a step by step guide
for first time buyers
dandara.com
buying your first home can present a minefield of confusion. to assist first time
buyers, dandara have written this guide, to help make the process as simple
and hassle-free as possible. this comprehensive guide will help you through
the purchase process, from reserving a new property to exchange of contracts
and then moving in.
STEP 1-SORTING YOUR FINANCES
the 1st step to buying your first home is to establish how much money you will
need to have saved & what you can comfortably afford to borrow. make an
appointment with a mortgage advisor.
the mortgage adviser will recommend which mortgages will best suit your
needs & circumstances. to do this, he or she will spend some time discussing
your current and future requirements and will then provide a full mortgage
illustration providing information about the mortgage recommended, the
monthly repayment costs and any other associated charges and terms.
finding the right mortgage:
there are a vast number of mortgages available from various lenders and it
is often hard to differentiate between them. however the most important
considerations are how you pay back the capital you borrow and how you pay
the interest on it:
PAYING BACK THE CAPITAL
you can either pay back the capital as you go along (repayment mortgage) or
pay it all off at the end of the mortgage term (interest only).
repayment mortgage
each monthly payment pays off a little of the underlying debt, as well as interest
on the loan. if you keep up the repayments, at the end of the mortgage term
the mortgage is cleared.
interest-only mortgage
with an interest-only mortgage your monthly payments only cover the interest
on the loan - they do not pay off the loan itself. you will therefore have to make
separate arrangements to pay off the loan when the mortgage ends.
for example:
option 1 -
save regularly
you make payments into a savings or investment scheme each month to build
up a lump sum to pay off the mortgage when the time comes.
however, there is no guarantee that your money will grow enough to pay off the
mortgage in full by the end of the mortgage term.
option 2 -
change to a repayment mortgage later
this might be a suitable option if your earnings are low now but are expected
to be much higher in future.
using an interest-only mortgage keeps your monthly payments down until you
can afford the higher monthly payments of a repayment mortgage.
however, because you’re not paying anything off the amount you owe, you will
probably end up paying more interest in the long run.
PAYING THE INTEREST
different mortgages offer different interest rates and terms:
1, variable rate
a variable rate mortgage is where the interest rate is not fixed and generally
follows the direction of the bank of england’s monthly base rate. the rate can
be moved up or down without prior notice.
2, fixed rate
a fixed rate mortgage is where interest repayments to the lender are fixed
for a specified term, and are not altered by the base rate. these are ideal for
budgeting or if you think rates might increase, however you do not benefit if
rates fall, and will face penalties if you try and exit before the term ends.
3, capped rate
a capped rate mortgage guarantees the interest rate charged will not rise above
a certain level, however if the lenders rate falls below the level of your ‘cap’,
your rate will fall. the rate of interest on capped rates tends to be higher than for
fixed rate mortgages and fewer lenders offer them, restricting choice.
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4, discounted rate
a discounted rate mortgage guarantees the interest rate charged will remain
a set number of percentage points below the lender’s standard variable rate
over a set term. the rate changes as base rate moves up and down, but the
relationship between base rate and the rate you pay remains constant.
5, base rate trackers
a base rate tracker mortgage follows movements in the base rate and tracks the
rate at a set margin; either a fixed amount above or below. as with the variable
rate mortgage, the rate can be moved up or down without prior notice.
6, flexible mortgage
a flexible mortgage is designed to give you more control over your finances
with varying degrees of flexibility; you are able to overpay, borrow back
overpayments, underpay and take payment holidays. there are no tie-ins
with flexible mortgages, enabling you to redeem the mortgage at any time
without incurring a penalty. however you do pay for the flexibility. fully flexible
mortgages usually have higher rates of interest than standard deals and are
only worthwhile if you take advantage of all the flexible features.
