Buying a property is a massive financial commitment. Follow these tips and it should all go relatively smoothly!
Get a deposit together
The days of 100% mortgages are long gone. If you want to get buy a property, you’ll need to have a deposit in place besides the mortgage.
If you’re just getting started with getting a deposit together, then perhaps going for a regular saver is the best bet for you. However, if you really want to build up a stack of savings to help pay for your property, then you really should make use of your ISA allowance. All of the interest you earn is completely free from interest, so you’ll build up your deposit a bit quicker!
Sort out your budget
While you’re getting your deposit together, it’s a good idea to do a few sums to ensure you know exactly how much you can afford to pay each month on a mortgage.
The easiest way to do this is to use an online calculator, such as this budget calculator from the FSA.
- Fill in as much as you can to make sure you cover all the angles. Add up all your regular monthly outgoings, such as your food, water, gas and electricity, phone and broadband bills, as well as any credit card debt or loan repayments.
- Don't forget to factor in the costs most people forget, such as the amount you spend going on holiday each year, how much you spend going out, what you spend on clothes and toiletries or any other regular treats you like to enjoy with your hard-earned cash.
- You'll need to set aside a small budget for insurance costs that come with a mortgage. For example, buildings insurance is a mandatory requirement, but also it's also a good idea to take out life insurance if you're buying jointly with a partner. Otherwise, your partner will be responsible for 100% of the mortgage payments should the worst happen to you. If he/she is then unable to afford the mortgage alone, the home will then be repossessed by the mortgage lender at the worst possible time I can imagine.
- The good news is, life insurance is pretty cheap - typically around £15 a month for a 35-year-old non-smoking man who wants £200,000 worth of cover for 25 years. Small price to pay for peace of mind, isn't it?
- Similarly, you may want to consider income protection insurance, which will provide you with a regular income if you become unable to work through illness or an accident. And, of course, home contents insurance is always a good idea to protect your valuables. Always pay upfront with insurance - never pay monthly, or you'll typically pay a 10% premium. Use a 0% on purchases card if you need to spread your payments, and that way you can pay monthly and you won't be charged any interest.
Once you know your incomings and outgoings, you're left with the maximum sum you could afford to put towards your mortgage payments each month. But even though you could, in theory, afford to get a mortgage that big, it's unwise to plan to put this entire sum towards the mortgage. You need to cut yourself a bit of slack, just in case there are any extra costs or bills you haven't yet thought of.
Research the mortgage market
You can do all the leg work yourself and contact all the lenders or you could speak to a mortgage broker, and use their experience and knowledge to help you out.
Whatever option you go for, you can use the lovemoney.com mortgage centre to check out the best deals in the market for your circumstances. And if you need help or advice at any time during the process, our mortgage team are available by phone, email or instant messenger to provide some independent, fee-free guidance.
Get an Agreement in Principle
This is a credit search on your name and address, and it will identify whether the mortgage lender will - in principle - agree to lend you the money you want to borrow.
You can usually get a certificate to prove that you have done this and it has been accepted. This is beneficial as you can show it to an estate agent to demonstrate that you can afford (and get) a mortgage immediately, which should put you in a strong position as a buyer.
It's important to remember at this stage that you don't want too many credit searches, as this can affect adversely your credit rating. So don't make multiple applications for multiple deals. Figure out which deal is the one you want, and apply only for that deal.
Start searching for the property
Only at this stage should you really start properly hunting for your dream home.
Make sure you look online, as well as registering with a few local estate agents. A good agent will talk to you and try and identify what type of property you're looking for and as soon as they come on the market you should get a call from them to go and view it. It usually doesn't go onto the website until the following day, so you may be the first people though the door.
Making the right offer!
Working out just how much to offer can be a tricky task, no matter how easy Phil and Kirstie make it look. Before you even think about putting in a bid for a property, you have to know just how high you are willing to go to secure the property. You also need to be prepared to walk away if you can’t negotiate the price down sufficiently.
