Buying A House – Planning and Processes
Now that you have watched enough property programmes, to draft the blueprint for your ‘Amazing Grand Escape Location Under the Ladder’, and scoured every property website looking for your dream castle, there are several practicalities to consider before you get swept away.
Purchasing a home is an exciting prospect, offering future stability, but encompassing multiple steps involving research, financial considerations, and thoughtful decision-making. Here we delve deeper into the various stages of purchasing a home to live in.
Timeframe
If all goes well, and there are no complications in the title plan, searches, surveys resembling archaeological research, service providers, freeholders, probate, other legalities, and a chain-free scenario, then you can hope to complete in a little under five months. While rare, quicker completions can occur, such as for auction properties where the search packs have already been completed. Some professionals will optimistically claim three months, but that’s the stuff of property fairy tales!
Finances
Buyers should determine borrowing capacity before getting excited about potential purchases, only to be disappointed when ‘the computer says no’. Online mortgage comparison tools offer rough estimates of how much you can borrow, but consulting with a fee-free, whole-of-the-market mortgage advisor is crucial for an exact figure, after they have delved into your financial situation.
Lenders will typically consider income multiplied for loan calculations of around 4 – 4.5 times their income for a single applicant. For example, if a single applicant’s yearly income is £30,000 they could hope to borrow approximately £120,000 – £135,000. Or 3.5 – 4 times the joint yearly income for two applicants. For example, if the joint income for two applicants is £60,000 then their maximum mortgage would be £210,000 – £240,000.
Lenders take into consideration various other factors which influence borrowing limits. A borrower’s retirement age impacts the mortgage ‘term’ (length), however, some high street lenders are now extending lending options up to 75 years of age. In addition, dependents, debt, adverse credit, and other financial elements also shape the loan amount.
Further help for Forces personnel
You may have already heard that the Forces Help to Buy scheme has been made permanent. The scheme allows Regular Service personnel with more than 12 months’ Service to take an advance of up to 50% of their annual salary, interest free, to buy a home. The advance is capped at £25,000 and repaid over a 10-year period.
For further details, visit: www.gov.uk/guidance/forces-help-to-buy
Agreement in principle
Once you have determined your budget, selected a mortgage product, and found the property you want to purchase, it’s time to request an ‘Agreement in principle’ from your mortgage advisor. These preapprovals are typically valid for 90 days and the estate agent will request to see it when you make an offer. After an offer has been agreed, this is the time to complete a full mortgage application, where the lender makes sure they are happy to lend to both you, and on the property you have chosen.
Balancing emotions and rationality
While a property may seem like your ‘dream home’, and you can afford it ‘on paper’, it can easily turn into a nightmare, if, for instance, you are already mortgaged to the hilt, and the unforeseen happens. Families expand, product rates rise, relationships break down and employment can become unstable. Unfortunately, recent instances of interest rate hikes have drastically increased mortgage payments for most. Many mortgage interest rates have trebled in the last two years, from a super low 2% to a whopping 6.6%. To put this into perspective a £240,000 mortgage at 2% two years ago, over 27 years would have cost approximately £959 per month, the same amount now at 6.6% would cost £1,588, a £629 monthly (£7,548 yearly) increase!
Deposit
The higher your deposit, the lower the product interest rate will be, therefore reducing the borrower’s interest burden. Most lenders categorise ‘Loan to Value’ (LTV) based on varying deposit level brackets as follows; 10%, 20%, 25%, 30% and then 40% deposit, emphasising the importance of diligently saving for the deposit. Your future self will thank you.
Property selection.
Creating a ‘need and want’ list helps streamline your search and to consider factors like location, size, amenities, and future requirements. Ultimately, your budget will be your biggest determining factor. Define your deal-breakers, desires, and demands. It’s important to remember to research both the immediate and local areas.
Offer
When you’re looking to make an offer, enquire with the agent about how long it’s been on the market. How many viewings has the property had? Have there been any offers, if so, how much were they? Some agents will divulge this information, but not all as this can assist in making a strategic advantage. If you’re not in a chain, make sure the buyer is aware as it’s your best bargaining tool. Start with an offer below the asking price as this can allow for upward adjustments. If you start high, you have nowhere to go.
Surveys
Once the sale has been agreed upon, if you want a professional property surveyor to survey the property, this is the time. It’s important to remember that a mortgage valuation survey is not a full property survey, the lender’s survey is just confirming that in a worst-case scenario, the lender can get back the money they lent you, not the price you paid for it!
Stamp duty
Factor in ‘stamp duty’ within your budget. You will likely have already paid this to your solicitor, who will then transfer the deeds and stamp duty to HM Revenue & Customs within 14 days of completion. The completion date will be negotiated with the sellers, this is generally a couple of weeks after exchanging contracts, and ensure you set up building insurance for the day you complete!
Above everything else, be prepared to walk away if you can’t secure the right price. There will always be another one. If it’s meant to be, it will be.
Conveyancing lawyers
Licensed conveyancers are specialist property lawyers who legally process the transfer of property from one person to another, sorting out the Land Registry, searches, contracts, legalities, and the exchange of money. Their fees are around £1,500 for a purchase. Before signing a solicitor’s contract enquire what their terms and conditions are, along with their associated fees, especially for a no-sale scenario. Sales can fall through due to various reasons including being ‘gazumped’ (when the seller accepts an offer from a different buyer), unfavourable survey results, personal circumstances, or chains breaking. It is estimated around 28% of sales fall through after an offer has been accepted, of which 73% are caused by the buyer.
