The process of buying a property can be a long one and its important that you understand what is expected and when – this will help you to enjoy the experience and also make sure you have the right things in place at the right time – including the money.
There are a number of things you need to work out before you start property hunting, these include;
Step 1: Work out your budget and your basic wishlist
- How much you can borrow - this is usually between 4-5 times your annual salary.
- You can talk to mortgage providers to understand exactly how much you can borrow and what monthly repayments you can afford
- How much are you saving for the house deposit,
- Other up front costs e.g. stamp duty, legal fees etc,
- Planning your monthly budget,
- Allow for contingency – what if interest rates change?,
- Where do you want to live,
- What kind of home are you looking for,
- Schools and transport links,
- Obtain a mortgage agreement in principle. Please note this involves a soft credit search which could impact your credit score negatively if you do it multiple times, so it’s better to wait until you are actively searching for a property to do this.
Once you have your plan and your savings are on track, then the fun of property hunting begins.
Step 2: Finding the right property
There are a number of ways to find a property in today’s market, including; online property websites or apps, estate agents websites, estate agency windows, mailing lists, and a good old fashioned drive around.
When you start looking at potential homes, check out the local area. View the property more than once, at different times of the day and ask yourself questions such as: if you are near a school, could parking be an issue? Are there shops or social amenities close by that could be noisy?
Is the property freehold (which means you are the sole owner of the building and the land it's built on), or leasehold (the land or building is owned by the landlord and ownership reverts back to them once the lease expires)? You could also own a share in the freehold.
Flats and apartments are most commonly leasehold, so make sure you know what it is you are thinking of buying before committing yourself.
Step 3: Making an offer
Once you’ve found the home you want to buy then the next step is to make an offer, usually through an estate agent.
The person selling the house pays the estate agents fees, so if you are the buyer then you don’t have to worry about this cost. If you're selling to buy a new property then you will need to cover the estate agents fees which are typically between 1% and 3% of the sale price of the property.
This offer process can sometimes end up in a back and forth negotiation, and could even include other people who are also trying to purchase the same property – make sure you don’t get caught up in a bidding war that puts you over budget.
Step 4: The legalities, surveys and valuations
You will need to appoint a solicitor who will handle the legal paperwork and the searches for you for an agreed fee. The solicitor will also be the one who receives the money from the mortgage lender and will handle the transactions for things like your deposit and stamp duty. They will give you a timeline of what money they need from you and when.
Your mortgage lender will arrange to have a valuation survey carried out on the property you are buying (the cost of which will be met by you). It's not a detailed survey but it will allow them to be assured that the value of the property they are lending against is a fair value.
A property survey is there to help you avoid hidden costly problems further down the line. It’s your property, so it’s in your interest to pay for a decent survey at this stage. It can also help you to renegotiate the price if the survey shows up any issues that could be costly to fix down the line.
For example, if the survey reveals a problem with the home that will need £5,000 to repair, you could ask the seller to lower the price by that much.
Step 5: Finalising the offer and mortgage
Once the survey is complete you may want to go back and renegotiate the price of your new home. There are two reasons for this:
- The lender may value the property at a lower price leaving you with a 'shortfall', and therefore be unwilling to lend you the full amount you need for an offer.
- Your survey may uncover problems with the property that will be expensive to fix. You can use this information to ask for a reduction in price.
If everything has gone according to plan, contact your lender or mortgage adviser to proceed.
There is often a fee, usually called an 'arrangement fee', to set up the mortgage. This can be added to your mortgage, but if you choose this option, bear in mind you’ll pay interest on it for the length of the mortgage. Typical cost: £0-£2,000.
Your mortgage lender must give you at least 7 days once a binding mortgage offer has been made, so you can think about if this is the right mortgage for you. You can use this time to compare this offer with other mortgages.
If you’re sure this is the right mortgage for you, you can let them know that you want to proceed.
Step 6: Exchanging contracts and completion
If there are no problems or delays, then you should receive the contract to sign and complete the sale.
Before signing the contract, go through it with your solicitor to check that all the details are correct. Make sure you are happy with what the sellers have agreed to leave included with the property, and that all your queries have been answered.
At this stage, you and the seller are committed to the sale. You may also be asked by the seller to pay a holding deposit – typically £500-£1000 to show serious intent.
Once you’ve exchanged contracts you’ll need buildings insurance in place to cover the structure of the property. This is where the final money needs to be paid;
- The mortgage funds from your lender are transferred to the seller,
- The stamp duty is payable,
- Solicitors fees are payable,
- And, if you are also selling a property, estate agents fees are also payable.
Next up - receive the keys and you can enjoy moving day! Hopefully, these tips help take away some of the stress and help you prepare for this next financial step in your life. Of course, it doesn’t end there - once you become a home-owner, make sure you don’t make these common renovation mistakes if you’re sprucing up!
Important: This is an option, not a recommendation. Your employer does not benefit from offering this service and all your communications will be with Salary Finance trading as Neyber. This content is for guidance and educational purposes only and is generic in nature. Salary Finance trading as Neyber does not offer regulated financial advice. Please seek independent financial advice.