Buying your first home is exciting, but it can also be daunting. From saving up a deposit to beginning the mortgage application process, there are many hurdles to overcome before you can take possession of the keys to your new property.
Before you can begin searching for a home, you need to save up a deposit of at least 5%. However, saving up a deposit of 20% or more will give you access to a range of cheaper mortgages.
You must decide if you can afford the mortgage repayments in the long term. Since the financial crisis of 2007-8 lenders are required to conduct strict checks to ascertain a borrower's ability to make the monthly repayments. Your finances will be 'stress tested' – so the lender knows you will be able to continue repaying the mortgage if, for instance, interest rates rise or your circumstances change.
You'll have to prove your income and your outgoings to a would-be lender.
Aside from the monthly repayments due, you will need to budget for a range of other unavoidable expenses. These include Stamp Duty (known as Land and Buildings Transaction Tax in Scotland); Mortgage arrangement and valuation fees; survey cost; removal costs; solicitor’s fees; buildings insurance; and redecorating costs.
Will you use a government home-buyer scheme?
There are a wide range of mortgages available in the UK. It is a good idea to seek professional advice – such as from a mortgage broker – before you pick one. Many factors – such as how much deposit you have saved – will determine the mortgages available to you.
In order to satisfy the lending criteria you will have to show a mortgage provider evidence of your income, including payslips and bank statements. You will also need to provide evidence of outgoings, such as other debt repayments, household bills, travel and childcare.
Business owners and the self-employed will have to show business accounts and tax returns for the previous two years.
If your personal circumstances are preventing you from obtaining a regular mortgage, you may wish to consider a guarantor mortgage. These loans are guaranteed by a parent, guardian or other relative who agrees to cover repayments in the event that you cannot.
This is a serious, legally-binding agreement and deserves careful thought from all parties before being entered into.
Choose a property you can afford and be aware of all additional costs, including mortgage fees and Stamp Duty (levied on properties that cost more than £125,000).
Start looking for a mortgage as early as possible, since it can take a long time. Once you've settled on a mortgage that suits you, you can agree to it 'in principle'. A booking fee of between £100 – £250 may be payable.
Check your credit report. Your lender will check it too – so it's important to be aware of any issues. A poor credit rating may prevent you from taking out a mortgage, or it may affect the type of mortgage you can get.
Having found a property you want, it's time to make an offer on it.
You will need to hire a solicitor to deal with all the legal aspects of buying the property. Fees can range from £500 up to £1,500, plus VAT of 20%. A deposit on the fee may be required, typically 10%.
Arrange for a surveyor to identify any issues with the property. Any problems could mean you can ask for a lower price.
A valuation will be undertaken by your lender to ensure the property is worth the asking price. Depending on your mortgage, you may or may not be required to pay for this. Fees can range from £150 to £1,500, depending on the property's value.
Basic survey – suitable for new properties and those in good condition. Does not include valuation or any advice.
Much more detailed than the above survey type, this document is suitable for properties in reasonable condition. The property is surveyed both inside and out and includes a valuation.
If your target property is old or if it may be in need of repair, this is an appropriate survey to undertake. It is the most comprehensive survey available.
You may adjust this based on the findings of the survey. Remember that your lender may value the property at a lower amount than the asking price, meaning there could be a shortfall in the amount your mortgage provider is willing to lend. Any major problems with the property could also give you sound reasons for putting in a lower offer.
Once you have been given a mortgage offer your provider must allow you seven days to think about it – during which you can compare the deal with those of other lenders.
You can change your mind about buying a property up until the point when you exchange contracts.
The mortgage amount will be transferred from your solicitor's account to the account of the seller's solicitor. A telegraphic transfer fee of £25 –£50 will be charged for this.
You may also have to pay a mortgage account fee.
You must pay your solicitor’s fees and your estate agent's fees.
You will have to pay Stamp Duty on properties worth over £125,000 – this must be done within 30 days of completion. If you are buying the property as a second home or as buy-to-let, an additional 3% will be added to each Stamp Duty band.
If you wish to you can pay for professional removers to help with removal – usually upwards of £300, depending on things like how far away your new property is and the day of the week (weekdays are less costly).