The Purchase Process
A Step by Step Guide
1. Understanding your Budget – how much can you borrow and afford?
You need to understand how much you can afford per month and how much can be lent by a bank or building society before you start looking for a new home.
Go through your bank statements to see what your typical outgoings are. If you live with your parents you may want to speak to them to get an idea of regular household costs such as – Council Tax, Water rates, Gas/Electric, insurances and groceries.
It is not advisable to borrow up to the very maximum of your budget. You should make sure you have a buffer or surplus of money left at the end of each month.
The amount you can borrow will depend on the lender as well as age, deposit size, income level, outgoings (including all debts), and any financial dependents. Most lenders will limit the amount they will lend to a maximum of 4.5 – 5 times your annual salaries.
As a Whole of Market mortgage broker, we will then be able to find the best lender to suit your situation.
4. How much deposit do you have available?
The size of the deposit you can afford will affect the mortgage products available to you.
This will change depending on the market, so please review our blog which should be more up to date. Currently some lenders will accept a 5% deposit but this is few and far between. Also, this might only be in certain areas of the country or have restrictive criteria to allow it.
For the majority of us a 10% deposit is the minimum amount allowed but even this only gives access to a handful of lenders. You will need to increase your cash amount 15% to open up the market. Hopefully this will change as we move into 2021.
If a 10% deposit is not enough for the area you are trying to buy in you may have access to government schemes such as Help to Buy, Shared Ownership or Right to Buy. These schemes change regularly to reflect the current market.
Family members are able to help by providing a deposit. Most lenders are normally comfortable with this provided it is in the form of a gift not a loan and that the person providing the gift will have no financial interest in the property.
The government does have specific schemes to help buyers with smaller deposits. These will change from time to time, so it is best to regularly check their website - https://www.helptobuy.gov.uk
5. Where and what do you want to buy?
Once you know what you can afford you can start to look online to narrow down the location and property type/size. You should consider how long you want to live there for, will this be short term and just a steppingstone? Or more long term, something for a family or a potential investment where you can add value?
It is advisable to look at several different types of property – sometimes if you narrow down your preferences too much you might miss a fantastic opportunity elsewhere.
Also consider – transport links, school catchment area, shops, pubs, parking and traffic.
6. A Mortgage in Principle
Some brokers will tell you this is essential, others will not.
A Mortgage in Principle – MiP - (sometimes referred to as a decision or agreement in principle) is a credit check with a lender based on a specific mortgage amount. This does not guarantee that you can acquire a mortgage, it is only a decision via a credit check that you have suitable credit history and the information provided in terms of your income and outgoings indicates that the loan is affordable. Estate agents may state that these checks are vital to making a strong offer on a new purchase, but this is not necessarily correct. Most agents will be satisfied with a qualifying email or phone call from the mortgage broker.
An MiP can result in a credit score which creates a footprint on your credit file. Too many of these can have a negative impact on your mortgage application, so think carefully before you agree to one.
An MiP is not a mandatory part of making an offer on a property but if you are buying in Scotland, at auction, a repossession or via a government backed scheme then this may differ.
Your broker will be able to tell you at which stage it would be best to obtain a credit score, although this will vary from case to case.
7. Register with Estate Agents
Once you have narrowed down the location and property type that you’re interested in buying you can approach an estate agent and register with them. This is free but can feel a bit daunting. You will normally be asked “what your position is?”. Are you a First-time buyer? Are you selling a property? What deposit do you have? Do you have a mortgage arranged? The agent may request that you speak to their mortgage broker – there is no obligation to do so nor is it a requirement to have a Mortgage in Principle to make an offer on a property. If you are told this, you can refer them to your broker.
The agent does not need to know your income or financial position, but they will often expect to see your deposit and get a third-party qualification of your mortgage position to confirm you are a serious buyer. The feedback we get from buyers is very varied as to what information people are told they need to give the agent. This can be dependent on the agency who are dealing with your enquiry. You might also find you have a different experience if you are speaking to a “Sales Negotiator” rather than a qualified Estate Agent.
What paperwork is required for a mortgage application will vary from lender to lender. A big benefit of using a broker is that we can take a larger number of documents upfront so that we can start assessing your situation earlier. This helps us to give better and more suitable advice. It also helps spot any potential issues that could arise down the line.
