Buying A Home
Getting a foot on the property ladder
If you're looking to buy a home, before you start searching the property market you need to find out how much you can afford to pay. A mortgage adviser will help you work out how much you can borrow based on your income.
You need to have saved a deposit and have enough over to pay the costs of buying which include stamp duty, mortgage arrangement fees, solicitors and surveyors costs.
The size of your deposit is crucial in deciding your loan-to-value (LTV) which is how much you need to borrow as a percentage of the purchase price. The higher your LTV, the higher the rate of interest you will pay on your mortgage and the fewer loans there will be available.
EXAMPLE – working out your LTV
To work out your loan-to-value, simply take your mortgage amount and divide it by the house value. Then multiply this by 100.
You have a deposit of £30,000.
If you buy a house worth £100,000, you would need a mortgage for £70,000. This means your LTV would be 70%.
But if you buy a house worth £150,000 you would need a mortgage for £120,000. This would make your LTV 80%.
And if you buy a house worth £200,000 you would need a mortgage for £170,000. This would mean your LTV would be 85%.
Decide what you want
Your next decision is narrowing down your search area. If you have a choice of areas, look at the factors that are important to you such as transport links, schools and shops in the area, parks, the type of properties available and their average price.
You need to be prepared to compromise. If you can't afford to buy a suitable home in your idea area you will have to either buy something smaller in the same area or move to a less convenient or desirable neighbourhood. The main thing is to decide on your priorities.
Local estate agents
Next, you need to contact local estate agents. Be as precise as you can about what you need – the number of bedrooms, the specific streets you're interested in, whether you want a garden and a garage. The style of home you want and whether you're prepared to do work on it are also helpful details.
The internet is a great place to start your search and to register your interest, but it's not enough. A face-to-face meeting with the agents will help you too especially in a competitive market or when there are not enough properties for sale. Make a friend of the agents, keeping them informed of what you're doing and whether you've seen anything you're interested in. Don't miss viewings and do keep in touch regularly to see if anything new has come on their books recently.
The agent will know you are a serious buyer if you have already put your home on the market and you'll be viewed favourably if you have already found a buyer. For first-time buyers, showing that you've enquired about a mortgage and have an offer in principle will be a big help. It is a good idea to reassure the agent that you can afford the homes you're viewing and not wasting their time.
In most cases buyers don't pay a fee to the agent; it is the seller who pays the agent. The exception is if you use a property search agent to scour the market for you and to narrow down possibilities. Also, if you buy at auction you will have to pay a premium to the auction house.
Making an offer
After all the searching, you've finally found the home you want to buy. Now it's crunch time. How much do you offer for it? Fortunately, the internet has made it far easier to research house prices by street. You can look at websites such as Zoopla that will tell you what the property previously sold for and what other properties in the area have more recently sold for.
In cities where you have rows of identical properties, it's simple to find out the right range. But with individual homes it's harder to know their true value. Remember, too, that the condition of the property and the standard of decoration, fixtures and fittings inside will influence the price too.
What is the asking price?
Not for nothing is the price of a property often called a guide price. No-one knows for sure the true value of a property. The agents base the price on what similar homes in the area have sold for in the past, the demand for similar types of property in the area and the condition of the property.
Property websites and estate agents' information will tell you what percentage of asking prices is being achieved. Find out how long a property has been on the market – the longer it has been, the lower your offer should be. Also, has the seller lost other potential buyers? In this case, the seller could be desperate to do a deal.
Don't go in at the full price unless you feel you have to. Estate agents can be cunning and convince you that if you don't offer the full price, you won't get the property – but don't fall for this unless you have a solid reason to believe it's true. And don't delay. You can always revise your offer later especially if the survey uncovers some nasty faults.
Once your offer is accepted, you should ask for the house to be taken off the market. Be warned that the seller may only do this once you've had a survey done, which shows you are serious and lessens the chances that you'll ask for a reduction based on something found in the survey. The seller will also be keen to know that you have a buyer for your own home if you're not a first-time buyer or between homes and that you have your finances arranged.
Buying in Scotland
In Scotland the rules are different. Properties are usually marketed as 'offers over' meaning the price is the lowest amount that will be acceptable. Or it may be advertised with a fixed price in which case the first written offer at this price is normally accepted. If there are several interested buyers, a closing date for offers may be set after which time the seller can consider competing bids. You should be told at this time how many other buyers are interested in the home.
