Right, stop looking at property portals like Zoopla and Rightmove just now and let’s start at the beginning. Ask yourself a question. Why do you want to buy a house? Are you looking to put down some more permanent roots? Is it a financial decision? Or have you just watched too many property shows? If the latter is the case, my apologies as I feel partly responsible.
The fact of the matter is that to buy a house, especially your first one, is a bit of roller coaster ride. It’s a decision you shouldn’t make lightly and one that will be filled with excitement, fear, optimism, and bouts of impatience. For many it’s the first big step into the adult world, one which can provide you with a secure platform in life which also seems like a huge responsibility.
The best place to start is to do a bit of navel gazing and take a good look at your current circumstances. On a non financial basis, do you want something more permanent, the responsibility and are you in a job that offers you financial security? If you’re buying a house as a couple, get some ground rules sorted. It sounds cold but let’s dispense with the fluffy stuff – if you split up who gets to stay in the property? Can you force the other to sell their share? You can formalise this with a solicitor if you like.
Now is the time for the really boring stuff: run a ruler over your life. Here I want you to find out realistically what your monthly outgoings are against your income. Don’t just look over the past couple of months as that won’t account for the holiday you took, the weekends away or the big Christmas. These are always conveniently forgotten, and you don’t want to suddenly be facing a big bill on your car halfway through your first years mortgage that you hadn’t allowed for. Lenders are becoming stricter on monthly outgoings and affordability so ask yourself the difficult questions early. The benefit of doing it this way is that you don’t try and come up with figures that will fit your desired price range; you find out what you can actually afford in the long term.
Now you’ve got what is essentially a profit and loss account of your life, you should know how much cash you have and how much financial burden you can take on over the coming years. But don’t start looking at Rightmove just yet. Your pot of gold is now going to be eaten up by all sorts of annoying things to make it shrink rather disappointingly. In addition to mortgage arrangement fees and surveying costs (although many lenders let you add these on to your loan) you will have conveyancing (solicitors) fees along with the dreaded stamp duty. It’s a bit of a chicken and the egg scenario, as you’ll be unsure how much money you need to put by for stamp duty without knowing how much you can borrow, and therefore how big your budget is.
Mortgage Brokers and Banks
So, your next stop in most cases is a mortgage broker or your bank, and if you have time, both. The advantage with a broker is that they will look at the market place on your behalf to suss out the best deals ideally suited to you. A broker will also go through all the affordability checks mentioned before and will be a good second pair of eyes over your personal finances.
Based on the information you provide (and you’re best to be totally candid) they will be able to tell you what lenders might be interested in providing you with a mortgage, the costs associated with that product and your monthly outgoings in terms of servicing the mortgage. But, most importantly, they’ll tell you what you’ve been aching to find out- if you’re in a position to buy a house and how much you have to spend. All being well, following a successful session online, or meeting with a broker or bank, this should lead to you receiving an Agreement In Principle (AIP) from a lender. You are now a potential first time buyer.
Government help for first time buyers
If they’re any cop at all, your broker should’ve told you about the various schemes the government is running in order to help first time buyers. Even if you can afford to buy straight away they’re worth a look.
Help to Buy ISA
If you’re looking to buy a house to live in yourself up to £250k (£450k London) the government will top up your savings by 25% ( up to max £3K). If you’re buying with someone else, they can also get a similar ISA, doubling up on your free cash!
Help to Buy Equity Loan
This is basically a low interest loan towards your deposit for purchases up to £600k in England and £300k in Wales. If you can raise a 5% deposit the government will give you an equity loan of up to 20% interest free for the first 5 years (then 1.75% from year 6 onwards RPI linked). You’ll then need a mortgage of up to 75% for the rest of the purchase. Even better deals are available for Londoners – let’s face it, you’ll need them.
Help to Buy Mortgage Guarantee
Lenders can purchase a guarantee on mortgage loans enabling them to access larger loan to value products, ostensibly letting you buy a house with a 5% deposit.
It allows you to buy a share of 25-75% of a house through a housing association and pay rent on the portion you don’t own. Personally my least favourite of the 4 options, as your monthly outgoings are the same as if you purchased outright but you will have a limited market to sell it on to, as there are less people in the market place who want to buy into a shared ownership scheme. For more information go to www.gov.uk/affordable-home-ownership-schemes
The thresholds have been now blended for Stamp Duty but basically you’ll pay nothing up to £125k, 2% for purchases between £125,001 -£250,000 then a further 5% on the portion from £250,001-£925,000. But if this is too complicated there are loads of stamp duty calculators online.
The big issue here is that this charge cannot be added to a mortgage- you need it in hard cash, which comes out of your deposit. If you’re struggling it’s worth bearing in mind that some developers of new developments may offer to pay the stamp duty on your behalf, but you should realise you’re probably paying for it elsewhere in the overall figure.
Buyers in general are often at odds with what they would like from their new home and what their budget will buy them- or as I like to call it, reality! First time buyers have an even tougher time of it as they also have competition from second home buyers and investors that push the prices further from reach. Initial online searches through property portals will give you a good idea of what’s out there for your money. Most of my clients start searching for their ideal property in their preferred location, and then very quickly realise they need to broaden their search area.
The best way of starting your search is something I do with all of my clients. Sit down and write a list of what you want from the property. There is always a trade off between location and the size of the property. A good location will always be in demand from buyers like yourself, but the extra space (i.e a bedroom) from a larger property further out could give you financial flexibility if you need to rent a room out in the future- as well as allowing the property to grow with you. With the way mortgages are at the moment, many will be tempted to fix their mortgages for up to 5 years. Therefore, make sure the property will be suitable in at least the medium term.
