Buying or selling a house can be a difficult and lengthy process and whatever your level of experience, you will need the help of several professionals along the way.
Within this guide, we'll explain who does what in the buying/selling process, what to look for and what to avoid, official governing bodies and external links to help you locate the right people for your needs. To make it easy to understand we have split this guide into separate sections each covering a single profession:
- Mortgage Lenders
- Estate Agents
- Chartered Surveyors
- Conveyancers and Solicitors
What is a Mortgage Lender?
Mortgage lenders make it possible for you to purchase your home. Unless you are lucky enough to have a hundreds of thousands of pounds squirrelled away in savings, you will need financial assistance. A mortgage lender will make a profit over time by charging interest on the loan they grant you.
You need to be very careful in choosing your mortgage lender as this is a contract that will span years, and making the correct decision here can make a difference of hundreds, if not thousands, of pounds.
Also, if you fail to keep up with your payments, the mortgage lender can repossess your house and sell it on in order to get their investment back.
How do I choose a Mortgage Lender?
Choosing the correct mortgage is vital. With so many lenders competing for your business, you must shop around before making a commitment. However, both the hardest and the most crucial part of choosing the correct mortgage is deciphering the financial jargon in the small print and understanding what it all means in relation to you. That's why we have compiled the below mortgage lending ‘jargon-buster’ to help you settle on the best deal.
- Capital: This is the amount of money you borrow from the mortgage lender to pay for your house.
- Interest: This is added to the capital at a pre-arranged rate (the interest rate). This is how the lenders make a profit.
- Deposit: This is a cash sum that you put down on a house. It's usually at a minimum of 5%, thereby leaving a mortgage of 95%. These days, 100% mortgages are becoming more common but these come with a higher interest rate.
- Application Fee: This is an initial amount charged by some lenders to set up your mortgage.
- Mortgage Indemnity Guarantee (MIG): Sometimes known as a mortgage indemnity premium (MIP). Some lenders charge this when you're putting down a fairly small deposit (25% or under). It effectively protects the lender if you fail to keep up repayments and your home has to be re-possessed, only to sell for less than the mortgage.
- Mortgage Term: This is the duration of the loan, the time in which you have to pay back the capital and all the additional interest.
- Exit Penalty: This is a fee that lenders charge if you wish to leave your mortgage and switch to another provider.
- Redemption Penalty: Also known as a lock-in or tie-in. These are fees which lenders charge should you wish to leave their mortgage after some special deal they offered you has expired. Take careful note of these, as they can add up to thousands of pounds.
- Negative Equity: This is a very disagreeable state of affairs whereby interest rates rise to the point where you are paying more in mortgage repayments than your house is actually worth.
Where do I find a mortgage?
Most major high street banks and building societies provide mortgage lending services. If you have a bad credit rating, known as adverse credit, you may be able to get a mortgage from a specialist provider. However, the interest rates will be higher in order to cover what they will see as a more risky investment.
When should I get a mortgage?
Getting a mortgage is one of the first steps in buying your own home. You should contact a number of lenders to compare quotes and get the best deal - paying special attention to the keywords in our jargon-buster. You need to be careful when obtaining a number of quotes, as lenders may perform credit checks as part of the process. More than three such checks within a six month period will harm your credit rating and make it harder for you to get a mortgage. Therefore insist that they do not run a credit check on you during initial inquiries.
Once you are satisfied that you have found the best possible deal, you need to get a mortgage agreement in principle. A mortgage lender will provide you with this in principle if all the information you gave them is correct. You can obtain one in writing and this will help to speed up the process of actually getting a mortgage when you have found a suitable property. Getting a mortgage agreement in principle also means estate agents and sellers are much more likely to take you seriously.
What is an Estate Agent?
Estate agents act as brokers to sell other peoples homes. Essentially they are there to facilitate contact between the sellers and potential buyers. With each house sale they take a commission. The bigger the sale and the higher the price, the bigger their individual commissions. They may charge other fees for administration, listing and viewings. The role of an Estate Agent can be summed up in the following points:
- To get suitable properties onto the housing market and reach as many potential buyers as possible.
- To liaise with sellers in presenting their property in the best possible light to attract sales.
- To represent saleable properties to potential buyers in a fair and honest way.
- To negotiate the sale at the best possible price.
- To progress the sale through to a successful conclusion in the fastest possible time.
How do I choose an Estate Agent?
In Britain, unlike most other countries, anyone can set up as an estate agent, they need neither qualification nor training. A good estate agent will help to make the buying/ selling process stress free and advantageous for all parties, a bad one can cause misery through malpractice bordering on the fraudulent. Before placing your most valuable asset in the hands of a stranger, think through the following points:
- Reputation: Is the Estate Agent a member of any national bodies such as the Ombudsman for Estate Agents (OEA), National Association of Estate agents, The Guild of Professional Estate Agents?