7, current account mortgage
a current account mortgage combines all your finances into one single account
- your mortgage, current bank account, savings and personal loans.
any unspent income you have in your account at the end of the month is
automatically used to reduce the outstanding balance on your mortgage. rather
than have a separate savings account, any surplus that you would normally save
into a separate account in effect goes directly to reducing the total mortgage
debt and immediately reduces the amount of interest charged at the end of the
month. these accounts typically allow you to overpay or underpay each month,
so you have full control over your spending.
8, offset mortgage
an offset mortgage is similar to a current account mortgage, however your
savings and mortgage are kept in separate ‘pots’.
9, cash-back
cash-back mortgages are often aimed at first time buyers. the mortgage lender
will offer a lump sum of cash at the start or at an agreed point during the term
of your mortgage. usually the cash-back is offered as a package of benefits
(e.g. linked with a discount) but pure cash-back mortgages are not uncommon.
mortgage lenders may offer a sum of money towards the cost of legal fees or
survey charges. however with a cash-back mortgage, rates of interest tend to
be higher.
there are other factors that need to be considered when choosing a mortgage:
higher lending charge
the higher lending charge, formerly known as a mortgage indemnity guarantee
(mig), is a fee charged by a mortgage lender where the amount borrowed
exceeds a given percentage of the value of the property. this fee may be
used by the lender to purchase an insurance policy designed to protect it (the
mortgagee) against loss in the event of you defaulting and ceasing to repay
your mortgage. the fee may be insisted on by the lender at the start of the loan
and usually costs a few thousand pounds.
mortgage guarantor
if your income is too low for a mortgage you can use a mortgage guarantor.
this is a person who will guarantee that the mortgage repayments are made
in the event of default by the borrower. usually this will be a parent or relative
of a borrower. it should be remembered that a guarantor would be fully liable
for repayment of the mortgage amount if a borrower defaults. the guarantor
should therefore be confident that the borrower will meet all the necessary
monthly payments.
costs
when choosing a mortgage, you should consider more than the rate of interest.
other fees such as the lenders arrangement fee and a mortgage valuation
charge should be taken into account.
working out how much you can borrow
when you take out a mortgage, lenders look at a number of things to work out
how much you can borrow. these include your earnings and outgoings, the
property value and your credit history.
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most lenders use a standard income multiple when basing the mortgage on
your earnings. this varies between lenders but tends to be anything between
three to four times your income.
it is important that you have saved up beforehand to cover your costs. you
will need to pay a deposit for the house, legal fees, stamp duty, survey fees,
removal costs, plus the purchase of any furnishings you may need for your
new home.
STEP 2- GETTING TOGETHER A DEPOSIT
a deposit is the amount of money that you will be required to put towards
the purchase of a property, with the balance made up from mortgage finance.
the size of deposit may affect the interest rate you pay for some mortgage
packages - the more you put down as a deposit, the lower the rate of interest.
a typical deposit would be 5-10 per cent of the price of the property. so, for
instance, if you were required to provide a 10 per cent deposit and the purchase
price was £150,000 you would need to put down a £15,000 deposit.
if you cannot raise a deposit, some mortgage lenders do offer 100 per cent
mortgages where no deposit is required but this will be dependent on your
circumstances and may result in a higher interest rate because of the risk that
the lender is taking.
STEP 3- START HOUSE HUNTING
now that you know how much you can afford to spend on buying your home,
you can start house hunting. contact estate agents/developers and check local
press and websites for details of properties for sale within your price range. visit
as many properties as you can and don’t be afraid to go back for a second look.
draw up a checklist before you visit and take a camera with you. take notes
during the visit - it is very difficult to remember all the good points once you
have left. this way you can draw comparisons between the properties that you
see. it is also a good idea to take someone with you when visiting, as they may
notice things about the property that you miss.
when you have found the property you want, the next step is to reserve the
property (if buying a new home through a developer) or put forward your offer
(if purchasing through an estate agent)
NEW HOMES
why buy a new home?
there are many reasons you might prefer to buy a new property rather than an
older one.