Emphasise your advantages
Don't ever forget that, as a first time buyer, you're in a powerful position. You have no chain below you and you already have your agreement in principle. So you can offer a speedy completion instead of a higher offer. Often, owners will agree to this because they don't miss out on their dream home also.
The context of the sale
It’s not just the property itself which will dictate what offer the vendor is likely to accept, but the back story as well. Why is the property on the market? How long has it been on sale for? Are there other offers already in place? Have previous negotiations fallen through?
If the property has been on the market for a while, you’re more than justified in going in low initially, similarly if the vendor needs to sell quickly, perhaps to reunite with family in another part of the country, there will certainly be some room for manoeuvre.
Do your research
Don’t just leave it to the estate agent to tell you how much properties in the local area have been selling for – get online and do some research of your own. The Land Registry is obviously the best place to start, but there are dozens of sites which will give you a similar rundown. And if the sold figures are markedly less than what the vendor is asking for, make sure you find out just why they think their property is so special.
Buying the home
You need to settle on which mortgage you want ASAP. Then, your broker will typically ask you for to provide documents, for example proof of identification ( passport or driving licence), proof of residency (utility bill, credit card/bank statement) and 3 month's payslips. This will then be sent to the lender.
Once you apply to the lender they will do a basic valuation on the property which usually you have to pay for. This isn't a survey of the condition or structure of the property. It is purely a valuation to establish on the saleability and value of the property for the lender, not for you.
That's why it is usually wise to opt for a slightly more expensive 'Homebuyers' report'. This report will assess the condition of the property and the estimated cost of rebuilding it for insurance purposes. It usually only costs a few hundred pounds more than the valuation, and is often well worth it for the peace of mind it brings, if nothing else. The only possible exception is a new build property with guarantees on its workmanship and appliances.
You will now also need to instruct your solicitor. The estate agents will probably recommend a solicitor they work with but it's always a good idea to have a shop around. Use a site like Compareconveyancing.com to compare quotes or ask friends and family for some recommendations.
It's always best to use a solicitor who has a "no sale no fee" policy, as you don't want to paying for all the service if the house purchase doesn't go through. And bear in mind you will usually need to hand over about £250 upfront to instruct the solicitor.
You should also by now be setting a timescale for when you want to complete on the purchase. If you are renting, you may want to do it closer to the end of a month so you don't waste a rental payment.
Completing the sale
Your solicitor will tell you when you will have to 'exchange contracts'. This is when you will need to have your deposit ready and with the solicitor. Until this point, you can change the offer or pull out - and equally, the seller can refuse the offer that's already been agreed, or put the price up. After this point, your transaction is 100% legally binding. If you pull out after exchange of contracts, you will lose your deposit. If the seller pulls out, he or she will have meet all your costs.
After that, you need to complete the purchase transaction. This is the day you get the keys and legally take on ownership of the transaction. It is also the day the mortgage lender hands over the cash you are borrowing to the seller.
It's wise to set the exchange of contracts and the completion of the purchase at least a week apart, just in case there are any last-minute delays. Also, make sure that you have sorted out your buildings insurance and it is in place on the day of the completion of contracts, as otherwise your mortgage lender will not lend you any money!
Buy a property at an auction
The first thing you should do if you're looking to buy at a property auction is to request a catalogue. This will include a list of properties up for sale, together with detailed information and guide prices for each lot.
If you find a property you're interested in, go and see it! Only by viewing the property can you find the true meaning of ambiguous catalogue terms such as ‘in need of upgrading' and ‘in poor decorative order'.
The catalogue will usually publish a viewings list, where you can go along to view the property at allotted times closer to the auction date.
Getting your money sorted
If you're not fortunate enough to be a cash buyer, then you'll probably need help from a mortgage lender.
Some people mistakenly believe that just because a property is sold at auction, you won't be able to get a mortgage on it. This is not true. However, all lenders in England and Wales require you to have a survey and valuation completed before they will lend you any money. They also require certain legal checks to ascertain ownership of the land. And this means you will have to shell out hundreds of pounds in fees.
