Looking for advice on how to buy a house? Buying a home for the first time (and, to be honest, for the second and third) can be a daunting experience: finding a property that's right for you and putting in an offer is only the tip of the iceberg. There are surveys to consider, as well as navigating the complexities surrounding leasehold and freehold. There's a lot to know, and a lot of paperwork to fill out.
- Want to know how much the home of your dreams will cost? Check out our guide to house prices 2020
1. Getting a mortgage for your house purchase
When you’re taking out a mortgage to buy a house, be aware that you need to begin the process before you start house-hunting. This way, you’ll know how much you can borrow so you’re not wasting time on flats and houses on which you wouldn’t be able to afford the monthly repayments.
You may have been able to save money towards a deposit, which will mean a larger choice of mortgage deals, and contribute to the total available. Speak to a whole market mortgage broker, such as Habito, who will give you unbiased advice; help you find the best deal; answer any questions; and negotiate the best deal based on your financial history and current status. Use their online comparison tool below.
Use our guide to mortgages and obtain the agreement in principle for the mortgage that demonstrates you are a serious buyer when you come to make an offer.
2. Investigate Help To Buy and Shared Ownership
There are government schemes designed to help you buy a flat.
Help to Buy ISAs are offered UK wide to first-time buyers. The government will top up your savings by 25 per cent (up to £3,000). If there are two of you buying, the other person can also get a Help to Buy ISA. You don’t have to pay the money back. The scheme closes at the end of November 2019.
There are some conditions. The home must have a purchase price of up to £250,000 or £450,000 in London, be your only home, and be where you intend to live. You’ll need to save into the ISA (up to £1,200 the first time, and then up to £200 each month with a maximum of £12,000). When you buy, your solicitor or conveyancer applies for the 25 per cent top up.
There are a number of providers of the Help to Buy ISA
Help to Buy equity loans are designed to provide you with a low interest loan towards your deposit in England and Wales. However, to be eligible you have to buy a new-build home from a registered Help to Buy builder with a purchase price up to £600,000 in England or £300,000 in Wales. It also has to be your only home, and you can’t sub-let or rent it out when you buy. If you’re in Wales, you’ll need to show you can’t afford the property. Please note that from 2021, the government are introducing regional price caps on properties that are not in London, where the £600,000 maximum will still apply.
You need a 5 per cent deposit, and the government will lend you up to 20 per cent (or 40 per cent in London). You’ll require a mortgage of up to 75 per cent (or up to 55 per cent in London). The loan has be paid back after 25 years or when you sell the property, whichever comes first, and what you pay back depends on the market value of the home.
You can use both a Help to Buy ISA and an equity loan, if necessary. Read our guide on Help to Buy for more details.
Shared ownership is another UK-wide scheme where you buy a share of between 25 and 75 per cent of your home through a housing association and pay rent on the rest.
Different rules apply in Northern Ireland and Scotland, and in Wales you must contact your local authority. In England, to be eligible your household needs to be earning £80,000 per year or less (or £90,000 a year or less in London). Check out the government’s information and find a home to buy through the shared ownership scheme via the Help to Buy agent in the area in which you want to live.
Find out more about shared ownership in our comprehensive guide.
3. Get in the know about leasehold and freehold
It’s important to understand the difference between leasehold and freehold when you’re buying a property.
If you buy a leasehold property, you own the building but not the land. With a freehold property, you own both building and land. Most frequently, in England and Wales, buying a flat means buying a leasehold, while houses are freehold – but there is a trend for new-build houses to be sold as leasehold properties.
Why does it matter whether you own the land? Buy a leasehold property and you will probably have to pay an annual fee called a ground rent to the freeholder (also called the landlord). You will usually also have to pay service charges. You may also be called on to contribute to major works on the building although the landlord will have to consult you if this will cost each leaseholder more than £250.
