Home Buying Guide
1. How much can you afford?
The first thing you need to do is decide how much you can afford. You will need to look at how much money you have available yourself and how much you can borrow. There are a number of different financial institutions which offer loans to people buying a property, for example, building societies and banks. You should find out if you are able to borrow money and if so, how much.
Some building societies now provide buyers with a certificate that states that a loan will be available provided the property is satisfactory. You may be able to get this certificate before you start looking for a property. Building societies state that this certificate may help you to have your offer accepted by the seller.
Before finally deciding how much to spend on a property, you need to be sure you will have enough money to pay for all the additional costs. These include:-
- survey fees
- valuation fees
- Stamp Duty Land Tax
- land registry fee
- local authority searches
- fees, if any, charged by the mortgage lender or someone who arranges the mortgage, for example, a mortgage broker
- the buyer’s solicitor’s costs
- removal expenses
- any final bills, for example, gas and electricity, from your present home which will have to be paid when you move.
For more information about Stamp Duty Land Tax, go to the GOV.UK website at www.gov.uk and for more information about Stamp Duty Land Tax in Northern Ireland, go to the NI Direct website at www.nidirect.gov.uk.
You should be aware that if you start the process of buying a property and then the sale falls through you may have already paid for a valuation or a survey. If the solicitor has started any legal work you may also have to pay for the work done.
You should also take into account the running expenses of the property you wish to buy. These may include:-
- council tax (in England and Wales)
- water rates (in England and Wales)
- rates (in Northern Ireland)
- ground rent, if the property is leasehold
- service charges, if the property is a leasehold flat
- insurance costs, including life insurance, buildings and contents insurance
- heating bills. An energy performance certificate can help you work out how energy efficient your property is.
You will have to pay a deposit on exchange of contracts a few weeks before the purchase is completed and the money is received from the mortgage lender. The deposit is often 10% of the purchase price of the home but it can vary.
2. How to find a property
There are a number of ways in which you could find a property to buy:-
- using estate agents
- looking at the property pages in local newspapers
- contacting house building companies for details of new properties being built in the area
- looking on the internet at Rightmove or Zoopla etc.
Estate agents must comply with laws that protect consumers from unfair sales and marketing practices.
3. Deciding on a property
When you find a property you should arrange to look at it to make sure it is what you will need and to get some idea of whether or not you will have to spend any additional money on the property, for example, for repairs or decoration. It is common for a potential buyer to visit a property two or three times before deciding to make an offer.
Energy Performance Certificates
If you are thinking of buying a property, you must receive an Energy Performance Certificate (EPC), free of charge. An EPC gives information on the energy efficiency of a property using A to G ratings, with A being the most energy efficient and G the least efficient. The certificate is produced by an accredited domestic energy assessor.
A certificate is valid for ten years and can be used multiple times during this period.
Warranties for newly-built properties
If the property is a newly-built property, check whether it has a Buildmark warranty. Buildmark warranties are organised by the National House-Building Council (NHBC) which is an independent organisation with over 20,000 builders of new houses on its register. Before being accepted onto the NHBC register, builders must be able to show that they are technically and financially competent and they must also agree to keep to NHBC Standards.
The Buildmark scheme covers homes built by NHBC registered builders once the NHBC has certified them as finished. The scheme will, for example, protect your money if the builder goes bankrupt after contracts have been exchanged but before completion. It also covers defects which arise because the builder has not kept to NHBC Standards. For more information, go to the NHBC website at: www.nhbc.co.uk.
As well as protection under Buildmark, buyers also have protection under the home-building industry’s independent Consumer Code for Home Builders. More information is available at www.consumercodeforhomebuilders.com.
Is the property leasehold, freehold or commonhold
If the property is freehold, this means that the land on which the property is built is part of the sale and no ground rent or service charge is payable.
A property may be leasehold, which means that the land on which the property is built is not part of the sale. You have to pay ground rent to the owner of the land – who is called the freeholder.
The length of a lease can vary and you should check that the length of the lease on the property you are interested in buying is acceptable to the mortgage lender.
In addition to ground rent on a leasehold property, you may have to pay an annual service charge. This usually happens with a flat. The service charge covers such items as maintenance and repairs to the buildings, cleaning of common parts and looking after the grounds.
A group of leaseholders living in the same building may have a right to jointly buy the freehold of the building or take over its management.
