There is a saying that goes like this – “Buying a house is probably the most important investment that an individual person or couple is most likely to make in their entire lives!” It is probably the dream of most new couples to have their own home but it is not necessarily a straightforward process. Having purchased a number of properties myself over the years, I think I am rather well-placed to give some tips on how to buy a house.
First and foremost I have to say that whilst it might seem a relatively simple procedure, it is not straightforward and there are various hoops that you need to climb through. But, if you set out a plan, know exactly what you have to do and then follow the plan through to the very end, buying a house can be both an exciting and satisfying experience. So let us look at the process in more detail.
Obviously you need to determine exactly which area you would like to live, taking into consideration the budget that is available to you. Drive around the area; does it meet your expectations; does the area look as if it is cared for; are there shops nearby; think about nearby schools. To be honest, we all reach for the stars but we also have to live in the real world. Pay attention to the budget that is available to you. You must also bear in mind what you can actually afford. In this day and age, the banks and other mortgage lenders will look far deeper into your actual daily life expenses, since they have to be sure that you can really afford the mortgage that you hope to apply for.
Unless you see a specific property that meets your requirements, it is best to use the services of an estate agent, but not any estate agent! Go and visit a few; have a look in their window and see what properties they are offering for sale. It is quite essential that you choose the right estate agent, particularly one who is experienced in dealing with the type of home you wish to purchase.
One small point to consider when choosing an estate agent is to find out at an early stage their fees, including any add-ons as the fees can be quite variable. Remember that on a house valued at £150,000, a fee of 1% is equal to £1500 whilst if the fee is 3% of the purchase value, then this fee increases to £4000. It is not that you have to pay the fee but it shows what the estate agent gains from the sale as this could have a bearing on their actions.
So you have had a look for the area, selected the right estate agent, found the property you wish to buy and ensured that it does actually fall within your budget. What next?
This is not often carried out in the UK but I do fully recommend it when you are purchasing an older house. You see a mortgage surveyor is only there to satisfy the lender that the house is actually worth the value you have placed on it. They are not really concerned with the condition of the house but you need to know whether there are any faults, structural deterioration and anything similar that may cause unexpected repair faults in the future. Such inspections are commonplace in Australia, so have a look and see what should be involved if you decide to purchase a survey.
Whilst I appreciate an estate agents fee is based on the selling price of the house, even though you do not have to pay it, financially it is obviously in the interests of the estate agent to obtain the highest price possible. It is purely for this reason that I previously mentioned that you should find out what fees are charged since this can have a relative influence on the selling price. A good estate agent will have both parties interest at heart and should therefore be able to make negotiation of a final sales price a pleasing experience.
Remember at this stage in the process, you are only agreeing a price “subject to contract.” Effectively what this means is that the contract is not signed and sealed to purchase the house. You still have quite a way to go but at least you know that you have passed the first hurdle and all other things being equal, this will be your home for the future.
I have previously written a far more detailed article referring to mortgages and the best mortgage deals. However there are one or two points I would like to mention at this stage.
The application procedure has changed considerably since the financial crisis of the banks a number of years ago. In those days, a cursory glance was made by most lenders into the ability of an applicant to meet the repayments of any mortgage. Indeed, this ability to pay was often self-assessed but that situation no longer exists.
Previously, a deposit of around 5% of the value of the property was required in order to secure a mortgage. At the height of the property boom, there were many examples where an applicant could secure a mortgage for the full 100% value of the house but often were encouraged to take out a mortgage in excess of that, possibly up to 150% of the value of the house.
The current minimum deposit is 20% of the value of the house. That is a considerable amount of money but in certain circumstances, the Government will contribute half of this amount.
The main point to remember is this – mortgage lenders are now compelled to ensure that the applicant has the means and ability to meet mortgage repayments. Lenders will now carefully examine an applicant’s monthly expenditure in detail. This could well include such items as car running costs, school fees, credit card repayments: the lender will want to know all about your cost of living!
I cannot recommend enough the provision of Life Assurance. Most lenders will require such cover but there are those who do not. Should anything happen to the breadwinners of the family, it is essential to protect that family so that in the event of death, the entire mortgage would be funded by any Life Assurance and thus remove any such worries in the future.
Once again this is not an item considered by most people.
