Buyer guides- Helpful guides and advice for buyers
Steps to buying a property:
If you decide that buying a property is the right thing for you to do, it’s useful to understand the process and what lies ahead. This guide will take you through all the steps involved in buying a property and help you through the maze of options.
A simple timeline of what needs to be done in the process is as follows:
- Decide what sort of property you want to purchase
- Work out how much money you will be able to spend by getting a mortgage agreement in principle
- Start viewings to find your dream property
- Find a suitable solicitor to complete the legal work for you.
- Submit offers on the right property with aim of agreeing a sale
- Submit your mortgage application
- Let your solicitor work through the conveyancing process
- Arrange for a survey to be done to check the condition of the property
- Wait for your confirmed mortgage offer to arrive
- Review the report about the property you will receive from your solicitor
- Send the deposit funds to the solicitor
- Exchange contracts which binds both parties to the contracts and set the completion date
- Completion and the property is now yours.
Different ways to buy property
There are a number of different ways in which you can purchase a property:
Private Treaty
The most common way to buy a property in the UK is by private treaty on the open market. The property will be advertised with an asking price and the seller may consider offers.
In England and Wales, once an offer has been accepted and an agreement is reached, a contract of sale will be issued and those contracts signed and exchanged. The exchange of contracts will only happen once all searches have been completed and all funds have been arranged for the purchase. Because neither party is legally required to continue with the transaction until contracts have been exchanged, this part of the process is always considered to the main hurdle.
Auction
Buying property at auction can seem like a quick way to get a bargain but it takes a good amount of preparation to ensure that you don’t make a costly mistake.
During a traditional auction (also called a non-conditional auction), when the hammer falls the buyer with the highest bid is committed to the purchase. The contract is ‘exchanged’ on the fall of the hammer and from this point you cannot pull out or change your mind. The deposit, normally 10%, is payable at the same time so check in advance what methods of payment are acceptable to the auctioneer. As the buyer, you’ll also have to pay an auction premium or fee which is normally a fixed amount which is stated in advance.
After the auction, you will have 28 days to pay the 90% balance and ‘complete’ the transaction. If for any reason you are unable to complete the transaction, you will lose the deposit monies paid.
Auctions can be a great way to purchase a property because the process is quick to conclude and the seller is committed on the fall of the hammer, so no chance of them puling out at the last minute. There is also the potential to get a bargain as well, but it helps to be prepared to make the most of it.
Off-Plan purchases
If you want to buy a brand-new property, a lot of homes can now be purchased off-plan which means you are committing to buying a new home before it has been built. Whilst you won’t be able to view the actual property, the developer will supply plans, CGI’s and brochures to show you what the finished product will look like or have a show-home constructed in advance.
Once you have chosen your property, you will have to pay a reservation fee, normally £500 – £1000 to show your commitment, and then have a further 28 days to exchange contracts and pay the deposit. You should always double check where that money is held before the property is ready and what will happen to it should the developer go bust.
Once the property is complete, the developer will give you notice to complete the purchase and pay the balance of the money due. Before the property is handed over it should be ‘snagged’ for any faults or damage, which the developer can then remedy before you take ownership.
New build properties are appealing to investors as they are neutral, under warrantee and often in regeneration areas. Also, investors can potentially negotiate discounts for multiple unit purchases.
Ways to own a property
In England and Wales, there are two main ways to own your home: Freehold and Leasehold.
Freehold
Freehold means that you own the whole building and the land it stands on, giving you ownership of the property for an unlimited period of time. You will be responsible for maintaining the buildings and the land that make up the property.
Most houses are freehold properties, but not always, and some may be held leasehold which is explained below. Freehold is generally the type of tenure that is preferred – it’s a simpler arrangement.
Leasehold
A leasehold is where you are given the right to use a property or part of a property for an extended period time. This arrangement is defined in a lease document and will be for a fixed period (typically anywhere from 99 years and sometimes up to 999 years), after which the freeholder can take back the property unless you extend the lease.
Even though leases are normally granted for a very long time, technically a leasehold is a temporary right to occupy the property and it is this that differentiates it from a freehold ownership which is permanent.