In England and Wales, you can get further advice about leasehold from:-
The Leasehold Advisory Service (LEASE) Fleetbank House 2-6 Salisbury Square London EC4Y 8JX Tel: 020 7832 2500 Tel: 02920 782 222 (Wales) Email: email@example.com Website: www.lease-advice.org.uk
There is also a useful leaflet on leasehold rights in England and Wales. Go to the GOV.UK website at: www.gov.uk.
In England and Wales, the Federation of Private Residents’ Associations may also be able to help if a group of leaseholders want to set up a residents’ association. It can also provide legal advice and other information to its member associations. Its contact details are:-
If the property is commonhold, this means that you can buy the freehold of a flat and own common parts of the building jointly with the owners of other flats in the building (known as a commonhold association).
In commonhold a ground rent or service charge is not payable. However, a share of the commonhold association’s expenditure on maintenance, insurance and administration will be payable for the common parts of the building.
4. Making an offer
When you decide you would like to buy a particular property you do not necessarily have to pay the price being asked for it by the owners. You can offer less if, for example, you thinks there are repairs to be done which will cost money.
If the property is being sold through an estate agent, you should tell the estate agent what you are prepared to pay for the property. The estate agent will then put this offer to the owners.
If the owners do not accept the first offer put to them by you, you can decide to make an increased offer. There is no limit on the number of times you can make offers on a property. If you make a written offer it will always be made subject to contract. This means that you will not be committed to the purchase before finding out more about the state of the property. If you make an oral offer this is never legally binding.
5. When the offer has been accepted
When your offer for the property has been accepted you will have to consider the following:-
- whether a holding deposit is payable
- arranging a mortgage – see below
- whether a survey is necessary – see below
- who will do the necessary legal work – see below
- whether you want to buy with someone else – see below.
Once the owners have accepted your offer the buyer may be asked to pay a small deposit to the estate agent. This is usually between £500 and £1000. It is meant to show that you are serious about going ahead with the purchase. It is repayable if the sale does not go ahead.
Arranging a mortgage
If you have not already begun to arrange a mortgage, you should start to do this now. It should take about three weeks from the application for the mortgage to the formal offer being made by the lender. However, this timescale may vary.
Whoever agrees to lend the money will want to have the property valued. This is to make sure that the lender could get the loan back if for any reason you stopped paying your mortgage and the house had to be sold again. The valuation will be done by a surveyor on behalf of the lender but you will have to pay for this valuation. The fee will be payable in advance, usually when you send a completed mortgage application form to the lender.
If the amount of money to be borrowed is more than a certain percentage of the valuation of the property (usually 75-80%), your lender may make it a condition of the loan that you take out extra insurance to cover the extra amount. You pay a single premium to your lender which is usually added to the loan. This is known as a higher lending charge (or mortgage indemnity guarantee).
If you only have a 5% deposit, you may be able to get a mortgage under the Help to Buy: mortgage guarantee scheme.
For information on the Help to Buy: mortgage guarantee scheme and other schemes which may be able to help you buy a home see help to buy info
Arranging a survey
The valuation which is done for whoever is lending the money is not a survey. You should consider whether or not to have an independent survey carried out in addition to the valuation. The survey would not only consider the value of the property but would also examine the structure of the property and should identify any existing or potential problems.
There are two levels of survey that you can choose between:-
- a full structural survey. This is suitable for a property which is large, more than 80/90 years old or in doubtful condition
- an intermediate or ‘house/flat buyers report’ that gives a report on the condition of the parts of the house that are easy to see and to get at and may recommend further tests or investigations, for example, a specialist check for woodworm. This is particularly suitable for properties built this century which appear reasonably sound. It is much cheaper than a full structural survey.
It is possible for you to use the same surveyor who does the valuation to carry out the survey and this may be cheaper. However, you can use a different surveyor if you wish.
If the surveyor reports that there are some problems with the property, you will have to consider whether you still want to go ahead with the purchase or want to negotiate further with the seller about the price. The surveyor will usually advise you as to how any problems they have identified should be dealt with and the likely costs of this. You can find more useful information about property surveys at www.rics.org.
Choosing who is to do the legal work (conveyancing)
The legal process of transferring the ownership of the property from the present owner to the buyer is known as conveyancing. You should decide who you want to do the conveyancing work. You can do it yourself – although this can be complicated – or you can:-
- use a solicitor; or
- use a licensed conveyancer.
Using a solicitor
Most firms of solicitors offer a conveyancing service. Although all solicitors can legally do conveyancing, it is advisable to choose a solicitor who has experience of this work.
