HOMEBUYER S GUIDE Buying a new home can be a potentially daunting process so we ve prepared this step-by-step guide to help you. It outlines the buying process and gives a guide to the different types of mortgage available, plus advice on how to budget for your move and work out how much you can borrow. You ll also find further useful information at www.maslen.co.uk including mortgage and stamp duty calculators. Alternatively give us a call on 01273 677001 and ask to speak to the team about any aspect of buying property, including independent advice on the most appropriate mortgage for you, including finding you the best deal.
25 90 % between years INTEREST ONLY MORTGAGES A mortgage is a loan specifically to buy a property, paid over an agreed time period with added interest. The property is owned by the borrower subject to the mortgage that is secured on it. This is a legal agreement and if payments are not kept up the lender can repossess your home. The length of the mortgage can vary but it is usually 25 years and the amount given will depend on the deposit you have (100% mortgages are rare) and the amount you can afford to pay monthly. The loan is made up of the capital (amount you borrow to cover the cost of the property) and the interest. You can opt to pay in the following ways: Interest only: You only pay the interest on the amount you borrow so monthly repayments are lower but you have to ensure you have made alternative arrangements to be able to pay back the original capital at the end of the agreement. The sale of the property may be an insufficient repayment vehicle so alternatives are normally in the form of an endowment, pension or ISA. Therefore if you opt for interest only you may have to budget for the additional investment elsewhere and it may also restrict the amount you can borrow. Repayment: In addition to paying the interest on your mortgage you also pay off part of the capital so at the end of the agreement the entire loan should have been settled so you own the property outright. Part and part mortgage: The mortgage is split interest and repayment.
MORTGAGE TYPES There are a number of different mortgage types available. Our independent mortgage advisor can help you work out the best one for you and your circumstances but here is an overview: Fixed rate mortgages: The rate of interest you pay stays fixed for an agreed period of the mortgage (e.g. 2, 3, 5 or 10 years) so your monthly payments are always the same during that period. The pros are you can set your budget as you know the amount won t vary and it can protect you from rising interest rates but if interest rates drop you won t benefit from reduced payments. Variable rate mortgages: As the name indicates the amount you pay each month varies according to the interest rates of the lender so can go up or down. Tracker mortgages: Similar to variable rate mortgages except they are linked to the Bank of England base rate and track the rate by a certain percent. Therefore if the base rate goes up so do your repayments. Capped rate mortgages: Your payments may go up or down according to interest rates but the amount you would have to pay is capped to not exceed a maximum amount, so even if interest rates went higher you wouldn t have to pay more than that amount. Collared mortgages: These are usually combined with a capped or tracker mortgage and means your payments will never fall lower than a set level (called the collar ). Cashback mortgages: Often linked with a variable rate mortgage, these loans give an extra lump sum of cash at the beginning of the loan. Great if you purchase a property that needs work but it is not restricted to home improvements and can often be spent on anything you wish. Offset mortgages: This is where the interest paid can be reduced by any savings you have with the lender. By offsetting savings linked to your mortgage you will only pay interest on the balance i.e. on a 120,000 mortgage you would only pay interest on 100,000 if you had savings of 20,000 with your lender. It does mean you don t receive any interest on your savings but overall you are likely to be better off as the mortgage gets paid off faster.
