Property Buying Guide
Buying a property in the UK is still relatively straightforward although the rules on mortgage lending have tightened since the beginning of the credit crunch.
Usually, 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 get 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 Mortgage
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 type of loan 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.
When offset mortgages initially started, they had uncompetitive interest rates, so you needed a substantial amount of savings to make them work. Now the interest rates are competitive and more in line with standard loans 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. You make additional savings as you would have to pay tax on any interest income earned. For offset mortgages, the balances on your current and savings accounts get deducted from the outstanding loan on a daily basis, and interest worked out on the net value. Combining your mortgage and income means you repay the loan earlier and pay less interest.
Independent Financial Advice
Whatever you choose it is wise to speak to an Independent Financial Advisor (IFA) that you trust or have a recommendation from, but you can compare rates yourself at mortgage comparison sites.
IFAs charge up-front fees but have access to deals you can't get individually through their intermediary portals with the lenders. If you have a low credit score or require specialist help, then an IFA could be a wise choice.
Beware of 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. These charges can make a low-rate mortgage expensive, so factor in any additionals costs as they could add many percentage points to your effective interest rate.
Redundancy and Critical Illness 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 income payment protection insurance policies which will cover you against job loss but check the small print of when they pay out on a claim. i.e., do you receive money in all circumstances and in the month you lose your job or 3 months later?
The standards of cover will vary considerably so again search the financial comparison sites for competitive rates.
Home Information Pack - HIPS
Home Information Packs (HIPS) were designed to speed up the selling process in the UK. The Coalition government abolished the packs in 2010, but sellers still need to produce an Energy Performance Certificate (EPC).
EPCs cost around £50, undertaken by Domestic Energy Assessors and last for ten years. You must have one before you advertise your property otherwise you could be fined £200 per day until you produce one.
Putting in the Offer
You may be able to learn the circumstances of 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 mortgage you can afford and the deposit you have available so speak directly with the selling agent to understand the sellers' circumstances. It's best not to show your hand at this stage as the agent wants to get the highest price possible so they can earn more commission. They are are not working for you at all, only the seller.
Usually, 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 than not, you'll meet in the middle.
Once the offer is accepted, you may be asked to put down a holding deposit. With new house builds you may have to provide a non-refundable deposit. More often than not though no deposit is required and it's not a legal requirement until you exchange contracts.
Costs Involved as The Buyer
You do not have to pay the selling agent anything, but there are some somewhat substantial costs you'll incur during the house buying process. The largest is in the form of stamp duty tax which can be as much as 12% of the property value.
Other costs which you'll incur are:
- Surveyors fees
- Mortgage fees
- 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:
Land Registry Fees Chart
|Property Value||Pay by Post||Pay Online|
|£0 to £80,000||£40||£20|
|£80,001 to £100,000||£80||£40|
|£100,001 to £200,000||£190||£95|
|£200,001 to £500,000||£270||£135|
|£500,001 to £1,000,000||£540||£270|
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 most significant investment you'll undertake, you'll want to ensure that the structure is sound and not for example on a floodplain 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 its toll. It's wise to visit the property when the surveyor conducts the survey 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, that the description is the same as the property and to provide a rough value for the mortgage company.
The big timeline in purchasing is when you exchange contracts. As these are legally binding and deposits change hands, you'll want your solicitor to ensure the agreement 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.
At this stage, you'll need to provide a deposit. The amount is usually between 5% and 10% of the purchase price. 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. You don't need your mortgage monies at this stage in the process.
And finally the completion date. This date would be set out in the contract you exchanged above and usually is non-negotiable so ensure you are happy with the date set.
At completion, the title of the property passes to you with all monies transferred which your solicitor will undertake for you by liaising with your mortgage company.
If you are providing more of your own cash, you'll need to produce this to your solicitor in good time before completion.
Your solicitor should also provide you with a statement of your account so you can see what money is coming in (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.