Occasionally a vendor of a property could be seriously in debt and so a Lien has been placed on that property. You need to ensure that if such a Lien exists, it will be satisfied by the vendor on completion of the sale. Your solicitor should undertake such a check before allowing you to sign the contract and complete the sale.
If the property you are purchasing is an older one, it is quite possible that the house owners may have secured funds for Energy Efficiency improvements under the various government Green Deal Improvement Funds. Bear in mind, that whilst any such loan will be attached to the property, repayment of this loan is solely the responsibility of the payer of the electricity bill. This could well be the same person, namely the owner of the property, such as you.
At long last there is some good news on this front!
Prior to 4 December 2014, Stamp Duty, which is payable on all private properties, was calculated as a fixed percentage on the value of the house.
Under the new rules, even though contracts may have been exchanged prior to this date, providing the transaction is completed on or after fourth of December 2014, then a sliding scale of Stamp Duty will apply as follows: –
On the average house this is a saving of £4000+ and will make a huge difference to purchase costs in the future. Indeed there are those who are of the opinion this may cause a property boom in various parts of the UK. We will see!
Friends and relatives might suggest that you undertake the conveyancing of a property by yourself and hopefully save some money. Unless you have the legal expertise, I strongly recommend that you do not do this!
In essence, the conveyancing of the property is the undertaking of those functions necessary to complete all documentation to the conclusion of the ultimate sale. It is not only the preparation and exchange of contracts but there are many other checks that need to be undertaken.
These can easily be summarised.
Local Authority Search – it would be nice to know whether there are plans, for example, to build a new motorway right through your house. Is there any history of radioactivity works in the area or indeed mining which could cause future subsidence? Like most other things involved with purchasing your house, there will be a fee for this, the amount depending upon the Local Authority.
Land Registry – Whilst the responsibility for obtaining these might well land on the vendors, a Title Plan and Title Register must be present in the conveyancing procedure since this shows proof that the vendor has the right to sell the property. A check at the same registry will verify as to whether the property falls within a known flood region.
Water Authority Search – you will need to find out where your water supply will come from and whether there are any public drains on your property, since these could well prohibit the building of any extension to the property in the future.
Chancel Repair Search – you may not believe it but that could well be a tithe on the property going all the way back to mediaeval times. What this means is that you could have a legal obligation to contribute to the costs of repair to local church(s). You need to check this to make sure that you are not going to be landed with an horrendous charge for contribution to major church repairs.
Depending upon which part of the country you propose to live, there may be other searches required, which is why you should use a professional conveyancer such as a solicitor, to undertake all conveyancing matters on your behalf.
I have already dealt with matters relating to your actual mortgage, but it is essential that the Letter Of Offer issued by the mortgage lender is forwarded to your solicitor. He will then review it in detail and discuss any obscure details that might have been hidden in the small print!
Again there is one small point to note. As soon as you become owner of the property, you are responsible for it and it is therefore important that you arrange Building Insurance to come into effect at that time. Once more, your solicitor will advise you on this aspect.
The vendor’s solicitor will forward to your solicitor the Contract of Sale. Your solicitor will then examine in detail that it has been correctly prepared and so suitable for your acceptance. Your solicitor will also verify that all appropriate documentation, such as Title Deeds, appropriate Searches and Mortgage documentation are available for Contract Completion.
Your solicitor will arrange transfer of your deposit to the vendor’s solicitor and also agree a final date for completion. Contracts will be exchanged between the two solicitors and a final Handover Day will be mutually agreed between the vendor and yourself.
It is only at this time are you allowed to bring out the champagne bottle and pop the cork!
For the purpose of this article, I have assumed that this will be your first purchase. The reason I do this, and I am sure you have heard of a property purchase chain, is because if you could have an existing property to sell which is proving difficult, which may very well be the stumbling block in a whole chain of property transactions. Just for the record, there are alternatives to finding yourself in a chain of sales and we are more than happy to discuss these further with you.
There will be many people who are happy to offer you amateurish advice on how to buy a house. I can do no more than say use professionals where possible but select carefully. Remember, you may very well be living in the new house for 20 years or more and it is your money that is being spent to purchase the house.
However you decide to do it, I wish you every success and happiness in your venture!