BUDGETING When budgeting your move you will need to take into account the following: Estate agents fee: This is the agreed commission for selling if you have an existing property, usually a set percentage of the final price achieved for the property, which is then subject to VAT. Land registry fees: This can vary according to the value of the property you are buying. Stamp duty: If you are buying a property worth over 125,000 the Government will tax you between 1% and 7% of the cost of your property, depending on what it is worth. The more valuable your property the more stamp duty you will pay. Legal fees: A solicitor is required to fulfill the legal aspects of moving home known as conveyancing. For example, transferring the legal title of the property to you from the previous owner. They will also carry out searches on your behalf to ensure the purchase is legal and there are no clauses or hidden rights of way that could block the sale or cause problems later on. The costs for the searches are usually included in the solicitors fee but check. Likewise get a quote upfront to avoid any nasty surprises. Survey: This is a professional inspection to evaluate the property s worth but also identify any potential problems such as structural issues or damp which may impact whether you want to go ahead with the purchase or the price you wish to pay. The surveyor will produce a report, which you should agree the level of detail given and the price of upfront. This might be a Homebuyers Report or a Structural Survey/Building Survey for older or listed properties, or those that have had extensions or renovations. You won t need a building survey if you are buying a new build as it should have a NHBC certificate guaranteeing the property for 10 years. Valuation costs: This is an inspection by the lender to make sure the property is worth the amount they are lending you to buy it. You may be able to save money and avoid doubling up by engaging a surveyor to do a survey report that is also approved by the lender to provide them with the valuation. Check with your mortgage provider. Mortgage arrangement or booking fee: There may be a charge from the lender for setting up the mortgage. This can often be added into the amount borrowed and paid off over the term of the mortgage. Removal costs: The cost of moving your belongings to the new property. Include any additional costs like if you need temporary storage or cleaning at the other end.
In addition to budgeting the cost of your move, it is really important to work out a proper budget to give you a realistic view of what you can afford to pay each month and avoid overstretching yourself. Income in: Amount Notes Wages Interest from savings Other income Benefits Total A: Costs out: Amount Notes Home costs (utility bills, insurances, maintenance etc) Personal costs (Groceries, utility bills, travel, car, holidays, loans, credit card repayments etc) Total B: Total A _ Total B = disposable income Allow some room for saving for luxuries or in case of emergencies.
BUYING YOUR HOME - Step by Step 1. Mortgage: Get an agreement in principle from your mortgage provider to show what they are willing to lend you. This is particularly important if you are a first time buyer. 2. Check the EPC: By law the seller must provide an Energy Performance Certificate to show the amount of energy the property uses. If you are buying a new build that hasn t been completed it will need a Predicted Energy Assessment (PEA). 3. Making an offer: If you find a property you want, the first thing to do is to make a offer to the seller or their estate agent, subject to contract and survey. 4. Deposit: In some instances you may be asked to put down a deposit to secure the property. It is held by your solicitor and reimbursed should the sale fall through due to the sellers. It is usually between 500-1000. 5. Choose a solicitor: It is well worth asking your estate agent or friends and family for recommendations when choosing a solicitor. They will be responsible for all the legal aspects of the sale (conveyancing), searches and dealing with the seller s solicitors so you need to feel confident they will make the process as stress-free as possible. Make sure you get a quote first so you know upfront how much you ll be paying. 6. Surveys: Find a good surveyor, again recommendations are invaluable. Decide whether you just want a Homebuyers Report or need a more in-depth structural survey. Also, try and use a surveyor that is approved to provide your mortgage provider with their required valuation so you aren t paying for two lots of valuations. Based on the results of the survey you may wish to try and renegotiate the price should you discover problems that need rectifying. 7. Additional insurances: You will have to have buildings insurance in place to receive your mortgage at completion. Sort this out now, along with contents insurance and any additional protection you may need to cover your mortgage payments and/or pay out should you become sick, injured, unemployed, critically ill or in the event of your death. 8. Exchanging contracts: Once your solicitor has received all the reports you re all set to sign the contract. The seller will do the same and then your respective solicitors will swap or exchange them. If you paid a deposit this will also be transferred to the seller s solicitor in preparation for completion. 9. Final preparations: The final few days between exchange are completion so make sure you are comfortable your solicitor has everything in hand. There should be a final Land Registry check, preparation of the transfer deed showing you as the new legal owner, arrangements made for the money transfers on completion and final accounts. 10. Completion & Moving day: You made it! Today all monies are transferred to the seller and you get the keys to your new home.