A leasehold arrangement is typically used for flats and blocks in England and Wales where the freeholder own the block of flats and the land it stands on and then grant a lease to each of the occupiers of the individual flats, although there are leasehold houses too.
The lease will detail what the freeholder (also called the Landlord or Lessor) is required to do and likewise what the Leaseholder (also call Tenant or Lessee) is required to do. This will include the payment of an annual ground rent, a charge stipulated in the lease, often typically a modest charge of £50-£300 but your solicitor will need to check the exact detail of the individual lease.
You are also likely to have to pay an annual service charge for the maintenance of the communal parts of the property along with a contribution to the cost of insuring and managing the building.
When you buy a leaseholder property, you are actually buying the lease from the seller and taking it over the remaining period of the lease. A mortgage lender will generally only want to lend you the money where there is a significant period of time left to run on the lease. Typically, they will want at least a further 70 years.
How to find property to buy
With most properties now being listed online, it’s easier than ever to find a property to buy that meets your needs. However, because there is such a large selection to choose from, it’s worth taking the time to ask yourself exactly what you’re looking for before you seriously start looking; this will help you to firm up your requirements and narrow the options more efficiently.
The key criteria you’ll need to think about before embarking on your property search:
- Price – how much can you realistically afford to spend per month on a mortgage and bills?
- Location – where do you want to buy?
- Size – how many bedrooms do you need? Do any of them need to be doubles?
Where to live and what to look for?
Before you start looking at properties you’ll need an idea of many bedrooms you require, your budget and a shortlist of locations you’re interested in. This can sometimes feel daunting, particularly if this is the first time you’ve ever looked into buying a property.
To make this part of the process easier, ask yourself the following questions:
- How important are transport links for you? Are there any you need to be particularly near to?
- How long a commute would you be comfortable with?
- How far are you prepared to travel to meet friends and family?
- What do you love about your current home/area?
- What are the things you don’t like about your current home that you would like to avoid next time?
- What are the ‘must haves’ that will make your new property feel like home?
- What amenities do you want or need on your door step?
- How long do you plan to stay in the next property?
- If you have hobbies, is there somewhere you need to get to regularly?
Mortgage
What is a Mortgage in Principle?
A Mortgage in Principle is specific to you and, together with your deposit, it can give you an indication of the property price range you can search within. You’re not committing to anything. And you can search for your new home with more confidence.
How long does a Mortgage in Principle, or Decision in Principle, last?
A MIP is normally valid for up to 90 days, but this can vary depending on the lender’s policy.
What’s the difference between a Mortgage in Principle and a full mortgage offer?
A Mortgage in Principle is a step closer to a full mortgage offer
That means, when you’ve found your next home and have an offer accepted, you’ll still need to make a full mortgage application before you move to the next stage of the home-buying process. If you have a valid MIP, that lender, or a mortgage broker, might be able to use the information you initially provided to complete some of the mortgage application details. Bear in mind they’ll want to check it’s still correct.
A Mortgage in Principle shows you how much a specific lender is willing to lend to you
A MIP doesn’t guarantee a mortgage loan, as it’s not a mortgage offer. It will confirm how much a lender is willing to lend to you, based on the information you’ve provided.
However, if the lender finds any new information that hasn’t been included in your MIP application which negatively impacts your ability to get a mortgage, that could impact their decision. This could be whether they will give you a mortgage offer, how much they might lend, what the interest rate might be, or what the term of the mortgage is.
Why get a Mortgage in Principle?
Although a MIP isn’t essential to view homes, it’s a very useful document to have. And you will most likely have to go through the MIP as part of any mortgage application once you have had an offer accepted.
A Mortgage in Principle provides the following:
- Reassurance about the outcome of your full mortgage application
If you get a Mortgage in Principle before, or during your property search, you can feel more reassured about the outcome of a full mortgage application. That’s because, as long as there’s been no major change in your situation, or economic factors like interest rates, or the economy more broadly, you’ve already shared a lot of your financial details, and the lender will have checked your credit history.
A MIP is a good indication of your affordability and creditworthiness for a specific amount of money. You’ll have a personalised result showing how much you can borrow. And you’ll be one step closer to a full mortgage offer.