Buying property is a highly emotive matter and your first home is a very exciting prospect. From the outset try to look at the house as money and space. When searching on portals get into the habit of a 1,2,3 process.
First look at the location of the property on the map, then second look at its floor-plan to ascertain its size and dimensions. Only after that should you look at pictures.
This way you’re more likely to avoid falling in love with something at first sight and might buy something more practical. Remember, you’re not only buying a home, you’re also buying into a long term financial relationship. Sounds boring, but if you’re after kicks go buy a pair of trainers.
Estate agents and viewings
As useful as online portals are, there really is nothing like seeing a property in the flesh. Estate agents love a buyer who has an agreement in principle from a lender, so make sure you’re able to show this to them in order to be taken seriously. They will be keen to show you around a number of properties but remember, agents photos are presented in order to get people like you in to the property- the reality can be very different. Use your senses; listen for traffic, smell for damp or fresh paint (what is it hiding?), look for cracks , discolouring and check the compass on your smart phone to see where the sunlight shines throughout the day. Have a good look at the properties surrounding – these will be your new neighbours – do they look after their homes, is it easy to park?
If you find things you’re not keen on, tell the agent, as it’s invaluable feedback to the vendor who may wish to eventually reduce the price, but will also be a guide for the estate agent to find you something more suitable. You might have come into this not wishing to be friends with an estate agent, but they are normally the person standing between you and your future home- help them help you and make them earn their fee.
If you haven’t found anything after your first round of viewings, don’t despair. The market place changes and you may just have to wait. Listen to what the estate agent says about your budget and be realistic. Do you need to amend your requirements? Consider compromises?
When you do eventually find something you like, go back for a second viewing at a completely different time of the day. If you can, go in bad weather, but definitely try to visit a house when traffic may be busy. More importantly try to aim for when you yourself will be at the property and your neighbours will be in theirs, i.e evenings and weekends. Also, do the walk to the local shops and visit the amenities you would want to use, like bus stops, train stations, schools etc. It can be useful to ask the owner questions if they’re there, to see if they tally with the agents commentary on a house. This includes why they are selling and whether there have been any offers on the property. It’s also useful at this stage to find out what else is included in the sale? Basically, get them talking and see what you can find out!
Flats and apartments
Let’s face it, as first time buyers, especially looking in towns and cities, the chances are you’ll be looking at a flat as opposed to a house. If it’s a leasehold, which it’s likely to be, you’ll want as many years as possible left (unexpired) on the lease. New leases are usually 99 or 125 years. You ideally want at least 80 years unexpired and should avoid leases with less than 70 years as you’ll struggle to get a mortgage. It’s best to find this out as soon as possible i.e before the viewing. Leasehold properties will also have a ground rent (usually a nominal fee) and a service charge; a fee which all people in the block or development will pay towards the upkeep of communal areas and services that benefit the property. As well as covering your buildings insurance there should be a sinking fund, basically a savings account where money is set aside for a rainy day to cover big bills like roof repairs. Expect to pay between £800 and £2000 a year in service charge and make sure you consider this in your affordability.
The big step
When you think you’ve got a contender it’s time to think about making an offer. This is when you go back to your budget. Remember, it’s not a guide: it’s the top amount you have to spend. There is no set amount as to what you should initially go in at, but don’t be tempted to try and steal it – those that go in at an unrealistically low level and then jump to a much higher offer are often seen as ripe for another squeeze to get more out of them. By the same token, don’t tell the estate agent what your maximum spend is, as if they are any good, they will try and make you pay all of it.
If a house needs some work try to be realistic as to what you are capable of doing yourself both in terms of time and skill. If it’s a big job, get an expert around to give you an idea of cost and consider incorporating this into your offer.
Remember, you might not have much experience in this but as a first time buyer armed with an Agreement In Principle from your mortgage provider, you’re in a strong position to negotiate, as you have nothing to sell, unlike others further up the ladder.
Use an expert to buy a house
When you have agreed on a price (please say it’s within your budget!) you’ll need to get some expert assistance to get your deal over the finishing line. Your mortgage provider will want you to get a survey or report. These vary in price from a few hundred to over a thousand pounds depending on the property. This should be carried out by a chartered surveyor and the assumed position is that the more you spend on getting the proper advice upfront, the fewer issues you may incur later. Any faults that your report flags up are ammunition to get a price reduction. This will reflect the necessary works and are a warning to you the purchaser. Heed it.
You will also need to instruct a conveyancing solicitor. Try to avoid solicitors recommended by the selling agent and if you can, get a recommendation from friends or family. The conveyancer will apply for searches on your behalf, raise enquiries to the contract of sale and oversee all legal and financial aspects of the process through to exchange and completion. I always remind my clients that no matter how invested into the property they might feel, they aren’t obligated until exchange of contracts (where normally 10% of the purchase price is paid). If there are big issues that you can’t resolve satisfactorily, walk away- that’s what the conveyancing period is for. It’s better to lose the cash in the short term rather than be saddled with a long term problem that could cost you far more.
Lastly, and you don’t hear this often enough, try to arrange for an exchange of contracts a week before completion. Trying to arrange both puts too much pressure on moving day and it normally leads to buyers and sellers falling out if deadlines are missed.
If you’re looking to buy a house then good luck! Let us know how you get on in the comments section.