Property Buying Guide
Buying a property in the UK is still fairly straight forward although the rules on mortgage lending have tightened due to the credit crunch.
Normally the first step is to find an estate agent to help you in your search but once you have found your dream home, what next?
Your Financial Situation - Getting a Mortgage
Almost all house purchases are financed with some form of mortgage and this is where you should spend a lot of time researching the market.
As your mortgage will likely be in the hundreds of thousands spending time looking at the different options could save you money in the long term. Here are some of the areas to look at:
- Repayment or interest only - having a repayment mortgage means part of your monthly payment to your lender reduces the overall loan over time so that after say 20 years the mortgage is paid off. By having an interest only mortgage none of the capital is repaid. This was popular in the 1980s where people took out with-profits endowments to build up a lump sum which would pay the mortgage off. These are now options again as the stock market is low and could pay your loan off in the longer term.
- Offset mortgages - some years ago offset mortgages had uncompetitive interest rates so you needed a lot of savings to make them work. Now the interest rates are competitive so are worth investigating. An offset mortgage combines all your bank accounts so you are effectively earning gross interest on any deposits you have at the interest rate you are paying on your mortgage (of course it doesn't work like this as you would have to pay tax on income, but the balances on your current and savings accounts are deducted against the outstanding loan on a daily basis and interest worked out on the net value - this means the loan will be repaid earlier and you will pay less interest).
- Whatever you choose it is wise to speak to an independent financial advisor that you trust or have been recommended but you can compare rates yourself at financial comparison sites.
- Entry and exit fees - because the rate of interest is low many banks and building societies have introduced acceptance fees for taking out mortgages and exit penalties if you pay early so check these carefully as they could add many percentage points to your effective interest rate.
Threat of Redundancy Cover ?
The great fear of taking out a mortgage is that you may not be able to repay it. Most banks now will lend just 80% of the home's value but if you lost your job would you be able to cover at least the interest on the loan?
There are many insurance policies which will cover you against job loss but check the small print of when they will pay out (ie: is it in all circumstances and it is in the month you lose you job or 3 months later?)
The rates of cover will vary greatly so again search for the financial comparison sites for competitive rates.
Home Information Pack - HIPS
Now every seller of houses has to provide you as a purchaser a home information pack at their expense. This includes some information on the house they are selling (but the onus is on you to check and double check everything is in order). The seller must provide the HIP within 14 days of the seller requesting it.
The HIPS contains the following compulsory items:
- Home Information Pack Index
- the new Property Information Questionnaire (PIQ), from 6 April 2009
- Energy Performance Certificate (EPC) or Predicted Energy Assessment (PEA)
- sustainability information (required for newly built homes)
- sale statement
- evidence of title
- standard searches (local authority and drainage and water)
- a copy of the lease for leasehold properties
- commonhold documents, where appropriate
Putting in the Offer
You may be able to learn the circumstances on why the current owner is selling the property and if they are desperate to move you may be able to put in a low offer.
You'll know yourself how much you can afford as a mortgage and speak with the selling agent to understand their circumstances. It's best not to show your hand at this stage and the agent will want to get the highest price so they can earn more commission and are not working for you at all.
Generally house sale negotiations work in the same manner as any sale. The house is for sale at X you put in an offer of Y and more often that not, you'll meet in the middle.
Once the offer has been accepted you may be asked to put down a holding deposit - certainly with new house builds you may have to provide a non-refundable deposit. More often than not though no deposit is required (certainly not legally until contracts are exchanged).
Costs Involved as The Buyer
You do not have to pay the selling agent but there are some fairly hefty costs you'll incur during the house buying process and the largest is in the form of stamp duty tax which can be as much as 5% of the property value...
Other costs which you'll incur are:
- Surveyors fees -
- Mortgage fees - see above
- Search fees - local search for any planning applications near the house you are planning on purchasing
- Solicitors fees (you should always be able to negotiate down the conveyancing fees from solicitors)
- Solicitors disbursements - such as telegraphic transfer fees
- Your removal expenses
- Land registry fee - another tax by the government to file the change in ownership is on a tiered
scale as follows:
- up to 40,000 £ 40
- 40,001 - 70,000 £ 60
- 70,001 - 100,000 £ 100
- 100,001 - 200,000 £ 200
- 200,001 - 500,000 £ 300
- 500,001 - 1,000,000 £ 500
- 1,000,001 and over £ 800
Your lender will require you to have an independent survey of the property undertaken and sometimes they will pay this for you.
As this is probably the biggest investment you'll undertake you'll want to ensure that the structure is sound and not for example on a flood plain or suffering from subsidence.
There are two types of survey, the Homebuyer's Report which costs between £250 and £500 and the more comprehensive Building Survey or Structural Survey which can cost anything up to £1,000 plus VAT depending on the value of the house.
For period properties it's worth having the latter undertaken as several hundred years of time may have had it's toll. If you can, be at the property when the survey is being undertaken so you can ask the surveyor any questions you may have. Generally for the homebuyers report they'll only be at the property for 30 minutes to check for damp and that the description is the same as the property and to provide a rough valuable for the mortgage company.
The big timeline in purchasing is when contacts are exchanged. As these are legally binding and deposits are exchanged you'll want your solicitor to ensure the contract is fair.
Moving things along can be painful and time may pass when you think nothing is happening. Delays in local searches are common but when the housing market is slow this process should be fast.
You may need to telephone your own solicitor on a regular basis to get a progress report and to motivate him to speed the process up.
As mentioned at this stage you'll need to deliver a deposit. This is normally between 5% and 10% of the purchase price and you'll need to transfer the money to your solicitor a few days before the contract exchange takes place so ensure you have the money available. At this stage your mortgage is not required.
And finally the completion date. This date would be set out in the contract you exchanged above and is normally non negotiable so ensure you are happy with the date set.
At completion the title of the property passes to you and all monies are paid over which your solicitor will undertake for you and liaise with your mortgage company.
If you are providing more of your own cash you'll need to provide this days before completion.
Your solicitor should also provide you with a statement of your account so you can see what money is coming in (ie: maybe from your house sale and your mortgage) and what is going out (which will be all solicitors costs and any cost of selling a property).
Things may be slow on completion day if you are in a chain as money passes down the line. You'll also be moving out of one property and into another so things are hectic on this day but worth it in the end.
So that's what takes place in buying property in the UK. If you have questions or can improve this articles please do contact us.