Beware the pitfalls when buying a new home or property; it’s a complicated process and it’s easy to get caught out if it’s your first time.
Recent research revealed that 70% of first-time buyers underestimate the overall costs of getting their foot onto the property ladder, with the average first-time buyer under-budgeting by £6,481 when purchasing their first home.
Ensure you get your budget in place and know where you can save a few pounds off what is an expensive, and often lengthy, process.
Savings and deposit
Savings and ISAs – As soon as you even think you may be buying a house, get saving (if you haven’t already) – the sooner the better! Look at getting a Help to Buy ISA or the new Lifetime ISA, these are savings schemes with good interest and additional cash help from the government – you can get up to £3,000 from the government if you save £200 a month with the Help to Buy ISA. The more you save the better; if you can save up 10% or more of the purchase price for a deposit, you will get a much better rate on a mortgage.
Loan or gift from family – If you still find yourself coming up short, ask your parents or grandparents for help. They may be able to gift you the money, or draw up an agreement to loan you the money and you can pay it back at a later date (although a loan from family or friends may affect your mortgage application). Parents now part-fund 34% of property purchases, up 20% from seven years ago, as inflated house prices make it harder for first time buyers to get on the ladder.
Shared ownership – If possible, see if you can buy a property with a family member, partner or friend. Twice the income, twice the savings and a shared mortgage can go a long way to getting you both on the property ladder.
Credit score – The better credit score you have, the better loan and interest rate you will get when you apply for a mortgage. You can find out your credit score by entering your details such as incoming and outgoings and credit cards and loans on a credit calculator. Noddle and Experian offer this as a free service online. For tips on how to improve your credit rating, visit the Money Advice Service.
Get the right mortgage – Do some investigating on what is the best mortgage for you. Don’t automatically go with the lender who will loan you the highest amount – you need to consider things like the interest rates and the repayments.
Do some research, and apply for a Mortgage in Principle so that you know that a bank or lender will give you the money you need. However, do not apply for too many mortgages as this can have a negative effect on your credit score. Enquire if applications are a ‘hard search’ or a ‘soft search’ – if it is a hard search, approach with caution because it will remain on your credit record.
Broker – You don’t have to use a mortgage broker, you can go direct to the bank, which will cost less. But if you want to save time and have a professional find the best deal for you, it can be wise to employ a mortgage broker. They usually require a fee for their service of arranging your mortgage or giving you advice. Some brokers won’t charge a fee and will take commission from the mortgage provider instead.
Buying the house
Don’t be afraid to barter – People often slightly inflate their asking price as they know that people will try to haggle and make initial offers below asking price. Go in with your initial offer at least 10% under asking price. Don’t be disheartened if they don’t take it, you can make another offer or approach the estate agent and see if you can barter. But also, be prepared for other potential buyers to make counter-offers.
Make yourself attractive – Money isn’t everything, you may be a more attractive buyer if you don’t have a chain, already have a mortgage in principle with a large deposit, and it always helps to be polite during the purchase process.
Get a bargain at auction – Buying at auction can be a stressful purchase, and you will usually bag a fixer-upper, so be prepared to hire a handyman or do some DIY on renovations. Properties will have a guide price, a starting price (usually slightly less than guide) and then bidding will progress. You could bag a bargain, but the price can increase by up to 60% from starting to final bid, so don’t get carried away; have a budget ceiling and stick to it.
Protect yourself with Home Buyer’s Insurance – Just because the offer on your new property has been accepted does not mean that it’s a done deal. One in ten people have been gazumped after the seller accepted a higher on the property despite previous agreements and the transaction process already being underway. People who get gazumped can lose thousands of pounds in fees (mortgage arrangement, surveys and conveyancing), but buying Home Buyer’s Insurance for just £35 can protect you for up to £2,250.
Surveys and Reports
Valuation – This is compulsory if you want a mortgage. You must have a valuation of the property you are purchasing by the mortgage lender to secure your loan. You can sometimes get the valuation included in the cost of a loan. It is usually anywhere from £100-£300, but rather than going for a free valuation with your loan, you may be better off paying a lower premium (cheaper in long run) and paying a hundred or so extra pounds for the valuation.
Surveys – These are not compulsory, but they are recommended if you’re buying an old or listed property as they can unveil any potential problems or future issues that could impact the value of the house, for example severe mould or damp, or subsidence that could affect the structural integrity of the property. There are three surveys you can choose from:
Condition Report – basic survey to complement the mortgage valuation
Homebuyers Report – more detailed survey, highlights major problems
Building survey – extensive surveys with detailed report
Renovations and redecorating – If you buy a ‘fixer-upper’ or a project, then remember you will need to budget for renovations and redecorating. Unless it’s a brand new property, you will probably still want to get the paint brush out to add your own style to it or at least brighten up any tired rooms or finishing.
Extras included – Save money by getting fixtures and fittings as part of the purchase. Speak to the seller and see what they are willing to include and then get your conveyancer to put it in writing in the contract – You never know, you may get a nice fridge freezer and a sideboard thrown in. If you don’t ask, you don’t get.
Don’t forget additional costs!
Mortgage arrangement fee – You may need to pay this to the lender to set up your mortgage. It could be up to £2,000, although the average is about £1,000.
Stamp duty – This is the tax you must pay on your property. It is set in brackets depending on the price of your property. Use Money Saving Expert’s Stamp Duty Calculator to find out how much you will pay. If you’re a first-time buyer, you now no longer have to pay Stamp Duty on a property up to the value of £300,000. If your property costs over this amount, the first £300,000 is still tax-free, so first-time buyers can still make an average saving of £5,000.
Removal costs – You may be able to squeeze your possessions into your car or rope some friends in to help, but you will probably have to hire a van or lorry and may even need some extra hands and muscle to help – it goes without saying, the more stuff you have, the more expensive it will be. The average removal costs for a 2 bedroom flat or house are approximately £600.
Ground rent if leasehold – If you are purchasing a flat or part of building/grounds owned by someone else, you will need to pay ground rent. This is usually an annual fee and shouldn’t be too high, around £50-100 per year. The contract will specify how much and when you pay the freeholder/landlord (sometimes it is payable in quarterly instalments).
Check for at least 83 years on lease – Another thing to look out for when buying a flat or apartment. Money Saving Expert advises, “When flats have 80 years or less left, extensions become very costly and homes much more difficult to sell. Under 60 years, it’s a nightmare. If you’re a flat-hunter, alarm bells should scream if a lease is nearing, or below, 80 years.”
Remember to do your research when buying a house as it could save you valuable money. From the best mortgage to the right conveyancer, make sure you entrust the right people to do a good job as well as saving money – don’t be fooled into a cheap deal to cut corners as you may end up having to pay more money to rectify the problem.