How to buy a home
Your seven essential steps for getting a firm first foot on the property ladder, minus any hidden costs.
You’ve finally got over the first (and biggest) hurdle of buying a home – scraping together your deposit. But the next stage can be equally tricky; the property industry is cut-throat, and there is a lot to learn to stop you paying more than you should, or buying a house that turns out to be a lot more hassle than it’s worth.
1. Do the sums
The search to find a property that suits your needs can be long and arduous, and many first-time buyers feel quite overwhelmed when they finally step into their dream home. After years of patiently saving, a place of your own is within reach, and at this point it’s easy to rush in and make an offer before really knowing the hidden costs a house may present. Just because it looks good on the surface doesn’t mean it’s the right fit for you. Being extra cautious will pay off.
First, find out exactly what your money will get you – does it include the garage, furniture, fittings etc? You don’t want to find out after the sale that you in fact have to rent the garage from somebody else on top of your mortgage if you want to keep your car safe.
Ask the seller for an Energy Performance Certificate (EPC). This will give you some insight into just how energy efficient the building is, as it details the home’s use and potential energy costs. On top of this, find out if the property has cavity wall insulation, and if there is a loft, whether it has been insulated, and how long ago, as replacing insulation can become a costly business.
It’s also useful to find out the cost of council tax and other utility bills, so you get a good idea of what your monthly expenses will be – on top of everything else.
Another thing you need to consider is whether the property is in a conservation area or if it’s a listed building, as this could restrict any future alterations.
2. Make an offer and be prepared to haggle
Once you’ve got all your questions out of the way and decided this is the home for you, you will want to make an offer. There’s no rule of thumb for what your initial offer should be – it can be higher or lower than the asking price, depending on what you think the house is worth, how quickly the seller wants to sell, how many other offers the seller has, and how much repair or renovation work you will need to do.
Ask your estate agent for prices of similar houses that have sold in the area, or you can look up house prices by searching the Land Registry’s house price index (www.landregistry.gov.uk). Use those figures to decide on the highest price you’re willing to pay, then offer a bit less – usually 5-10% lower than the asking price. And you can make substantial savings with a little haggling.
If the seller is using an estate agent, you will need to make your offer through them. If they are selling privately then you can make the offer directly – either verbally or in writing. Clearly explain your reasons if you are offering less than the asking price, such as any repairs you will need to make, and be sure to mention any factors you think will make your offer more attractive – for example, if you can move sooner rather than later.
But be warned – in England and Wales, you or the seller can pull out of a sale at any time before the exchange of contracts, which could mean money and time have gone down the drain. To limit the chances of a sale falling through at a later stage, put some conditions on your offer:
- Ask for a ‘lock-out’ agreement – this means the seller agrees not to accept other offers within a set period of time.
- Specify a ‘cost guarantee’ – here you both agree to pay the other party’s costs if you are the one who pulls out of the sale – and vice versa.
3. Get a mortgage
Now that you have a figure to play with, you’ll need to arrange a mortgage. This is the biggest debt of your life, so it’s important to know what you’re doing. You can use a mortgage broker (make sure they are registered by the Financial Services Authority (FSA), and check who is paying their fee, or go straight to the lender (such as building societies, banks or specialist mortgage companies). The amount you can borrow will differ from lender to lender, but the general rule is you can borrow up to four times your salary. Speak to friends and family for recommendations (or warnings) on good organisations to use. Shop around; get a quote from at least three lenders, and ask them to explain the ins and outs to you.
Note that there is a difference between receiving mortgage information and mortgage advice. Getting advice means an adviser has sat down with you and had a look at your circumstances in order to recommend the most suitable option for you. This can’t be done with mortgages bought online. Buying with advice also puts you in a stronger position if, at a later stage, you find your mortgage is unsuitable and you decide to seek compensation.
4. Instruct a survey
Before you proceed with the purchase of your intended house, it’s vital to get a survey carried out – even if you are buying a brand new property. The purpose of the survey is to find out what condition the building is in to ensure that it’s actually worth what you have offered on it, or are prepared to offer.
