Guide to Buying

Let’s begin our step by step guide to buying a house by looking at the very first step on the journey to owning your home – saving for a mortgage and deciding your price range. Your deposit will usually need to be at least 5% of the properties overall asking price, which will have been determined by a property valuation service. So, if a house is worth £200,000, the deposit will typically be around £10,000, and then, you will borrow the rest of the money to purchase your dream property. Something worth noting is that a bigger deposit usually means you can apply for mortgage schemes with lower interest rates.

If you are in the privileged position of being able to buy a house outright, then, of course, there is no need for a mortgage. You can also look at borrowing money via a personal loan to cover the cost of your new property purchase or your initial deposit. There is also the Help to Buy: Equity Loan from the government, which helps first-time buyers get on the property market.

Help to Buy: Equity Loan (2021-2023)

If you are buying a home for the first time in England you can apply for this loan, which will contribute towards the cost of buying a newly built property. You can borrow a minimum of 5% and a maximum of 20% of the full purchase price – or 40% in London where property prices are considerably higher. The homebuilder must be registered for the scheme in order for you to take advantage of it.

Therefore, the total cost of your newly built home includes the equity loan, your deposit, and your repayment to the mortgage broker service. For example, if you buy a house worth £100,000 with a 10% deposit of £10,000 and a 20% equity loan of £20’000, you will repay the remaining 70% (£70,000) to the mortgage lender.

You are required only to pay the interest on the loan, and this starts in year 6. No interest is applied to the equity loan for the first 5 years. You can repay all or part of the loan at any time, but a part payment must be at least 10% of your home’s value at the time of payment.

Decide How Much You Can Borrow

Before applying for a mortgage, you first need to think about how much you can borrow and comfortably repay. Mortgage lenders must assess whether or not you are suitable for a mortgage, and how much you can afford to repay. A simple loan-to-income ratio is often used to figure out whether potential homebuyers could afford a mortgage deal.

This is where mortgage lenders base the amount you could borrow primarily on a multiple of your income. Income includes more than just your wage from employment, it also includes pension or investment payments, child support payments or any other earnings you make. There is a cap on this set at 4.5 times your income. So, if your annual income is £100,000, you can borrow up to 4.5 times this, which is £450,000.

They will also use an affordability assessment to judge the monthly payments you can afford, taking into account your outgoing costs and personal living expenses. This will consider outgoings like credit card repayments, insurance policies, utility bills such as electricity, and any other loans you may have with other providers.

As a final check, a mortgage lender may also look to the future and ‘stress test’ your ability to repay your deal. This takes into account the effect of possible interest rate rises. It also considers any potential changes to your life, like whether or not you are going to have a career break or try for a baby.

Find a Property You Would Consider Buying

Now you have a price range in mind, it is time to look for your new home. The most common approach these days is to search for a house and do your first bit of research online. Here at JonSimon, we have an extensive list of properties to rent in Burnley, Ramsbottom, Radcliffe, and many of the surrounding areas.

Found one you like? Now it’s time to do as much research as you can. If you are buying a house, chances are you are planning to spend an extended amount of time in that area. Perhaps you’re settling down and starting a family? Either way, it is important to make sure the property, the area, and the local people, are suitable for what you want and desire.

Research details like:

• Building type and age
• Local crime rates
• Local amenities
• Car insurance prices
• Nearby schools and/or hospitals

Request to View the Property

After working out your budget and researching the area, it’s time to view some houses! The property owner may want to be present at the time of viewing, but, very often, they prefer to let an estate agent handle this instead. This is the first opportunity you will get to analyse the structure, and integrity, of the building and see if it is suitable for your needs. Don’t leave any stone unturned and try to photograph absolutely everything for reference later on.

You should ask:

• Is the property well insulated and/or soundproofed?
• How much storage space does it have to offer?
• Is the property’s exterior in good condition?
• Are there any other structural issues present?
• Is there any damp present?
• Are the windows double-glazed and in good condition?
• Is the plumbing up to scratch?

(Government guidance on viewing properties and moving home during the coronavirus outbreak).

Apply for a Mortgage Agreement in Principle (AIP)

This is not a mandatory step but one that could help you secure your dream property. A mortgage agreement in principle (AIP) acts as validation from a mortgage lender that they are willing to lend you a certain amount of cash (in principle). This can also be called a decision in principle (DIP). Having one of these can make you seem like a more attractive buyer to the property owner. It shows that you are indeed able to secure the right amount of cash to buy the property.