Different types of mortgages
Selecting a mortgage is a big decision, and you’ll want to think about it carefully. While you can choose a mortgage yourself, most people choose to get advice from either a mortgage broker, or directly from a lender when buying a home. But it’s good to know what the different types of mortgages are, so you can feel fully prepared for a conversation
Fixed-rate mortgages
Fixed-rate mortgages guarantee your interest rate for a set period of time. Your monthly payments remain the same for a specified period, and won’t change until an agreed date. This can be anything from two to five years, up to 10 years, and sometimes even longer.
The majority of mortgage holders have a fixed rate deal. Around 95% of all new loans were on a fixed rate in 2022, and 85% of all people with a mortgage are currently on a fixed rate.
Pros of a fixed-rate mortgage
Fixed mortgages are great for the certainty and peace of mind that comes with knowing exactly what you have to pay each month during the fixed period, regardless of what happens to interest rates.
Paying a set amount each month also means that you’ll know what your mortgage balance will be at the end of fixed rate deal. It’s helpful to know this because the amount you owe at the end of the mortgage deal will have a big impact on your loan to value (LTV), which is expressed as a percentage, and it reflects the size of the mortgage you need as a proportion of the value of the home you want to buy. This will also impact the cost of your next deal. This is something you could ask your lender or broker to explain, and to show you.
Cons of a fixed-rate mortgage
The interest rates may be higher on a fixed-rate deal than for other mortgage types. Also, if the Bank of England Base Rate falls during the fixed period, your monthly payments won’t drop, as they would with a tracker mortgage.
When the fixed period ends, it’s most likely that you’ll be transferred onto the lender’s Standard Variable Rate automatically, and this will usually have a higher rate of interest than the fixed deal you were on previously. But, as your deal will have ended, you’ll be free to move onto a new mortgage, so it’s a good idea to plan ahead well before your fixed period ends.
Because you’re on a fixed rate, lenders have to lock in this funding for the duration of the term. So, if you repay your loan in full, or make significant overpayments – usually more than 10% of your balance – you’ll pay an Early Repayment Charge.
Early Repayment Charges (ERC) are usually a percentage of your outstanding balance and reduce with time. For instance, if you have a 5-year fixed-rate deal, the ERC will typically be about 5% in first year of your deal, falling to about 1% in the final year.
Pretty much all lenders enable you to move home without needing to pay an ERC during a fixed-rate deal – this is known as porting a mortgage. And any additional money you borrow will be on a new rate. So, if you stay with your existing lender, there won’t be an ERC when you move.
Tracker mortgages
A tracker mortgage has an interest rate that’s usually linked to the Bank of England’s (BoE) Base Rate, plus a percentage amount set by the lender. That means the mortgage interest rate can vary throughout the tracker period, depending on movements in the Base Rate (the official interest rate that the Bank of England charges banks for lending them money – something that it reviews on a regular basis).
So, if your mortgage is set at 1% above the Bank of England Base Rate, and the BoE rate goes up or down by 0.5%, your tracker rate will move by the same amount. For example, if you have a mortgage of £150,000 with a term of 25 years and a rate of 2.5%, you will currently pay £673 a month. If the Base Rate goes up by 0.5%, you will now have an interest rate of 3%, and pay £712 a month. However, if Base Rate is reduced by 0.5%, you will now have an interest rate of 2%, and pay £636 a month.
Trackers are typically for 2 years, but can be for the term of the mortgage. After your tracker term has finished, you will automatically move on to the lender’s Standard Variable Rate.
Pros of a tracker mortgage
Lenders can’t influence what your mortgage rate will be during the tracker period. Because your mortgage is usually linked to the BoE Base Rate, it will follow that rate, plus the lender’s percentage.
Unlike with fixed-rate mortgages, trackers don’t usually come with Early Repayment Charges (ERC), so you can overpay unlimited amounts without being charged. This can be good if you have variable income, or are expecting large lump sums that you want to put towards your mortgage, such as an inheritance.
It also means you’re able to move to another rate at any time without incurring an ERC. This means that you could move to fixed rate with your existing lender, or you could remortgage with another lender.