It may seem like another expense in the already costly experience of buying a house, but a survey could, ultimately, save you a lot of money. If your survey was to reveal that some costly works needed doing to make it a solid purchase, you can then negotiate a lower selling price, in order to cover the costs of any works you will have to get done before it goes on the market.
Before you can secure a mortgage offer, you have to have a mortgage valuation carried out, but do not confuse this with a survey. The mortgage valuation confirms to your mortgage lender that your intended property is worth what it proposes to lend you.
There are four main types of survey: a homebuyer’s report, covers structural safety and highlights problems, such as damp. It will also pick up on anything that doesn’t meet current building regulations.
A building survey is for older properties and those constructed from non-standard materials, such as timber. It reports on the condition of the property and highlights any issues that should be investigated further before you go ahead with the purchase. It does not include a valuation.
A home condition survey (HCS) evaluates the condition of the property, whether there are potential problems that need further investigation and what the rebuild cost of the property is for insurance purposes. It does not include a valuation. Lastly, a new-build snagging survey is solely for new homes and picks up builders’ mistakes, such as plumbing the hot to the cold tap or poorly finished paintwork.
Following your survey, you will have a list of things that need doing to your intended property to make it worth the price you have offered. It’s time for a bit of negotiation with your vendor, as you need to present this to them and come to an agreement about who will pay for what. Your seller should cover the cost of any work that needs doing – or agree to take this amount off your offer. If, for example, the house needs re-pointing, this is a costly business and you should not be expected to foot the bill for this after you’ve moved in. Some sellers are more amenable than others when it comes to the nitty gritty so be prepared to stand your ground and be patient.
6. Protect yourself with a warranty
The idea of moving into a brand new house often appeals to first-time buyers because you usually get all the fixtures and fittings thrown in and can put your stamp on a property and help shape its character. But as with any new product, potential problems can occur – from simple leaks and cracks to more serious issues such as subsidence or major structural failure.
Having 10-year defects cover on a new home is a mandatory requirement of banks and building societies, where they are offering a mortgage on a property, and the homeowner can expect to receive one of two alternative products with their new home. The new home warranty, characterised by the National House Building Council (NHBC) Buildmark policy or Latent Defects insurance as offered by Building LifePlans (BLP).
A new home warranty, like the warranty you receive with the purchase of a new car or television, is simply a promise that the builder will put right any significant damage to the new home (the builder is responsible for the first two years and then the warranty provider covers major damage only in years three to 10). A latent defect insurance policy, on the other hand, provides full cover from day one and does not place any responsibility on the developer to attend to defects – the homeowner contacts the insurer and they deal with the claim directly.
A key distinction between the two options is how the defect to the property is viewed. Warranties rely on proof of negligence, rather than proof of damage, which can lead to a lengthy resolution process before remedial works are agreed upon and carried out. The insurance policy requires proof of damage only so it can be easier to access for the homeowner, should it be needed.
Choice of warranty or insurance depends largely on the property. Warranties have limited financial cover and are fairly prescriptive on how to build, so satisfy standard, traditionally built houses. The insurance policy tends to be adopted for higher value, new build and conversions and where non-traditional methods are employed. To try to limit the number of defects in a property, the warranty provider will check works are built in accordance with their technical manual. Whereas the insurance provider will adopt a more bespoke risk management process tailored to the type of design and build chosen by the developer.
7. Get a lawyer
First-time buyers get the easiest ride, as they’re not in a chain, so use it as a bargaining tool to haggle the price down. Make your offer on the condition that the seller ‘takes the home off the market’. This means less chance of gazumping, where the seller accepts another higher offer after the sale has been agreed. Until contracts are exchanged, either party can pull out at any time.
Then find yourself a good solicitor – the law that defines the legal transfer of property from one person to another is called conveyancing. This will often cost you £100 to £1,500 – depending on complexity and the value of the property. What they will do is search all the official files to check that the purchase is legitimate and do all the legal paperwork, land registry and local council searches, draft the contract and handle the exchange of cash. Once that’s sorted, your offer has been accepted and your mortgage is in hand, you can agree on a completion date. And then you can get the keys, move in and enjoy your home.
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