Make an Offer

No guide to buying a house would be complete without some guidance on making an offer. When it comes to making an offer, it is not unusual to offer less than the asking price or to negotiate. If other people are interested, however, it may be in your interest to offer more. Look at similar properties in the region, and how much they sold for, as this will help you work out how much the property you want to buy is worth. Once you have decided on your offer, put it in writing and submit it to the relevant estate agency. Make it clear that your offer is subject to a survey and the property being taken off the market.

The Different Types of Mortgage

Fixed-Rate Mortgages

It doesn’t matter what happens to interest rates elsewhere, with a fixed-rate mortgage your interest rate will stay the same throughout the length of your contract. They may be offered as two-year or five-year deals as an example. This is a great benefit to you if interest rates rise higher than your fixed-rate, but not so beneficial if interest rates drop below your fixed rate.

A fixed-rate mortgage:

• Provides peace of mind that your payments will stay the same
• Helps you to budget more effectively
• Usually offers slightly higher rates than variable-rate mortgages
• Charges if you want to leave the deal early

Variable-Rate Mortgages

With variable-rate mortgages, the interest rate can change at any time and you have no control over this. Having savings put aside in preparation if the rate does go up is a wise move. This type of mortgage comes in various different forms.

Standard Variable Rate (SVR)

An SVR will last as long as your mortgage deal or until you take out another one. This is the standard interest rate the mortgage lender will charge homebuyers. Changes in the interest rate are dictated by the base rate set by the Bank of England. One benefit to this type of mortgage is that you can overpay or leave at any time.

Discount Mortgages

This is a discount off the lender’s SVR. It only applies for a certain length of time, usually two or three years. Do not assume that a higher discount equals a lower interest rate, it is always wise to shop around for the best deal.

A discount mortgage:

• Starts off cheaper and keeps monthly repayments lower
• Means you’ll pay less each month if the lender cuts the SVR
• May apply charges if you want to leave before the end of the discounted period

Tracker Mortgages

This type of mortgage moves directly in line with another interest rate. This is usually the Bank of England base rate with a few percent added. If your base-rate goes up, your rate will go up by the same amount.

A tracker mortgage:

• Will ensure your mortgage repayments rise or fall if the rate it is tracking does the same
• May apply an early repayment charge if you want to switch before the end of your deal

Capped Rate Mortgages

With a capped rate mortgage, your rate will move in line normally with the mortgage lender’s SVR, but it will not be able to rise above a certain level. The mortgage lender can change the rate at any time and raise it to the level of the cap.

A capped rate mortgage:

• Means your rate won’t rise above a certain level
• May be cheaper as your rate will fall if the SVR falls
• Can often entail a cap that is set quite high
• Offers a rate that is generally higher than other variable and fixed rates

Offset Mortgages

Offset mortgages link your savings and current account to your mortgage deal, allowing you to pay interest only on the difference. You repay your mortgage monthly as usual, but your savings act as an overpayment, helping you to pay your mortgage earlier.

An offset mortgage:

• Allows you to reduce your monthly payments if you wish
• Subtracts more interest than what you would gain on your savings in some cases
• Provides some tax benefits

You need to know what type of mortgage you want, be it a fixed-rate mortgage or a tracker. You should also have an idea of how long you want the mortgage for; in other words, “how long do you want to spend paying it off?”. Check how much your payments will be based on different loan amounts, time periods, mortgage terms and interest rates.

This is for the legal process that occurs after your offer has been accepted. This involves carrying out searches, creating and checking contracts, dealing with the Land Registry and paying stamp duty (if there is any to be paid).

A property survey assesses the condition of the building and helps to uncover any structural problems. This is an optional step, but it is much better to know of any issues before you buy. This allows you to make an informed decision on how much to budget and offer. The results of a survey can even enable you to negotiate a lower property price, because you may have discovered that there are things that need to be repaired or replaced at a cost.

Great news! The property is yours and you can now move in! As exciting as this sounds, the actual moving part is perhaps the most stressful bit! The trick to making this go as smoothly as possible is to prepare and plan early. Get your mode of transportation sorted early and start packing boxes way before the day you need to actually move. Fail to prepare and prepare to fail as they say – and it is certainly true here!

The last thing you want to talk about, when reading a guide to buying a house, is bills. Nobody likes paying bills but they are a fact of life, unfortunately! Get yours sorted early and they will be out of the way and ticked off the list.

You need to set up your energy and water supplies, your council tax if applicable, and your phone/broadband if necessary. You should also change the address on your official documents and forms of ID, so everything is listed with the right address moving forward.