Buying a house can be a MINEFIELD. The jargon, the legal paperwork and the adultness of it all can be incredibly overwhelming when approaching it for the first time. I didn’t have a clue what I was doing, but luckily for me, I knew someone who works in a solicitors who does the whole buying and selling lark all day, every day (thanks Connie) and she kindly explained what I could expect when we began the process of buying a house.
As of the 15th of May, me and David became home-owners and while it was a somewhat stressful experience, I think the most scary part was not really understanding anything while I was going through it. Even though I had someone explain it to me, it still got a bit confusing as there are so many different elements when it comes to buying a house. I don’t think you can ever fully understand what it’s like until you go through it, but I don’t think there is enough clear information, a dummies guide if you will, for young first time buyers.
Therefore I have put together a handy little resource that details key terms, what kind of deposit you need, speaking to a financial adviser, looking for a house, applying for a mortgage and what happens once your offer has been accepted. This guide is for those of you who are in the middle of saving up to buy a house, or even may be at the stage when you are ready to buy, but haven’t a clue where to even begin. That was me six months ago – so I’ve got your back.
Chain – The simpliest way to explain a chain is that it is a sequence of ‘linked house purchases’. For example, person A wants to buy persons B’s house. Person B wants to buy Persons C’s house, person C wants to buy persons D’s house and so on. As the first time buyer you are ‘Person A’. Chains can be endless and in an ideal situation you’d be buying a house that has a small chain – the longer the chain the longer things take and the more likely things can go wrong.
Lender – A lender is a bank or building society that will lend you the amount you need to cover the cost of the house minus the deposit. A lender will usually let you borrow up to 4x your salary. You then pay the lender back each month (this is your mortgage) with interest, to pay off the amount you have borrowed.
Mortgage – The amount you pay back each month to the lender. You can set the amount of years it takes for you to pay back the amount you have borrowed, however the longer it takes for you to pay it back the more interest you pay.
Surveyor – Someone who comes to the property you are wanting to buy and carries out a report on the building. Usually banks send out surveyors for free, but this is the most basic of reports. If you wanted to get a more detailed report you can pay for a property surveyor to come out and have a look – this will be much more detailed and will tell you if there is anything structurally wrong with the property. This can in turn influence whether or not you want to go ahead and buy it. It can be worth it as when you buy a house you are responsible for it – you don’t want to find out two months down the line that you may need to buy a whole new roof!
First things first, in order to buy a house you will need a ‘deposit’. You will not be able to buy one without being able to put a sizable sum of money down on the house, which is why it is so difficult for people to get onto the housing ladder. Usually, a deposit is 10% of the house value but sometimes a 5% deposit is accepted. Essentially, if the house is worth £200k you will need a minimum £20,000 deposit.
Therefore, to use the example of a £200k house on a £20,000 deposit, the amount you would need to borrow (known as a mortgage) would be £180,000. It is better to be able to put down a higher deposit than 10% as it would mean you would be borrowing less e.g £200k house with a £40,000 deposit would mean the mortgage is £160,000.
Putting as much money down as a deposit is good as it means you don’t need to borrow as much money from the lender, which of course incurs interest. The more you borrow, the more interest you pay. However, no matter how big your deposit, the value of the house you can afford also depends on your annual salary (don’t worry, I’ll explain further down!).
If you want to buy a house and you aren’t receiving any financial help from relatives, it is up to you how much you can realistically save. £15,000 is a good aim (which is 10% of a £150,000 value house) – but remember, you will need to pay for legal fees and also to have money to furnish your brand new house. I think it’s sensible, therefore, to save a little bit more than the deposit itself.
Speaking to a Financial Adviser
Seeking the advice of a financial adviser was the best thing we could have done – and if you want to buy a house and don’t have a clue where to begin, I highly recommend that you do the same. A lot of people don’t, as it is an extra cost, but overall the advice that they give could be saving you money in the long run.
Their job is to act as your advocate to the mortgage lender, looking at all the lenders available and seeing who is offering the best interest rates. They do all the paperwork for you and ours even recommended a surveyor and solicitors, so we didn’t need to shop around and compare for the best rates.
Alternatively you could go to any bank and book a free meeting with them. They will tell you what they are offering – you could do this with all the banks and then compare and contrast to pick the best option.
We were recommended our adviser, Andy, and his fee was very reasonable at £99. If you can, go to an independent financial adviser as they are much more accommodating and will often go that ‘extra mile’. Andy booked appointments around our schedule and was always quick to email back with any questions we had.
Our initial meeting with Andy was to see if we were in fact eligible for a mortgage. There are a few conditions which you have to meet in order to be able to borrow a mortgage, most importantly if you have been in your job for longer than two years (if you are self-employed it will be longer) and if you have no debts. Luckily, we were able to meet this requirements. He then needed o know our annual salaries and how much deposit we were planning to put down and from that he was able to work out the amount we would be able to borrow.
Usually the amount you are able to borrow is based on 4x your salary, so as an example if you and your partner have a combined salary of £35,000 the amount you are able to borrow would be £140,000. Then depending on how much of a deposit you have (lets say you have a £15,000 deposit) – the house price you are able to afford is £155,000.
Looking for a house
For us, the maximum house price we could afford was £175,000. So with this in mind, we started looking on property sites on Zoopla and Right Move, setting the filters to show us properties worth no more than this amount. We knew exactly what area we were wanting to buy in, so we could be quit specific with location and we knew we didn’t want something we had to do up *too much* ourselves. A little bit of DIY would have been fine, but we didn’t want to have too much of a project on our hands.
