Buying a house is possibly the biggest financial decision you will make in your life. Finding a suitable property for you and your family is only the tip of the iceberg. Next you have to navigate the seemingly endless maze of paperwork and professionals, and it all has to be done in the correct order! From getting a mortgage to moving in, this step by step guide to buying a house covers all the necessities in detail. It is split into four sections:
- What Kind of House Suits You?
- Getting A Mortgage
- Conveyancing (The legal process of buying a house)
- Useful Links
Please note that the information detailed only applies to England and Wales. In Scotland, slightly different rules apply.
What Kind of House Suits You?
When choosing where to live, it is vital to check out the area and ask yourself a few questions first. Is this somewhere you would want to live and why? Consider the following:
- Are there shops or a supermarket nearby and what about transport links? Your daily commute will have a drastic impact on your quality of life, especially in London.
- What are the crime levels like and is it in the catchment area of a good school?
- What is the local council tax?
- Do you feel safe walking around? Be sure to visit during the day and night to get a reliable feel for the neighbourhood.
Having decided on the area you would like to live, you must choose from a range of house types. Contemplate the following criteria:
- Will you need parking? If so, what are the local regulations and fees? A garage is a bonus but it can add a lot to the price.
- If you are buying a flat, it might be a good idea to check out the neighbours, particularly if there’s anyone living above, as their habits could have a big impact on your life!
- The same applies if you are buying a terraced or semi-detached house.
- Is your family growing? You may want to check if there have been any conversions made to the house already, or if it is in a conservation area or a listed building. This will all impact on any potential extensions/conversions in the future.
- Do you want to buy an old or a new house? Old houses may cost more to heat and maintain, while new builds often come with added extras like furniture.
There is one more very important thing to consider when a buying a house. Is it being sold as leasehold or freehold?
- Leasehold. This means that you have the property for the duration of the lease, it then returns to the owner of the Freehold. There may be specific obligation written into the lease that you need to be aware of, such as maintenance. You will also have to pay the freeholder ground rent, usually a small yearly sum.
- Freehold. The owner of the Freehold has complete control over the property and land subject only to planning and building regulations. This increases the value of the property.
Getting A Mortgage
A mortgage is a long term loan to help you cover the cost of buying a house. Generally speaking, mortgage lenders will give between 75% and 95% of the total house value and ask you to provide the rest up front in the form of a deposit. You will also need to obtain life insurance to cover the cost of the lenders investment should you die. There are several types of mortgage to suit different individuals:
- Fixed rate mortgage - A good option if rates are low at the moment. Fixed periods from 1 to 10 years are possible.
- Variable rate mortgage - This will be affected by fluctuations in the Bank of England’s Base Rate, but the extent depends on the lender. You can switch lenders with this type of mortgage.
- Interest only mortgage - You can often borrow more with this type of mortgage, as you only pay back the interest and not the loan itself.
How much can I borrow?
- If you are buying a house alone, you can generally borrow up to three times your annual salary. Though with a clean credit history and the right lender, loans of up to five times an individual's annual salary are becoming increasingly common.
- If you are buying as a couple, you can usually borrow three times the main income, plus one times the secondary income or two and a half times the total income.
Mortgage lenders will insist on a valuation of the property to ascertain the soundness of their investment. This is arranged by the lender but you must foot the bill. However, this is not to be confused with a detailed survey, which examines the structure and condition of the house. You may have the survey carried out by the same company taking care of the valuation or have it done separately. There are two types of survey:
- Full Structural Survey - This is advisable if it is an old house or you suspect there could be potential problems.
- House buyers report - Much cheaper than a structural survey, it checks the visible health of the house and can recommend specific further checks if necessary. Suitable for newer properties.
ConveyancingThe actual legal process involved in transferring the ownership of a house from one person to another is called conveyancing. Though it is perfectly legal to do this yourself, most mortgage lenders and even sellers will prevent you from doing so, therefore it is advisable to contract the services of either a solicitor or a conveyancing firm. Before deciding on any one firm get a range of quotes and always check that conveyancing firms are licensed to practice with the Council for Licensed Conveyancers. There are three main steps to the conveyancing process:
- 1. Pre-exchange of Contracts.
- 2. Exchange of Contracts.
- 3. Completion.
1. Pre-exchange of Contracts1.1 Your solicitor and the seller exchange details, your solicitor receives a copy of the draft contract which they send to you, this outlines:
- The seller’s and your details.
- Details of prices.
- Which specific fittings are included in the price.
- Details of the sellers title deeds.
- Upcoming changes to the locality that may affect the property.
- If it is in a conservation area.
- If the building is listed.
- If there is a compulsory purchase order affecting the property.
- Are there any ongoing disputes over the property?
- What are the exact boundaries of the property? Who is responsible for specific fences, hedges etc.?
- Does a public footpath or right of way cross the property?
- Do the deeds contain any restrictive covenants?
- Is the property under guarantee with an authority like the National House-Building Council (NHBC)?
- Is the house under planning restrictions due to past extensions or for any other reasons?
- Are rights of way, road access and/or access to utilities shared by any neighbours?
- If the property is Leasehold, is ground rate up to date and who is the Freeholder?
2. Exchange of Contracts2.1 After contracts are exchanged, you are legally bound to purchase the property. As such, before this stage, consider the following checklist:
- You have the deposit ready.
- Your mortgage offer is in place.
- The surveys are satisfactory.
- Life insurance and property insurance are set up.
- The contract terms have been revised by all parties.
- A completion date has been set.
3. Completion3.1. On the date of completion, funds are sent by your solicitor to the seller and the sale of the house is completed. 3.2 You receive the transfer deeds and title deeds. 3.4 You receive the keys and may move in; the buyer must have vacated at a pre-arranged time. Welcome to your new home!
GazumpingIf you make an offer on a house, it is accepted but then you find yourself losing out to a higher offer, then you have just been gazumped! It is not illegal but, if it ever happens, you will wish it were. The problem comes about during the conveyancing process after an offer has been accepted (which is not legally binding) but the exchange of contracts has still to be completed. Importantly, this is after a substantial amount of money has been paid out to conduct the survey(s), the various searches, solicitors fees and other administration charges and, if this is lost due to gazumping, then it will have to be paid again next time. In light of this, it may seem incredible that an agent is in fact legally bound to tell their client of any higher offers, even after one has been accepted. You can minimise the chances of being gazumped by sticking to the following guidelines:
- Be efficient and well organised - The speed of the sale will minimise the window of opportunity during which higher offers could be made.
- Demand that the property is taken off the market - All adverts must be removed from any estate agents' windows and the 'For Sale' signs should be taken down from the property itself.
- Speak to the agent concerned - Some agents have a policy against gazumping, try to choose one that sticks to this.
- Draw up a 'pre-contract deposit agreement' - You can have your solicitor draw up one of these, which binds both seller and buyer to pay a deposit each of 1.5% the total house price. If either party then pulls out of the process, the injured party gets to keep both deposits.
- Take out insurance - This is available to compensate for such an eventuality; an extra cost worth considering.
- The Royal Institution of Chartered Surveyors
- The Law Society of England and Wales
- The Law Society of Scotland
- The Council for Licensed Conveyancers
- The National House-Building Council
- The Association of British Insurers
- The Council of Mortgage Lenders
- The Leasehold Advisory Service
- The Community Legal Service