'Once you know the budget you can research what type of mortgage may be in reach. It is possible to get an agreement in principle but it’s important not to ratchet up too many as the lender will be carrying out a credit check and too many can have a negative impact on credit score.
'They also don’t give a guarantee that the lender will be prepared to lend aside from the fact that what looks like a good deal now may have disappeared by the time you’re ready to proceed. Speaking to an adviser may be an alternative way to gauge whether the amount you want to borrow is realistic.'
This is where things can get tense and it is good to be armed with as much information as you can.
According to RightMove, while sold house prices can help give an idea of recent sales, it's better to see what the competition is like now.
If there are any faults or repair work required, use this to justify a lower offer. In tougher times when there are fewer buyers, sellers may be more willing to negotiate on price.
If you are buying a new-build there may not be much wriggle room if the developer thinks that someone else will come along and want the property too, but if they are keen to offload it then they may strike a very good deal to get it off the books. It is always worth negotiating.
This is the time to keep an eye on your budget and do your research so you know what type of prices other properties in the area have sold for.
If you are buying through estate agent, you make the offer to them and they are obliged to pass it on to their client, even if they claim the seller will never accept it and it is too low.
In most cases the estate agent will do the negotiating backwards and forwards between buyer and seller, but it may be worth trying to speak directly to the seller to gauge their thoughts first-hand.
If you are buying off someone else, the chances are that they are in a chain with another property they are trying to buy. It is in their interests to sell so that they do not lose out on their property. This gives you some bargaining power and they may even be able to negotiate money off further up the chain to get the price down for you.
Your bargaining position will also depend on if there are other people interested in the property and how rushed the seller is to move.
Look out for gazumping, where a seller accepts one offer before taking a higher bid. This can be avoided by asking for the property to be taken off the market once your offer has been accepted.
There is also a trend for gazundering, where buyers reduce their offer close to exchange of contracts.
If your offer is accepted, you should ask for the property to be taken off the market immediately.
Once the offer is accepted you will need to arrange a mortgage, or carry on the application if you have one agreed in principle. You will also need to get a valuation and legal work completed.
Find a mortgage
Mortgage rates have fallen to record lows over the past year thanks to the Funding for Lending scheme.
You can now get a two-year fixed rate for 1.48 per cent and a five-year fixed rate for 2.59 per cent.
Those with a small deposit can also access the government’s Help to Buy scheme with a 5 per cent deposit. This has two parts, an equity loan that is interest free for the first five years, and a mortgage guarantee from the government.
You can apply for a mortgage direct though a bank or building society, or use a mortgage adviser who can do a more comprehensive market-wide search. Advisers often have access to exclusive deals. This is Money broker partner London and Country offers fee-free mortgage advice.
You should also do your own research for deals on the internet and read up on where rates are now and the kind of deals that are on offer. A good starting point is This is Money's What next for mortgage rates? round-up.
Be careful about estate agents that insist on you using their broker as a condition for buying a property. The estate agent may claim that its broker will get things done faster than if you went direct. This may be true in busy areas such as London or for a very popular mortgage rate. However, a mortgage is probably one of the biggest financial transactions you may ever make so it is important to be in control of it.
Getting a mortgage agreed in principle at the start of the process can show a seller and the estate agent that you are serious about a transaction.
It strengthens your offer by showing you have taken steps already to secure finance and will be able to act quickly.
Most mortgage offers last between three and six months after being agreed in principle. You do risk missing out on better deals, but you can always cancel the mortgage in principle if a better offer comes along.
The mortgage lender will require proof of income and ID, typically three of the latest payslips, three months bank statements, and a P60 but there could be other requests such as proof of deposit.
It is not always best to go for the lowest rate or lowest deposit. A low rate may be accompanied by a high fee, while a low deposit mortgage may have a high rate. It is important to get the right balance between rate, fee and deposit so you are getting value for money.