With a normal sale through an estate agent, you would only do this once your offer has been accepted by the seller. With an auction, you have to shell out these fees before the auction, as once that hammer falls on your bid, you are 100% committed to the purchase and must have your finance in place.
Checking the small print
Before the day of the auction, your solicitor should request a legal pack from the auctioneer. This should contain all the legal documents for the property, including its entry on the Land Register together with other legal searches required by the mortgage lender (for example, the environmental and local authority searches). These are required because they can reveal problems which affect the value of the property, so even if you're a cash buyer I'd highly recommend you look over these carefully.
The pack should also include any ‘special conditions' relating to the sale. It is absolutely vital that you read these, as they list specific details which fall outside the general conditions of sale.
This can be anything from a shorter completion date to the seller requiring the reimbursement of part or in some cases all of their legal fees. The last thing you want in a no-nonsense auction is to suddenly be surprised with additional costs because you didn't take the time to read them.
The packs cost around £15 per copy or can also be viewed for free on the day of auction.
The bidding process
If you're looking to make a purchase, you will need two forms of identification to prove your name and address, together with your chequebook to pay the deposit and any auction fees.
When you arrive, the first thing you should pick up is an ‘addendum sheet'. This includes any amendments and additional information to the properties listed in the auction.
Read this very carefully, as some changes listed are far from minor. If you can't make the auction in person, you can always make a proxy bid or bid over the phone. Details of how you can do this can be found in the auction catalogue.
Once the bidding starts, it's very easy to get carried away, especially in such an intense atmosphere. Try not to be intimidated, but whatever you do, don't be tempted to bid more than you can afford or higher than the valuation of the mortgage lender. In the heat of the moment, raising your hand for just one more bid can end up snowballing into thousands of pounds.
Auction virgins are advised to sit in on a few auctions to get a feel of the atmosphere. Once you've gained an idea of what to expect, the actual process of completing the sale is simple, transparent, and final.
Buying an overseas property
Picking the right property
Just because you had an amazing holiday one year doesn't mean that it makes sense to buy a home there. Could you do something more sensible with your hard-earned cash? How quickly will you get bored with going back to the same place every year?
Step back and analyse all your motives rationally, rather than emotionally, before you sign on the bottom line.
Do your own research
If you're buying a new-build property, check out the developer - how long have they been around, any disgruntled buyers in previous developments, how secure is your deposit if they go bust before handing you the keys?
For any property, how much are the local acquisition costs....legal fees, stamp duty, taxes? Likewise disposal costs, including local capital gains tax rules? And if you'd like to build a swimming pool, or put a helipad on the roof, what are the local planning regulations?
And do you know exactly how much it will cost to maintain the property each year?
El Cheapo Airways may fly direct to your glistening swimming pool now, but what happens if they drop that destination from their schedules - how much further will your connection have to be?
And how often do you plan on escaping to your foreign idyll? If it takes most of a day to get there - and back again - the alluring image of long weekends in your own rural French love-nest may not turn out to be quite that romantic after all.
Get the sums right
you're exposing yourself to currency risk, allow a significant cushion for any exchange movement. Repaying a foreign currency mortgage out of your Sterling income now may look fine, but what if there's a 10%, 20% or even larger swing the wrong way....will you still be able to put a hot meal on the table at home?
You can hedge your currency exposure by fixing a rate in advance, but there will be a charge for that and it's unlikely you'll be able to do that for as long as a five or ten-year mortgage.
Have an exit plan
Professional investors always have an exit strategy before they even buy an asset. You should too.
You may have fallen in love with a rural finca far from the madding crowd, and not mind being a dusty 45 minute drive from the nearest small village, but would that put potential buyers off when you decide to sell? Too close to an airport or motorway for comfort? Planning permission for 200 apartments in that field where the bulls are grazing before their next match?
Think resale, resale, resale even as you whip out your pen to buy, buy, buy. Unless you plan to own your overseas property for ever, and hand it down to successive family dynasties, of course.
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