If you are interested in a leasehold property, find out how long is left on the lease, which has a fixed term. A lease can last for up to 999 years or periods such as 125 years, but they can be short. A mortgage lender will probably require 80 years of the lease remaining when you buy. Be aware, too, that the property’s value will fall and it can be hard to sell when there are fewer than around 90 to 80 years left on the lease.
The other factors to consider if you’re buying leasehold are that you may not be able to own a pet or sub-let, or you may be able to only with permission. You’ll also have to get the OK from the freeholder for some (usually structural) alterations to your home.
Freehold properties allow you to own both building and land until you choose to sell. You won’t be paying ground rent or service charges. You’ll be the one looking after the building, so you can get your own quotations for work when it’s needed. Equally, you won’t have the concerns that some leaseholders have that the building is not being sufficiently maintained as this is up to you.
New-build houses are increasingly being sold as leasehold properties. This brings the same cost issues with as a leasehold flat including ground rent, fees for permission for changes and service charges.
Recent media reports have revealed ground rent charges that increase steeply over time and large fees being demanded for minor alterations to a house. Owners have also found that when they try to exercise the right to buy the freehold, it has been sold on by the developer, and the process is both difficult and extremely expensive. These issues can also cause major problems if an owner wants to sell.
Always check whether a new-build home is freehold or leasehold, and appoint an independent solicitor and ask them to confirm what you’ve been told.
4. Search for a home
The major portals Rightmove, Zoopla and Onthemarket will show you what’s out there, but it’s worth taking the old-fashioned approach and talking to the agents who cover the area in which you’re looking to buy a house as they’ll be able to let you know about properties they are about to list. Here are the rules to follow when you’re looking:
Do know the price bracket you’re looking in following your discussions with mortgage lenders, but don’t dismiss properties that are under your maximum in case there’s competition from other buyers. Equally, you can look above in case a seller is desperate to move and open to an offer. However, beware of wasting time with properties that are always going to be out of your reach.
Do draw up a list of must-have features, but don’t be too rigid. Some will be non-negotiable – for example the maximum distance of a commute – but be open to different possibilities and the fact that over time you may be able to improve both exterior and interior.
Do check out the local area online with Street View, which can save you a journey to a home in a location that’s definitely out of the question.
Don’t spend your life looking online. Until you actually arrange viewings you won’t get a true feel for what you can buy.
Do check out our guide to viewing properties to make sure you're looking for the right things.
5. Arrange a solicitor or conveyancer
It’s worth finding the professional you’re going to work with before you make an offer as you’ll be asked for these details when you do. Your chosen professional will also give you the lowdown on how to buy a house.
Both solicitors and conveyancers can undertake the legal work involved in your house purchase – such as drawing up contracts, providing advice and recommendations, and dealing with the money side of the purchase.
Personal recommendation is always valuable, and appointing someone in the local area can be a good idea. Don’t just choose on price – a dedicated professional with time to spend on your conveyancing is vital. Your estate agent is also likely to recommend one, but make sure that the conveyancer is certified by the Solicitors Regulatory Authority or Council for Licensed Conveyancers or the Law Society.
Conveyancing can take time, and there’s a lot of paperwork and back and forth, but be patient: this process ensures that everything is legally in your best interest as a home buyer. It can be easy for a first-time buyer to want to speed up the process as much as possible, without checking that you are getting the best possible deal at every step of the buying process, but a good conveyancer should be able to spot anything that might need amendments.*
*Tip provided by Jacqui Harley at JMP Solicitors
6. Make an offer
Once you’ve decided you want to purchase the property, you can put in an offer.
Bear in mind how long it’s been on the market – a buyer may be more open to offers if the home has been up for sale for a while. Pay attention to similar properties in the area as well, and how long they’re taking to sell.
Find information on sold prices in the area via the Land Registry’s UK house price index.
Online estimates can be a guide, but don’t rely on them – instead think of them as ranges of value because they can under or over price by some margin.
Don’t be surprised if a low offer is rejected at once. It is most likely to be successful if the property has been on the market for a while, or if the seller needs to move quickly. An offer of 5 or 10 per cent lower than the asking price can be a good place to start.