Documents to have ready to go:
This is a basic example, different scenarios will need different documents
- 3 months payslips if employed
3 years Tax Calculations and Tax Year Overviews if self-employed
Last set of full company accounts if director of limited company
Last 3 months bank statements
Up to date photo ID (passport/driving licence)
Proof of deposit (savings statement or evidence of gifted deposit)
Proof of address (council tax or utility bill, bank, credit card or mortgage statement)
You should get an idea of the costs for using a solicitor and see if any friends or family have used a solicitor they would refer you to. However, be careful as not all lenders can accept all solicitors. It is best to get a couple of quotes and then pick the appropriate firm once it has been confirmed they are able to work alongside your chosen lender. At Ideal Mortgage Advisers we have a large panel of solicitors we can refer you to if required.
Keep in regular contact with your broker. This will help both parties to move ahead quickly when you make a mortgage offer. You may want to check if the property you have seen is suitable or discuss how a promotion or job change will affect your situation. The more information your broker has the better that they will understand your situation.
11. View properties in person
This is not mandatory but standing in a house or flat will give you a very different perspective to looking online via Rightmove or Zoopla. You will be able to get a much better feel for the size. Estate agents can work wonders with a fisheye lens, the online photos are there to sell you an idea. You can often visit properties more than once before making an offer.
12. Make an offer
You do not need to offer the asking price, it is commonplace to negotiate, but a very low figure could offend the vendor. You should ask how long the property has been on the market for and see what extra information you can get out of the agent. You can look online to see what similar properties have or are being sold for, Rightmove, Zoopla and Land Registry are very useful for this.
You can inform the agent of your offer by phone, email or in person. They are required to pass this onto the vendor. You can mention your situation to the agent to promote yourself as a potential buyer, you might be chain free or have a large deposit. Your initial offer might not be accepted, and a higher number might be needed. Request that if your offer is accepted you would like the property taken off the market to stop any further viewings.
13. Time for a mortgage application
Once the offer is accepted you will need to move ahead quickly and make a mortgage application. This will put several things in motion, and this is where the house buying process gets into full swing.
If you have not had a Mortgage in Principle already with the lender you want to apply with, the first part of the application will be a credit score. Once this is accepted, your broker can convert this into a full mortgage application and send your documents to the lender for assessment. Typically, lenders take around 3-5 working days to confirm if the scenario and paperwork is satisfactory, however this can vary depending on the lender and your scenario.
You can instruct the solicitors at this point or you may want to wait until you have the mortgage offer – this should take around 2 – 3 weeks. Your solicitor will expect you to pay a fee of £300 – £400 for searches to be instructed. These will be non-refundable, so being confident about proceeding at this stage is important.
The lender will at this stage instruct a valuer/surveyor from a panel of companies and contact the agent to arrange a valuation. Lenders only require a “Basic” survey to be carried out. A lot of mortgage products come with a free basic valuation and can be upgraded to a “Homebuyers” at an additional cost.
Once you have the mortgage offer, you know that the lender has accepted your application and is happy to loan you the money, subject to the satisfactory completion of any remaining legal work.
14. Things to consider once you have your offer
Upgrading the valuation or survey
This will depend on your attitude to risk plus the condition/type of the property you are buying. If you buy a flat, you cannot get a full survey as the surveyor cannot access the entire building the flat is located within.
If you buy a new-build home, you should get a 10 year warranty from the builder so there is no real need for anything more than a basic. A lot of people will opt for a more detailed report for peace of mind, a kind of emotional insurance. If there is something specific about the property you would like investigated it might be better to obtain a specialist report separately (damp, electrical, etc) instead.
Types of survey
As sounds, this is a very basic survey and gives you a property value. In a few cases the valuer will carry this out remotely without physically visiting the property. They will assess the property's condition, including any risks, potential legal issues, and urgent defects, however it may not reveal serious defects and there may be important inaccuracies or omissions.
This type of survey will provide you with a 10 – 20 page document that includes a property valuation, plus defects that might affect the property, and advice on repairs and maintenance. Normally on a traffic light level of priority/risk. It gives you a good idea about what to look out for in the coming years. A Homebuyers might not be detailed enough for a very old or delipidated house.
This will be more suitable when purchasing an older, heavily altered, or run-down property or if major works are planned. This report includes detailed information on:
The fabric and condition of the property with a diagnosis of defects and repairs and maintenance advice
Visible defects and potential problems caused by hidden defects
Repair options including details on the risk of ignoring them.
The only mandatory insurance will be buildings insurance, you will need this on exchange of contract as at that point you are legally obliged to purchase the property. This is different for flats or new builds. Your solicitor will check that the building insurance is in place, but it will be up to you to arrange this cover. At Ideal Mortgage Advisers we can help find suitable cover.
