When we were buying our house last year, we realised what a minefield of information the internet is! So we have put together a condensed guide of the things house buyers should know before they start looking for their first home. These are based on our own experience when buying our house.
We are in England and this information is based on purchases in England.
How much Deposit do I need?
This is a bit of a how long is a piece of string question! As a rough rule you will likely need a minimum of 5% of the value of the house as a down payment – so £5000 if you are buying a property of £100,000.
Although it is more common now for mortgage lenders to ask for a minimum of 10%.
We started out by working out what deposit we could have available – and a little tip putting down more than the minimum needed can greatly improve your chances of getting a mortgage. For example if you want a £100,000 mortgage and it is a minimum of 5% (£5000) if you could put even £5005 this looks favourable to the lenders as it doesn’t look like you are stretching yourself to the maximum you can afford.
Also the more deposit you can put down compared to the house price can also be favourable (the loan to value or LTV) ours was a 65% LTV and this helped us get a better deal with lenders.
Once you have your deposit amount this can then give you an idea of the highest mortgage amount you could get. The actual amount is subject to your financial situation so let’s have a look at that next.
Find your buying budget
I would highly recommend getting a copy of your credit file to see your credit score before you start applying. You can get this for free from Experian, either by ordering a paper copy or signing up for the free trail of the online credit report service (don’t forget to cancel if you don’t want to pay £14.99 a month for it!)
Although a VERY rough guide, most lenders will lend you approx 4-4.5 times your income. So if you have an income of £20,000 you would be looking at being able to borrow £80,000-90,000. If you had a deposit of £10,000 this would mean you could look at properties around £100,000. Exact lending criteria varies by mortgage lender
We wrote down all out income and outgoings, we used payslips, bank statements and credit card statements to make sure we had exact amounts.
We then worked out what we could get rid of as an outgoing – gym memberships you aren’t using? Subscriptions you no longer need? Get rid of them this will help when it comes to your application
Other things you may want to consider are credit card balances, car finance and personal loans. Mortgage companies take all of these in to account when making you your mortgage offer.
The Citizens Advice Bureau offer a great free affordability calculator.
Work out your repayments
Once you have your budget in your head of what the maximum is you can borrow you should look at what monthly payment you can afford. It’s great knowing you can borrow £500,000 but could you afford the £2,000 monthly mortgage payment?
There are many free online resources and I’d highly recommend using a Mortgage Calculator and these are great to give you a rough idea of your repayment amounts. Again take into account your workings from your affordability calculator. This one also has a really handy little sliding scale showing you what your equity / outstanding balance will be over the life of the mortgage – Clever!
Find a good independent advisor
We used an independent Mortgage Advisor / Mortgage Broker – our main reason for doing this and also recommending it is they have access to a much wider range of offers.
If for example you go to your bank (We will call this one the Red bank) they will only be able to offer you deals the Red bank currently have on, but you might find that the Blue bank next door are currently offering a no fee mortgage to new customers. The Red bank won’t share this with you, so you won’t be getting the best deal out there for you.
A mortgage advisor would be able to show you both the Red bank and the Blue banks deals, along side the Yellow, Green, Pink and Purple banks… do you see where I am going with this?
It’s really important to keep your options open, after all this is a big long term financial commitment!
Things house Buyers should know
Different Mortgage Types
I think personally for most people this is the most popular option, a fixed mortgage means that for a fixed time (this can be anything for 1 to 5 years) your mortgage rates and therefore your monthly mortgage repayment will not change. Regardless of what happens with the Bank of England interest rate. At the end of the fixed rate term it is best to look at your remortgaging options as your existing mortgage will likely convert to a standard variable rate mortgage – see below.
Fixed-rate mortgages were the most popular in the Which 2019 mortgages survey, with six in 10 saying they had one. Five-year deals were the most popular, followed by two-year deals. Read more: Which?
There are 2 main types of Variable mortgages. A tracked or discount rate – the more popular is the tracked rate.
With a tracker mortgage, your interest rate ‘tracks’ the Bank of England base rate (currently 0.1%) – for example, you might pay the base rate plus 3% (3.1%). In the current mortgage market, you’d typically take out a tracker mortgage with an introductory deal period (for example, two years). After this, you are moved on to your lender’s standard variable rate. However, there are a small number of ‘lifetime’ trackers where your mortgage rate will track the Bank of England base rate for the entire mortgage term.
It would be a good idea to consider whether you could still afford your repayments if interest rates were to sharply rise for any reason.
When Which surveyed mortgage customers in September 2019, one in 10 said they had tracker mortgages. Read more: Which?
This one is fairly straightforward, your mortgage payments are only paying off the interest for the loan (mortgage) you have taken out. You are not paying off any of the equity in the house, so in theory you could get to the end of your mortgage and not own and still owe the amount that you first purchased the house for.