Use our This is Money's true cost mortgage calculator to work out the total amount your mortgage would be.
You will need to budget for:
- Mortgage fees
- Stamp duty
- Legal fees
- Valuation fee
- Survey cost
- Moving costs
- Building and contents insurance
- TV, phone and broadband
- Council tax
The lender will want to value the property itself, so it knows what it is lending money against and that it will get it back if you fail to repay your mortgage.
This may involve a cheap drive-by valuation, a surveyor going round the house quickly, or can be done in conjunction with a more expensive detailed inspection.
Some banks and building societies offer valuations for free as a part of the mortgage.
Get a survey done
Once you have had an offer accepted, you will need to get a survey done of the house.
A lender's valuation is no real substitute for this, as a survey will tell you about the condition of the property and the essentials you need to know.
Depending on your budget and how much you already know about the property, there are different forms of survey you can get.
The results of these surveys will also give you an indication of whether your offer needs rethinking and may get you a discount.
There are four types of survey: the basic valuation, a condition report, a homebuyer's report, and a full buildings,or structural survey.
Instruct a solicitor
OTHER COSTS TO CONSIDER
It is not just a deposit you have to save for. There will also be costs from the lender for arranging the mortgage which can run into thousands of pounds.You should take this into account when considering a low rate as it may be outweighed by a high fee.
One big cost when buying a home is stamp duty. This was previously levied slab style, but was changed after the chancellor's Autumn Statement in December 2014.
Buyers now pay stamp duty progressively based on how much over a threshold their purchase is.
From December 4 2014, bands are now 0% up to £125,000; 2% to £250,000; 5% to £925,000; 10% to £1.5million and 12% above that.
Previously you would have paid a percentage on the entire purchase price.
Under the new system anyone buying a home costing under £937,000 should pay less or the same, Treasury figures show.
Those buying a £200,000 home will pay £1,500 instead of £2,000. The big win though is for those previously caught in the 3% tax trap, someone previously hit with an £8,250 bill on a £275,000 home will now pay £3,750.
Meanwhile, those buying a £600,000 home will now pay £20,000 in tax, compared to £24,000 before
You will need a solicitor to get your purchase through and provide a legal record of the property transaction. This involves checking the Land Registry for any other claims and issues with the surrounding area and registering and agreeing on the ownership details.
The solicitor will also handle the transfer of the funds to the bank for your deposit and can facilitate the payment of stamp duty. You can also pay stamp duty direct to HMRC.
According to Zoopla, legal services can cost between £600 and £1,000, although complicated cases could prove more expensive. Some lenders provide it for free. You should try to agree the amount upfront.
Exchange of contracts
Your solicitor will liaise with the seller’s legal representative to put the terms of the property transfer in writing. This will set out who the buyer and seller is and how much the property will be purchased for.
Once terms have been agreed, the contracts will be exchanged, at which point both sides of the deal are legally bound to go ahead with it on the terms agreed and a completion date will be provided.
When the time comes to exchange contracts, the buyer must put down a deposit, typically this is 10 per cent of the purchase price. If they pull out of the deal they forfeit their deposit, if the seller pulls out then the buyer can sue them for compensation.
Once contracts have been signed it is very difficult for a buyer to back out.
You will almost certainly be responsible for the buildings insurance for the period between exchange and completion. This period can be anything from a day, weeks or a couple of months depending on other buyers and sellers in the chain.
Completion - the day you get the keys
Congratulations, you now officially own your own home. Your solicitor will have finalised the completion date and all the legal paperwork will be complete for you to be the owner on the relevant date.
You will be able to pick the keys up from the estate agent or direct from the seller.
All you have to do now is move your stuff in.
You will also have to pay moving costs to get your belongings into your new property. If you use a removal man or rent a van yourself, you could spend around £300 to £600.
READ THE NEXT PROPERTY GUIDE
On the hunt for a home? What to think about when choosing a property: the six step guide
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