Using a licensed conveyancer (England and Wales only)
You can use a licensed conveyancer to do your conveyancing. Licensed conveyancers are not solicitors but are licensed by the Council for Licensed Conveyancers.
If you want to find out if a local conveyancer is licensed you can write to:
Finding out how much it will cost
Before making a choice as to who will do the conveyancing, you should be advised to find out the probable costs of the conveyancing. It is important to contact more than one solicitor or licensed conveyancer as there is no set scale of fees for conveyancing. You should:-
- check whether the figure quoted is a fixed fee or depends on how much work is involved
- check that the figure includes stamp duty, search fees, land registration fees, expenses and VAT and get a breakdown of these costs
- find out what charges, if any, will be made if the sale falls through before contracts are exchanged.
6. Steps in the legal work of buying a property
Although it is impossible to give a precise idea of how long the legal work involved in buying a property takes, it is possible to offer guidelines. From having an offer accepted to exchange of contracts can take up to seven weeks and from exchange of contracts to completion can take up to four weeks. However, if there are any problems the time taken may be longer.
Enquiries made by the solicitor or, in England and Wales, licensed conveyancer
Once you have instructed the solicitor or, in England and Wales, a conveyancer, the seller’s solicitor or the licensed conveyancer draws up a contract which will eventually be signed by you and the seller. However, before the contract can be signed, your solicitor or licensed conveyancer must make sure that there are no problems with the ownership of the property, rights of way, access, or future developments in the area that might affect the property. This is called ‘making enquiries and searches’. The solicitor or licensed conveyancer makes the enquiries and searches as follows:-
- local searches. These are enquiries made to the local authority (or in Northern Ireland, the appropriate government department) about any matters which affect the property which involve the local authority, such as whether there is a compulsory purchase order on the property. Local searches also include questions about any proposed changes or development in the area that might affect the property such as roads, housing, shops. During the local search, the local Land Charges Register (Registry of Deeds in Northern Ireland) is also checked. This gives information about any matter which affects the property such as tree preservation orders, if it is a listed building or in a conservation area; and
- enquiries made to the seller by the solicitor or, in England and Wales, a licensed conveyancer. These are a set of standard questions about the property, boundaries, neighbour disputes and fixtures and fittings that will remain in the property. There may also be additional questions that the solicitor or licensed conveyancer thinks are necessary, such as the transferability of guarantees for any work done on the house, for example, a damp proof course; and
- from the Land Registry.
Arranging to pay the deposit
Whilst the solicitor or, in England and Wales, a licensed conveyancer is making the enquiries, you should sort out how you will pay the deposit that has to be made when the contracts are exchanged. This deposit is often 10% of the price of the home but it can vary.
If you are also selling a house, it is usually possible to put the deposit on the property being sold towards the deposit on the property you are buying.
If raising the deposit is a problem, you could consider borrowing the money for the deposit from relatives or you could try to get a bridging loan from a bank. However, the amount of interest you will have to pay for a bridging loan will be high and you should check how much this arrangement will cost. Discuss your options with your solicitor or licensed conveyancer.
Insuring the property
You should make sure that buildings insurance is arranged from the date of exchange, because once contracts have been exchanged you are responsible for the property.
You may be able to get information on buildings insurance from your mortgage lender, solicitor or, in England and Wales, a licensed conveyancer.
Exchange of contracts
The final contract between you and the seller is prepared when:-
- the solicitor (or licensed conveyancer) and you are satisfied with the final outcome of all the enquiries
- any surveyor’s report has been received and any necessary action taken
- the formal mortgage offer has been received
- arrangements about the payment of the 10% deposit have been made
- the date of completion has been agreed.
You and the seller each have a copy of the final contract which you must sign. These signed contracts are then exchanged. At exchange of contracts both you and the seller are legally bound by the contract and the sale of the house has to go ahead. If you drop out, you are likely to lose your deposit.
You should make arrangements for the supply of gas, electricity and telephone service and make sure that the seller is arranging for final meter readings to be made.
Completion of the purchase usually takes place about four weeks after exchange of contracts, although it can be earlier. On the day agreed for completion:-
- the mortgage lender releases the money
- the deeds to the property are handed over to your solicitor or licensed conveyancer
- the seller must hand over the keys and leave the property by an agreed time.
The solicitor or licensed conveyancer (in England and Wales only) will usually send their account to you on, or soon after, the completion date.