With all these requirements in mind we booked viewings with the estate agents to see some houses. The house we bought was actually only the second one we viewed – but it ticked all the boxes. It is good to have as many viewings as possible booked in though, even if you think you won’t like it, because it is good to contrast and compare. Plus, if you build up a good rapport with the agents, if a new house does come on the market that suits you – you’re the first ones they’ll think of!
Putting an offer on a house and applying for a mortgage
Once you have found a house you like, the next step is to put on offer on it. This is where you have to be a bit savvy – generally you offer a price below the asking price. In our case, the house was up for £163,00 and we offered £160,000. However, when if you know the house has had a lot of viewings and is in high demand, it may be worth you just asking the full amount to avoid a bidding war. This is of course, up for you to judge.
Once you’re ready to make an offer you ring the estate agents and say that you want to make an offer. They will then put the offer to the sellers who will either accept or negotiate. In our case, we met in the middle and agreed on a price of £161,500. From there, the estate agents need to know that you can actually buy the property. This is when you apply for a mortgage for the amount you need to borrow. It can take a bit of time for the application of mortgage to go through, so our financial adviser arranged for an ‘agreement in principle’ letter to be given to the estate agents – a letter from the lender that confirms that they are prepared to lend you the money.
Andy made it really easy for us to apply for our mortgage; he showed us a spreadsheet with the best options available to us for first time buyers – some lenders offer cashback in return for a higher interest rate – and some offer an upfront fee but in return for a lower interest rate. We applied for a mortgage with Platinum, as they were offering the best rates, and no upfront fee, however they rejected us as we didn’t have enough of a credit history. So instead, we opted for the second best option which was with Santander – who accepted us straight away. Our financial adviser completed all the paperwork for us, so we didn’t have to worry at all – we were just told where to sign!
The boring ‘legal’ bit
As soon as our application for a mortgage was accepted, we needed a solicitor to be able to do all the legal bits. Andy recommended a solicitor his previous clients often use, and it was an absolutely brilliant recommendation. Nicola was so approachable and made it really clear and easy for us to understand. She didn’t mind answering any (probably stupid) questions and when things started to drag out at the end, she fought and advocated on our behalf.
I contacted Nicola via email to say we were in need of a solicitor and she sent us an email back with her rates. We had to pay a inital fee to cover the cost of the searches, but the rest of the fees were paid at the end at completion. Again, you could shop around for the best rates, however, I think personal recommendations are valuable and we were happy to proceed with her.
As soon as you have a solicitor, the chain has begun and you, as the first time buyer, have to let the important people do all the important jobs. This is what can take the longest time as solicitors need to complete what is known as ‘searches’ and ‘enquiries’. Searches are carried out to find out more about the property and can involve absolutely anything e.g if the local authority is planning to build an airport runway in the back garden or if the house has a flood risk. Enquiries are when the solicitor asks questions about the property from the sellers, for example, ours asked about the windows and doors and how long they had been installed for. It is the really intricate stuff that you may not have even considered, but that is what the solicitor is there for!
Depending on the results of these searches and enquiries you can decide whether or not you want to continue with your purchase. Luckily, our searches & enquiries didn’t come back with anything bad, so we got given a massive pile of paperwork to read through, which were the results of all the searches, the contract that commits you to buying the house and a mortgage deed that confirms that you agree to pay the mortgage. If you are happy with all of those documents, you sign them send them back to your solicitor which confirms you are willing to proceed.
Now, the bit that takes the time is that everyone else in the chain is in the same boat as you – the sellers of our house were buying a house and the sellers of that house were also buying a house, which luckily, was vacant. Our chain ended after three people, HOWEVER, the chain can be endless – each person in that chain has to wait for the searches to be completed on the house they are planning to buy. Depending on the results that they get back, they can decide to pull out of the house they were planning to buy and the whole chain can completely break and take even longer.
Exchange of contracts
Providing everyone is happy within the chain, the next stage to get to is the exchange of contracts. As first-time buyers, me and David were ready within a few weeks, however even though our chain only being three people long, it took a long time for the rest of the chain to be ready to ‘exchange’.
When you exchange, everyone in the chain needs to suggest a day to ‘complete’ which means the day the house becomes yours. You can suggest a day that suits you, but it also has to suit everyone else in the chain. This can be tricky, as everyone in the chain wants a date that suits them best. Expect a little bit if too-ing and fro-ing at this stage.
Exchanging contracts is the most important bit of the process to get to, because until then – everything can fall through. Exchange of contracts legally commits you to buy the property and it is at exchange where you pay the deposit for the house. As you are legally committing to the sale of the house, if you do decide to pull out you will lose your deposit and risk getting sued by the sellers – so it is a very big deal when you exchange.
It is a relief when you finally do exchange contracts as you know it is most definitely happening and you are going to be a home-owner!
The day of completion is the most exciting as that is the day you will finally get the keys to your brand new house! You will only get the keys once the full purchase price (the money from your deposit and the mortgage you are borrowing) gets transferred from your solicitors on to the seller’s solicitors, as well as any other outstanding fees that you owe. There is no set time in the day when this happens as it depends on how quick the bank transfer takes, but you will get a phone call at some point in the day to confirm the house is yours and that you can pick up the keys!
After all that stress, paperwork and legal jargon the house is finally yours and you have a brand new home!
I hope this guide was useful to those of you are in the middle of buying a house or just need some guidance on where to even begin. If you are unsure if you are ready to buy a house, Open Listings has a great blog post which you can read here. I need to give a humongous shout out to my friend Connie who is a legal secretary and helped me write this post. If you have any questions I’d be more than happy to answer!
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