This is a good example of needing to know whether or not you can overpay so you are actually chipping away at the borrowed amount.
The main reason for people taking this option is because the payments can be considerably less making it more affordable but just be aware of the long term consequences of doing this.
Overpaying your Mortgage
Can you over pay? and is there a fee for this? Lots (but not all) will allow you to overpay an annual amount (usually 10% of your outstanding balance) without penalty. Our current lender is one that doesn’t offer this and our penalty was 4% in the first 12 months and 3% in months 13-24.
Freehold or Leasehold?
Another thing a lot of people don’t know about is the different between a Freehold and a Leasehold.
For a freehold property this will mean not only do you own the property but also the land it is built on up to it’s boundaries. This also means you won’t be subject to ground rent or service charges.
Leasehold properties are a little trickier – your purchase is just the property you are buying, typically this is more common in flats/apartments. The land owner is known as the freeholder and you will likely have to pay a ground rent, and often a service charge for the upkeep of the grounds and common areas, to them.
The length of a lease can vary, the Estate agent should have this information available but your solicitor will be able to confirm it.
In England and Wales, you can get further advice about leasehold from:-
The Leasehold Advisory Service (LEASE)
2-6 Salisbury Square
Tel: 020 7832 2500
Tel: 02920 782 222 (Wales)
A great blog to check out with lots more information around buying a leasehold property can be found here
Finding a Solicitor
One of the most misleading things we found during our house sale and purchase were that the solicitor your estate agent recommends will be the best option. We used the solicitor recommended by our estate agent and had THE WORST experience and actually ended up losing our buyer due to just how bad they were.
We ended up asking in one of our local facebook groups for recommendations of solicitors people had used and we went with the one with the most recommendations and they were like a dream in comparison to our original ones.
Don’t be scared or worried to turn down your estate agents recommendations and do your own research to find your own.
We used Thomson & Bancks – They have offices in Cheltenham, Tewkesbury, Worcestershire and Stratford-upon-avon but you don’t need to use a solicitor that is local to you, you are free to use whoever you want.
Know what your extra costs will be
paid at the point of completion – we got really lucky with this as the seller was messing us about and delayed the completion by 4 weeks so we actually ended up saving a few thousand pound as we were completing after the stamp duty holiday kicked in. This is finishing at the end of September 2021 and will revert back to the below amounts.
Other than the cost of the work the solicitors will be doing for you, there will also be fees for surveys (see below) , Land registry registration and Local Authority Searches etc
Estate agent fees
Some Estate agents work on a no fee basis for the seller and they do this by passing the costs onto the buyer, by charging a % of the purchase price. Make sure to ask this prior to putting in an offer so you can take this expense into account.
I’s recommend going for the best survey you can afford, your mortgage company will likely do a basic survey, but paying an extra £200-300 could save you £1000’s if it turns out your new home will need a £40,000 new roof shortly!
Annual fees for the upkeep of the building / land
Ground rent and Service Charges are to be expected if you are buying a leasehold. The estate agent should be able to tell you how much these are and if there is a typical annual rise.
The steps of a house sale
We had people telling us all sorts and we have no idea what was going on! So here are 3 terms you need to look out for in the home buying process
You’ve look and you’ve fallen in love! Now it’s time to make the offer, this is the point where the ball starts rolling with your solicitor.
The Exchanging of contracts is an exciting point of your house purchase. The signing and exchanging of contracts ties you both into the purchase legally.
Should either party pull out after this point there is a financial penalty (usually 10% of the properties price) which would become payable to the other party.
You would also set a completion date at the point.
Although you can exchange and complete on the same day it isn’t very common as this is the point where you become the legal owner of the property. A 2 week gap between exchange and completion is fairly normal, we took 5 weeks as the seller was a bit of a nightmare but it did give us time to book removal vans, start packing, arrange a redirection with Royal Mail, book in BT (or whoever will be supplying your phone line) as they often have a couple of weeks wait at least and start arranging tradesmen to come and quote us for the work we would need.
Normally you will have a time the existing owner needs to be out (ours was 11.45am) and your solicitor will call you to confirm all the funds have been transferred and received.
And you are in!
Nothing compares to the first time you get to put the key in the door of YOUR new home. It’s so exciting, but it’s really important to now get on with changing all your addresses on your bills, take meter readings so you have starting readings for your new suppliers, council tax, credit cards, your bank etc.
So much information! But all really important Things house Buyers should know. I hope you have found this useful – as always if you have any questions you can comment below or pop over to my social channels where I am happy to answer your questions, or point you in the right direction of where you can find your answers.
Happy house hunting
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