Buying a house is one of the biggest financial decisions that you will make in your life. It is a lengthy and complicated business, which while exciting is often fraught with stress and worry.
After finding a home you like, which can take anything from a few days to many months, the process from having your offer accepted to completion of the sale takes about 12 weeks. This is about twice as long, as in many other countries, home-buying in Britain is a notoriously drawn-out business.
It is important to have a good understanding of the process as it will help you to avoid some of the most common hazards of home-buying.
Finding the right property
Open market sales through private sellers, the internet, estate agents or, auctions
If you are a tenant, you may qualify through “the right to buy” or “the right to acquire” schemes
Homebuyer schemes allow you to buy a proportion of the property through “Shared ownerships schemes” or for those aged 55 plus “Older People’s shared ownership”
The costs of buying a house
You have decided that you are buying a property, but exactly how much can you afford? On top of the cost of the house itself, there are many other, one-off expenses involved in buying a home and moving. To get a good idea of what sort of homes you can realistically hope to buy, you also need to take these extra costs into account.
These additional expenses could include:
- Survey/valuation fees
- Legal costs including solicitors’ fees, searches and land registry charges
- Legal costs passed on to you by your building society, bank or other lender
- Mortgage indemnity guarantee which may be necessary if your loan exceeds a certain proportion of the value of the property (typically 75%)
- Arrangement fees if a mortgage broker is used
- Stamp duty (a tax on house purchase for properties exceeding a pre-set value)
- Costs of setting up and consuming supplies of gas, electricity or water
- Telephone/broadband connection
- Removal expenses
- Property insurance (including Buildings and Contents)
- Life / critical illness/ job loss insurance
- Service charges for leasehold properties
- Ground rent for leasehold properties
- Repairs and property maintenance costs
- Essential first furniture and equipment
- Council tax
Arranging the finances
As a first-time buyer you are not dependant on the sale of another property however, you would be wise to have your finances arranged to demonstrate you can proceed quickly to put you in a strong position.
There are many institutions that can be approached for a potential home loan (Mortgage Brokers, individual banks, or searching on line). The Financial Service Authority shows independent tables comparing mortgage deals.
Mortgage brokers
Put simply a mortgage broker’s job is to find you a good deal. Plus, it has the added benefit of clout with lenders to ease your acceptance and an extra layer of protection if things go wrong. As you can get this, often for free, it makes sense to use one. However, not all brokers are the same, the aim is to find the best for the lowest possible price.
A fee may be payable to the broker if you do not proceed so you should be clear about this before you commit yourself. All mortgage advisors/brokers must comply with rules issued by the Financial Services Authority.
Home Information Packs (HIPs) & Energy Performance Certificates (EPC)
The Home Information Pack was scrapped on 21st May 2010 with the change in government and is no longer required in England & Wales. However, there is still a legal requirement to have the Energy Performance Certificates (introduced in 2007 around the time of the HIP).
The EPC varies in cost, payable by the seller, from £50 – £120 and is valid for 10 years. The document gives homebuyers an idea of the energy efficiency of a property, detailing how this can be improved and the potential energy savings as a result
In February 2013 there were further changes to the EPC with the governments ‘Green Deal’ policy. This allows homebuyers to borrow money to make the recommended energy efficient changes to their property and repay that loan through gas and electricity bills.
For further information on the ‘Green Deal’ go to: www.energysavingtrust.org.uk/Take-action/Find-a-grant/Green-Deal-and-ECO
Making a formal offer
It’s human nature to try to strike a deal, but if you find your ideal home and it seems to be priced correctly, consider offering the full asking price. When the house is advertised through an estate agent it is usual to make the offer through them and await the seller’s response. This means you’ll be taken seriously, there won’t be any time-wasting and it will lessen the possibility of another party stepping – or gazumping you.
All offers should be made with the stipulation of taking the property off the market. Getting a ‘Sold’ board outside is a good way to dissuade others from looking. You might also want to ensure that all internet adverts for the property have been removed, to prevent any further interest.
Either seller or purchaser can withdraw from the deal at any time prior to the point at which contracts are signed and give no reason.
Valuations and surveys
Not all surveys are the same and should be determined on the specific property you wish to buy.
Condition Report
A Condition Report is perhaps more suited to a property in good condition and relatively modern and not suitable if you need a ‘valuation’ as this is not provided.
Homebuyer’s report
This type of survey is designed to keep costs to a minimum and is likely to be the best choice if the property you are buying is conventional in type and construction, is apparently in reasonable condition and built within the last 30 years. The survey focuses on defects and problems that are urgent and likely to have an effect on value. You can expect to pay somewhere between £250 – £400 for this report. According to the Royal Institution of Chartered Surveyors, the main objectives of the Homebuyer’s report are to:
- Make a reasoned and informed judgement on whether to proceed with the purchase.
- Assess whether the property is a reasonable purchase at the agreed price.
- Make clear what decisions and actions should be taken before contracts are exchanged.
Building survey
This type of survey is suitable for all residential properties and provides a comprehensive picture of the property’s construction and condition. Because the level of detail is higher than the Homebuyer’s Report, a Building Survey is more expensive. This type of survey is required when a property is of an unusual construction or has had extensive alterations, if it’s old, in need of serious structural repair or if you’re planning a major conversion or renovation.
The final report will include detailed technical information on the construction of the property, materials used and a listing of all major and minor defects. The report does not provide a valuation; however this can be arranged as an agreed extra.
The cost of this survey is in the region of £1000 and will usually take one to two days to complete. You can expect the final report within three working weeks of the original survey
New Build Assessment (also known as a New Build-Snagging Survey or Snagging List)
This is a specialised survey specifically aimed at a new build property. It will identify and detail any defects, unfinished work, and poor-quality work.
The inspector will provide a report to the both the purchaser and the developer so that and problems identified can be rectified.
Exchange of contracts
As soon as you place an offer on a property, your estate agent will ask for your conveyancer’s details to pass onto the seller’s conveyancer. It’s therefore wise to establish contact with a professional before you start looking for a property to avoid having to make this important decision in a rush. A conveyancer’s job is to take care of all legal aspects of moving to a new house, which include:
- Local search
- Land charges search
- Land registry
- Stamp duty
- Home information packs
One of the best means of finding a suitable conveyancer is through a personal recommendation, so ask friends and family who have bought a property in the area or the estate agent or mortgage broker.
Apart from the conveyancing work there is also the lender’s legal work to be done. Your conveyancer could act for the lender, which should save you money. The principal task is to draw up a mortgage deed, which sets out the conditions of your loan. The lender will hold this and the title deeds of your property until the loan is paid in full.
Following the exchange of contracts, each party is bound to sell/buy, regardless of what happens to them as individuals.
Completion
After exchange of contracts, your solicitor/conveyancer will need to prepare the transfer document, ensure that all mortgage documentation is prepared, finalise the timing of transfer of mortgage funds to the seller. You will need to arrange to settle the Land Registry fee, stamp duty and probably the conveyancer/solicitor’s own fee. On the completion date all deeds transferring ownership are given to your solicitor/conveyancer and the balance of the price for the house paid (including the mortgage funding) and the seller’s mortgage paid off.
The seller leaves the property if they have not already done so and you take possession.
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