Be prepared to negotiate if a first offer is rejected. As a first-time buyer you are in a strong position without a chain behind you, which can help. Flexibility over completion date to suit the seller may also assist your bid.
Once the offer has been accepted ask that the property is taken off the market. If this is refused, be very wary of spending out on a survey and conveyancing as another buyer could come along and offer more, so-called gazumping. In England and Wales an accepted offer is not legally binding until exchange of contracts.
To avoid getting gazumped, ask the estate agent (firmly and repeatedly) to take the property off the market and change the sign outside to 'sold.' Gazumping is deemed unethical by some agents but it is not illegal.
7. See the house buying process through
Your solicitor or conveyancer will now act as an intermediary between you and the seller via his or her legal professional. A good estate agent will also liaise with both you and the seller to ensure the house purcahse moving forward.
The conveyancer examines the draft contract, raises enquiries with the seller’s solicitor, and does the legal searches.
You will need to apply for the mortgage and have the property valued meeting the lender’s criteria. You will also need to decide on the type of survey you wish to have.
Keep in regular contact with your conveyancer to ensure things are moving forward.
8. Exchange contracts on a house purchase
Once you’ve got the surveyor’s report, have a mortgage offer, and all the searches and enquiries have been received and everything is satisfactory, you can exchange contracts with the seller. Your deposit needs to be with the solicitor in time for exchange.
A date and time will be arranged for exchange of contracts. At exchange the deal becomes legally binding and if you pulled out of the purchase, you would lose the deposit. The seller is also legally committed and cannot sell to someone else.
Make sure you have insurance in place from this point.
9. How to complete a house purchase
The date of house purcahse completion will have been agreed between you and the seller before exchange. It’s frequently two to four weeks after exchange.
You will be given the keys once the seller’s solicitor has confirmed they’ve received the money due.
After completion, your conveyancer will also pay the stamp duty, and send documents to the Land Registry on your behalf.
There is a reason to keep things friendly between buyer and vendor: the inevitable quibble over white goods. There is no firm set of rules here, but a fixed item they cannot take with them should be included in the price of the property.
If it would benefit them to take the washing machine to their next home but they offer to leave it for a sensible cost, bite their hand off. The convenience of having decent white goods in place on moving day is invaluable. However, they must be well within the warranty period or do not part with any cash. Also, insist all warranties and manuals are left.
10. Buying a house and coronavirus: what should you do?
The good news is: house purchases are now going ahead following the lifting of lockdown restrictions on the 13th May. You can go ahead and buy a house or flat in England, although Scotland and Wales still have restrictions in place. If you're buying, you might need to be quick: the house price crash that was predicted has not happened, and prices are continuing to rise, albeit at a modest pace.
11. Can I get a mortgage with bad credit history?
If you are currently experiencing financial difficulty it is not the right time to buy a house. There is a new tenant-to-landlord payment system that allows you to build your credit rating back up by making your rent on time each month.
However, if money-worries are a thing of the past then your first port of call is the mortgage broker who can help you take out a mortgage. If you have a poor score but a good record over the last 12 to 24 months, a bank may lend.
If you have a big deposit and can therefore afford a low loan-to-value mortgage it will be easier to get a mortgage agreed. There are specialist mortgage lenders (known as the sub-prime sector) but the interest rate repayments are far higher.
Find out more about mortgages with bad credit in our in-depth guide.
12. How to buy a house with sealed bids
If there's hot competition for a property, you may be asked to submit a bid in a sealed envelope. It isn't legally binding but could secure you the house.
How much to write down? Don't be tempted to over-pay: you may bag the property but the mortgage lender could decide the property is worth less – or you might have to sell on in future at a loss. Instead, submit a figure that you think is fair, but avoid a round number. So, if you think it's worth £250,000, submit a bid for £251,000.
Use the online comparison tool developed by mortgage experts Habito and see how much you could borrow.