- Conduct: Has the company published a professional code of conduct or best practice? Ask to see this. If they are a member of the OEA then they must follow a pre-set code of practice.
- Insurance: Estate Agents must be insured to accept any deposits and receipts must be given. Client deposits must be kept in a separate client bank or building society account, as set out in the Estate Agents Regulations.
- Local Knowledge: Is this Estate Agent a local specialist? Only agents with excellent local knowledge and connections will be able to advise clients in an informed manner.
- National Advertising: How will the Estate Agent advertise your house to the widest possible audience? Do they publish a magazine, if so how many and how often? Do they publish properties on professional looking, functional websites as well as in-house and are they part of a wider network of agencies that liaise with one another to maximise coverage?
What is a Surveyor?
It is absolutely vital that you know the condition of a property prior to investing in it. As such, you will need a professional surveyor to conduct a survey and check the aspects of the house that are not obvious to the untrained eye. Depending on the type of survey you contract them for, surveyors will provide you with a detailed report giving you a clearer indication of the property's value and listing any potential problems. Always use a surveyor that is a member of the Royal Institute of Chartered Surveyors (RICS)
What are the different kinds of Survey?
There are three main types of survey:
- A Valuation (this is actually not a survey)
- A Home Buyers Report
- A Full Structural Survey
Your mortgage lender will insist on a valuation. This simply checks that the price you are paying for the house is fair. In essence, this is to ensure that their investment is being made on sound terms, but you still have to foot the bill and they will recommend the company. Do not confuse a valuation with a survey though! A valuation is not a survey, though it can be carried out by the same people.
A survey is a far more detailed look at the state of repair, and is highly recommended, as there could be hidden problems that could turn your dream home into nightmare. You can have a survey done by the same company as the valuation, or contract one of your choosing to do the job.
A Home Buyers Report
This is the most basic type of survey and will check the visible areas of the house for any problems. It is generally suitable for houses built within the last 150 years that are in a reasonable condition. You should be furnished with a report at the end which, according to the RICS, will include the following:
- General state of repair: Covering the interior and exterior of the property and the locality.
- Major defects: It is the surveyors job to judge if there are any major defects that could affect the market value of the house.
- Damp: Results of tests for damp in the walls.
- Timbers: You need to know about any damage to timbers, especially woodworm or rot.
- Drainage: The present condition of any damp-proofing, insulation and drainage must be ascertained (although drains are not tested in this survey).
- Future maintenance: You need to know about any work that will need to be done immediately or in the near future.
- Insurance: The cost of rebuilding the property after a fire must be estimated for insurance requirements.
- Legal matters: There could be issues relating to the lease terms of occupancy, rights of way, rights and responsibilities, parking issues, etc.
- Further investigation: If the surveyor sees anything that requires further investigation but cannot be covered in this type of report, he will notify you.
- Value: Based on the findings, you will be given a valuation of the property on the present open market.
A Full Structural Survey
A full structural survey is a much more detailed and costly report. It is not uncommon for a survey to reach over 20 pages in length, including diagrams, floor plans and using very technical and legal language. A full structural survey will not give you the value of the property; you need to ask for this if you wish it to be included. There are legal ramifications for a licensed surveyor if they do not warn you of anything that could affect the property and the level of detail reflects this. It is recommended for properties that:
- Are listed buildings.
- Are old properties.
- Are constructed in an unusual manner.
- You plan to renovate extensively.
- Have had extensive alterations already.
What is conveyancer?
The final part of the house buying process entails the use of a conveyancer or solicitor licensed to do conveyancing work. The complex legal process of transferring ownership of a property from one person to another is called conveyancing and, although you can legally do this yourself, most mortgage lenders will not allow you to, so you are best contracting an expert.
The buyer’s conveyancer or solicitor will liaise with the seller’s solicitor, and you should be made aware of how the process is progressing at all times. Conveyancing can be divided into three main stages, at each stage particular things must be completed before the process can move onto the next one:
- Pre exchange of Contracts: All contracts - the lease, title deeds etc must be checked and negotiated. Formal searches such as land registry must be undertaken. Specific formal inquiries must be made to the seller of the property.
- Exchange of Contracts: Upon receipt of a confirmed mortgage offer contracts are exchanged, signed and some final searches are undertaken. The deposit is paid.
- Completion: Assuming all the searches have been cleared, the deposit has been paid and contracts have been signed then the property price is transferred to the seller, the buyer receives keys and can officially move in!
It is crucial that your conveyancing is carried out efficiently and with great attention to detail. If a race with other interested buyers to obtain an attractive property ensues, the speed of conveyancing will really make a difference. After stage 2 (exchange of contracts), both the buyer and seller are legally committed to the deal. However there is no legal obligation during stage one, never mind how much money has been forked out on surveys, valuations, searches and legal fees!
Shop around for the best deal, listen to recommendations and always use a conveyancer that is registered with the Council for Licensed Conveyancers.