You need to engage a solicitor early on in the process as he or she will put in a written offer for you. Once solicitors for the buyer and seller have agreed terms in writing – known as concluding the contract – the price is binding on both and neither the buyer or seller can pull out without paying a penalty. Making an offer is a serious business in Scotland as it is binding on the buyer at a far earlier stage. This prevents gazumping and gazundering, which have often been a blight on the housing market elsewhere.
Gazumping and gazundering
These are both mean practices that have crept into the property buying process. Gazumping is when the seller accepts a higher price after accepting yours. This is frustrating and costly, as you may have already hired a surveyor and solicitor who will have started work on your new home which means you'll incur fees.
It usually only happens during a rising market when there is a lot of competition in the market. You can, of course, increase your offer to at least match the new one and show that you can move quickly, but do be careful you don't over-stretch yourself in the heat of the moment. You don't want to saddle yourself with a huge mortgage you'll struggle to pay for years to come. Asking the seller to take the property off the market once your offer has been accepted should prevent this or at least lessen the chance of it happening.
Gazundering is the other side of the coin, where a buyer comes back with a lower offer after it's been accepted by the seller. If the seller has already found a new property and is committed to making their new purchase, it puts the seller under enormous pressure to accept it. This is more likely to happen in a slow market or when prices are falling. Again, the seller may be tempted to accept the new offer, making it harder to afford their new purchase.
It's up to you and the situation you are in at that stage whether you succumb to these last-minute guerrilla tactics. There has been talk of outlawing such moves and changing to the Scottish system, but it has not amounted to a change in the rules.
If you need a mortgage, your lender will expect you to have at least a basic valuation survey. Here's what the different types of survey consist of:
MORTGAGE VALUATION SURVEY
When you need it: Your mortgage lender will demand you have a valuation survey.
What it does: Finds out how much the property on which your bank is lending money is worth.
What it doesn't do: Structural problems may go completely unnoticed and a mortgage valuation alone, although relied on by many borrowers, is often insufficient to establish the state of a property.
Cost: £100-£300 (some mortgage deals come with free valuations)
When you need it: If property is less than 100 years old and in reasonable condition.
What it does: Reveals any serious defects. Points out potential cost of any repairs.
What it doesn't do: Does not cover wiring, drainage or gas fittings.
Cost: Typically £300-£500. You can often arrange for the surveyor that carries out the valuation survey to do a homebuyer's report at the same time, saving you money.
FULL STRUCTURAL SURVEY
When you need it: If property is more than 100 years old.
What it does: It will look closely at the structure, and is a good idea for older properties and those that require complete renovation (or that have already been subject to complete renovation).
Cost: Some building surveys come with mortgage valuation surveys included in the price, but otherwise you'll be looking at paying around £500-£700.
Energy Performance Certificates
All homes bought, sold or rented require an Energy Performance Certificate which provides information on how to make your home more energy efficient and reduce carbon dioxide emissions. So if you're selling a property as well, make sure you get one done. The price of an EPC depends on the size and location of your property, but expect to pay anywhere from £50 upwards.
EPCs carry ratings that compare the current energy efficiency and carbon dioxide emissions in your home with potential figures that your home could achieve if certain measures were put in place. The ratings are made using grades from 'A' to 'G' with 'A' being the most efficient and 'G' being the least. The average efficiency grade to date is 'D'.
As well as getting a rating, the EPC will also provide recommendations on what you could do to help reduce the amount of energy you use as well as your carbon dioxide emissions. The report will give you suggested improvements, how much this is likely to save you per year and how the recommendations would change the energy and carbon emission rating of the property.
Although you don't have to act on the recommendations, improving the energy efficiency of your home could make it more attractive to buyers or renters. An EPC is valid for ten years and the price is set by the market and depends on the size and location of your property.
You can use the energy performance certificate register website to find an accredited domestic energy assessor.
- Seek advice from a fee-free mortgage broker
- Think about the location as well as the property itself
- Factor in all the costs of moving
Don't feel pressured into offering the full price for a property. If you can, go in below the asking price and take it from there