Apart from the property you should consider your options for protecting yourself, your income, and your family. At Ideal Mortgage Advisers we can discuss this in detail alongside the mortgage.
If you are employed, you might be lucky enough to have some benefits as part of your contract such as income protection or death in service, but would this really fit your new situation of being a homeowner? If something unexpected were to happen, what is your plan B?
Types of cover
This will pay out a tax-free lump sum that can be used to repay the mortgage in full or go towards helping your family financially at this difficult time.
Another policy that pays out a tax-free lump sum, this time for a specified illness. Again, this could be used to repay the mortgage in full, although its often taken as a smaller amount of protection that is used to cover a missing income or care costs for a short time.
You will be able to insure yourself for up to 60% of your annual salary as a tax-free monthly income if you are unable to work for a set period of time, known as the deferred period, through either accident or illness. (check what your employer can offer first). These policies are designed to pay out each month until retirement, or for a set period or time such as 1, 2 or 5 years.
15. The Conveyancing Process
To start the legal process of buying a home you will need to instruct your solicitors. They will then ask you to complete some initial paperwork and send over a form of identity to carry out an electronic ID check. To start the “searches”, you will need to pay an upfront fee. This fee is unlikely to be refundable if the searches have been carried out.
Your solicitor will request and require a draft contract to be completed by the seller’s solicitors. This is a “draft” because the sale is not legally binding until the exchange of contracts. This draft will cover basic information such as the sale price, deposit, and relevant details from the title deeds (these are the legal documents which record the ownership of a property and any accompanying land).
Searches and property title
The number and type of searches will vary depending on the property and purchase scheme. This can include, but not limited to - Local authority, Land Registry, Environmental, Water authority, Location specific, planning and Chancel repair. The solicitor will also check the title to make sure it matches the vendor’s details and if there are any easements or restricted covenants that could affect your ability to buy the property. The length of time for these to be carried out will depend on the speed of your solicitor, the speed of the vendor’s solicitor, the communication between those two parties and the complexity of the case.
Once your solicitor has received replies to all enquiries and the results of the searches, a report can then be created on the property and sent to you. The financial side of the transaction will also be set out, which provides you with a completion statement highlighting the total amount due from you.
If all of the above is satisfactory and the solicitor is happy that the mortgage offer is valid you can arrange a date to exchange contracts and complete the purchase. If you are buying a house, you will need to have buildings insurance in place – your solicitor will check this. When you and vendor exchange contracts you will transfer part of the deposit, usually 5-10% of the purchase price, to your solicitor. This exchange is legally binding. The deposit will be sent to the vendor’s solicitor and a request to drawdown your mortgage funds will be sent the mortgage lender. It is best practise to arrange for the mortgage funds to be with your solicitor one working day before completion.
The completion date will normally be within a week or two of exchanging contracts. On completion you can pick up the keys from the estate agent and move in. Your mortgage will start from that day, your first payment will typically be around a month after completion and will be a mixture of your first regular payment plus accrued interest. The lender will send a letter to you confirming all this one to two weeks after completion
And that is it
3. Checking your credit history
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A lender will want to see that you can manage debt or that you do not have any adverse credit. If you have had financial problems in the past, there might be options for you, however with specialist lenders
You can set up an account with several different credit referencing agencies to download a copy of your credit file. This will show you what the new lender will see. Your actual credit score is not the most important as you might not have had any debts previously. The credit rating process is not straightforward as it varies from company to company.
The best advice is to always make payments on time, get on the electoral roll for your current address, close down credit cards you do not use and make sure you update creditors correctly when you move house.
You can check your history at - checkmyfile.com as this will use several different credit reference agencies
2. What type of mortgage product will suit your situation?
It is advisable to get a good understanding of that type of mortgage products lenders can offer. When you make a mortgage application you will need to select a type of interest rate. You will not need to decide on what is best now, but it is a good idea to know what is available so that you can have time to assess your options.
The two most common products are fixed and tracker rates:
A Fixed product guarantees your rate will not change for an initial set period, typically 2 to 5 years.
A Tracker product move up and down in line with the Bank of England Base Rate. This means that your monthly mortgage payments can change.
At Ideal we can discuss these with you, go through the pros and cons and potential monthly costs of the various options.
We hope this helps
Please feel free to forward this page onto other people who might be trying to get on the property ladder
If you have any question about the purchase process or mortgages in general, no matter what, you can call Ideal Mortgage Advisers
Your home may be repossessed if you do not keep up repayments on your mortgage