INSURANCES You will need to protect your home with adequate buildings and contents insurance: Buildings insurance: This is financial cover for any damage to your building caused by fire or flood for example. You need to ensure there is sufficient cover to pay for the cost of rebuilding your home should the worst happen and the majority of lenders will insist on this insurance being in place before they will give you the money at completion. If you are buying a leasehold property it may be included but your solicitor will need to check. Contents insurance: This is financial cover for your personal possessions such as furniture, electrical goods and jewellery should you have to replace them for reasons such as theft, water damage or fire. It is really important you look at the levels of cover provided as well as the cost when choosing a policy. Other types of insurance: As well as protecting your home you may want to consider insurance to cover you if you should lose your job, become ill or even die. You can guard your mortgage repayments with the following types of insurance: Income protection: Should you become ill or injured this policy would provide a regular monthly income and replace your earned income. Critical illness: This policy pays out a lump sum to repay your mortgage should you become critically ill. Life insurance: Similarly this policy pays a lump sum to repay your mortgage should you die or become terminally ill. Mortgage Payment Protection: This is to cover your mortgage payments if you are unable to work short term due to illness, injury or losing your job. These policies can be restricted though so check the conditions carefully. GLOSSARY - Some other useful terms to understand: Annual Percentage Rate (APR): This allows you to calculate the amount of interest you would pay over a year and the overall cost of borrowing so you can compare deals. Base rate: This is the interest rate set by the Bank of England. It is used by mortgage lenders to calculate their own interest rates and can fluctuate. Bridging loan: A loan specifically to bridge a gap in cash flow if you buy a property before you sell your existing one. Broker: This is another name for mortgage advisors. When you are choosing a broker look for one who is independent with access to the whole market and always use someone who is registered. Be aware some will charge a fee. Buy-to-let: Investing in property to generate rental income. There are also specific mortgages for buy-to-let investors. Capital Gains Tax: Any profit from the sale of a second property or investment is subject to Capital Gains Tax. You can check your threshold with your accountant or the HMRC. Chain-free: A chain is when the buyer and/or seller are dependent on other properties selling first in order for their sale to go through. Thus being chain-free can make a buyer more appealing and in a stronger position to negotiate. Claim for possession: If you fall behind on your mortgage payments the lender will issue a Notice of Default. This is then followed by a legal claim for possession of your property. Collateral: This is something of value used to guarantee the loan, in this case the house being purchased. Credit rating: This is a score used by lenders to assess how much risk you represent in terms of repaying the loan. Early Repayment Charge (ERC): Depending on your agreement there may be a charge for overpayment or if you move your mortgage to another lender within a set period. They can also be referred to as exit fees. Equity: This is the difference between the value of your property and the amount outstanding on your mortgage. If you have significant equity you can release it by borrowing more on your mortgage subject to status and validation. Financial Conduct Authority (FCA): The industry regulator for financial services in the UK (www.fca.org.uk). Freehold: The land the property is built on is included in the sale and not time limited. Ground rent: If you buy a leasehold property you will need to pay an annual fee to the freehold owner as part of the conditions of your lease. You are also likely to have to make contributions to maintenance. Guarantor: A person who guarantees to pay the mortgage repayments if you don t, for example your parents may do this to help you buy your first property. Key Facts Illustration (KFI): This lays out details of the mortgage in a specific format so you can compare different deals. Leasehold: A lease sets out the number of years you own a property before it reverts to the freeholder. Leases can be extended although this can be costly. Length of term: How long you take your mortgage out for. Loan to Value (LTV): The percentage of your property s value you are borrowing. Negative equity: If house prices fall to the point where you owe a greater amount on your mortgage than the value of your house. Payment holiday: With some mortgages you can have an agreed period of time where you don t have to make repayments should you need it. It is usually when you have the option to make overpayments too. Repossession: Usually a last resort, this is when lenders take back a property and sell it to get their money back. Title deeds: Documents that prove the legal ownership of a property, held by the Land Registry. Transfer deeds: The legal document for the legal transfer of property ownership from one person to another. Vendor: Another term used to refer to the seller of the property.