Should you move house when you have a tracker product, you can still ‘port’ it, but any new borrowing you take will be on a new rate. Unlike with fixed-rate products, if you move home, you won’t be charged an ERC if you choose to take a mortgage with another lender.
Cons of a tracker mortgage
Your mortgage payments can change at any time. If the Base Rate rises, your payments will go up. Similarly, if they go down, so will your interest rate. This means you don’t have the certainty that you would with a fixed-rate mortgage.
Therefore, you’ll need to ensure that you’re able to afford increased payments, and that you can manage changing payments each month. It may seem obvious, but the bigger your mortgage, the more you’ll have to pay should your tracker rate increase.
Your lender must get in touch with you whenever your tracker rate changes, to let you know what your new payments will be. They need to inform you before your next payment is due, and give you reasonable notice.
Having a variable monthly payment also means that you’ll have less certainty about what your mortgage balance will be when your tracker rate ends.
Knowing what your balance will be is helpful, because the amount you owe at the end of the mortgage deal will have a big impact on your loan to value, and as a result, the cost of your next deal.
Standard Variable Rate mortgages (SVR)
An SVR mortgage has an interest rate that’s set by your lender, and it’s usually the rate you would automatically move onto at the end of your fixed or tracker product. As SVRs are variable, and not directly linked to Base Rate, the lender has more discretion about the rate and when it changes.
In reality, most lenders will only change their SVR rates in response to a Base Rate change, but the exact amount of change will vary based on the individual lender’s circumstances. And sometimes, lenders won’t change their SVRs in response to a BoE Base Rate change.
Lenders have to notify impacted customers of changes to their SVR in two ways. Firstly, the lender will get in contact with all customers that are paying the SVR directly, to give them a personalised view of the impacts – specifically, what their new monthly payment will be.
Secondly, for customers who are still paying their fixed or tracker rate, the lender will publish its SVR – usually on its website – so that they are aware of the rate, and can budget for it accordingly.
In many ways, the pros and cons of SVRs are similar to trackers. You can make unlimited overpayments, move to a different product, move to another lender, or completely repay your mortgage, without paying an Early Repayment Charge.
The cons are similar as well, but with one big difference: SVRs tend to have higher rates than a lender’s fixed or tracker products, and they are therefore not very attractive to many borrowers. The vast majority choose to get another fixed or tracker rate, either with their existing lender (often known as retention products or switching), or by moving to a new lender (often known as remortgaging).
Lenders will usually get in touch with you 3-6 months before the end of your deal to outline your options. If you got your mortgage through a broker, it’s likely they’ll be in touch around this time to discuss your options, including staying with your existing lender, as well as moving to another lender, too.
If you stay with your existing lender, you may be able to move to a new deal up to 6 months early, without paying an Early Repayment Charge.
If you choose not to get another fixed-rate or tracker mortgage, the lender is required to write to you again before your payment changes, to let you know what your new payments will be.
Discount Standard Variable Rate
As the name suggests, the rate you get is a discount on the lender’s SVR, for a set period of time. The discounted rate will move up and down, in line with the lender’s SVR.
New- build homes
What is a new-build home?
A new-build home is a property that has been newly constructed and hasn’t ever been lived in before. Everything in the home, including fixtures, fittings and appliances is brand new.
Sometimes, if a property has been completely renovated to the point where almost everything is new, it can also count as a new-build home.
Is buying a new build a good investment?
Buying a new-build home can save you money in the long term for the following reasons:
- They come with 10 year warranties
- They often have EPC ratings of A or B
- They can save you money with day-to-day running costs
What schemes are available for buying a new build?
Shared Ownership lets you buy a portion of a property, meaning you only need to save up the deposit.
Deposit Unlock and the Mortgage Guarantee Scheme enables you to buy a new-build home with just a 5% deposit.
First Homes helps local first-time buyers and key workers by offering new-build homes at a 30% – 50% discount.
What is the average cost of new-build homes?
The average price of a new-build home in the UK for 2023 is £389,659, according to the Land Registry. This price varies depending on where you are buying in the country.
The average price for a new-build home in London is £634,100. That’s around twice the national average. Whereas a new-build home in the North West is £297,100 and £461,800 in the South East.