• new homes usually come with a 10-year warranty
• low maintenance – no old lead piping to replace, no flaking paint, no
redecorating, no crumbling pointing, etc.
• new homes are over four times more energy-efficient than older homes
and therefore ‘greener’. this also means they are far cheaper to live in, with
lower heating bills
• fire-resistant materials and fire and smoke alarms come as standard
• the layout, size and allocation of space meet modern living requirements,
not those of past eras. (research from the house builders’ federation shows
that the lack of connecting rooms in older homes can mean that up to 17
per cent of the total space is wasted)
• new kitchens and bathrooms are already fitted, which can save time,
money and effort. sometimes even electrical and white goods come as
standard
• carpets or other flooring may be included in the price
• a new home is a blank canvas you can impose your own decoration from
the outset
• there is no onward chain, significantly speeding up the buying process
• many new properties are one and two-bedroom homes or studios in inner
city locations which are tailor-made for first time buyers
STEP 4- CHOOSE A SOLICITOR OR LICENSED CONVEYANCER
the purchase of a property can be a complicated process and there are legal
formalities that need to be completed. you should appoint a solicitor or licensed
conveyancer to act as your legal representative. call a number of companies
and get quotes before you commit yourself. dandara will be pleased to offer
names and addresses of local firms.
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once you have chosen your legal representative, give him or her full details of
your intended purchase.
the solicitor will make any pre-sale enquiries between you and the vendor and
take you through the exchange and completion of the sale.
before the point of exchange, your solicitor will carry out one or more ‘local
searches’.
STEP 5- ARRANGE YOUR MORTGAGE
now that you have chosen your property, you should make another appointment
with your mortgage adviser and arrange for your loan application to get
underway.
at the end of the meeting, the mortgage adviser will be able to confirm if your
mortgage has been agreed ‘in principle’, the mortgage lender will then complete
further checks on your income and credit status before a formal approval can
be given.
before the lender will agree your mortgage, they will obtain a property valuation
which will help to decide how much to lend on the property. you will be given
a copy of the valuer’s report.
STEP 6- MORTGAGE OFFER
when the lender has completed all of their checks and everything is satisfactory,
they will send you a ‘mortgage offer’ which is a formal document confirming
that your mortgage loan has been agreed. the mortgage offer includes a full
illustration of mortgage costs and terms. a copy will be sent directly to your
legal representative who will then be able to finalise the purchase on your
behalf.
STEP 7- EXCHANGE OF CONTRACTS
when your legal representative has completed various enquiries about the
property, such as checking the seller’s title and examining the contract, and is
happy with the mortgage offer, you will be ready to ‘exchange contracts’. your
legal adviser will ask you to sign the contract and pay the deposit. the deposit
required is usually 10% of the purchase price, but if you are borrowing more
than 90% of the purchase price, a smaller deposit is often acceptable.
your signed contract will then be sent to the seller’s solicitor, who in exchange
will send back an identical contract signed by the seller - this is the ‘exchange
of contracts’ that legally binds you to purchase the property. if you pull out at
this stage you would lose your deposit.
once contracts are exchanged, a date for completion can be agreed.
STEP 8- INSURANCE
you will be required to have buildings insurance for the property, the policy
needs to be in place from exchange of contracts.
STEP 9- PREPARING TO MOVE IN
with the completion date agreed, you can now obtain quotes from removal
companies and instruct your chosen firm. agree with the seller to inform gas,
water, electricity and telephone suppliers of change of ownership. arrangements
should be made for meters to be read and services connected.
STEP 10- COMPLETION
once all of the steps above have been completed, you can collect the keys and
move into your new home.
at the point of completion, your name will be registered with the land registry
and you will have to pay stamp duty land tax. the solicitor will arrange this for
you. at this stage, you will also pay any telegraphic transfer fees for transferring
money from one account to another
STAMP DUTY LAND TAX WHEN YOU BUY PROPERTY
you pay stamp duty land tax on houses, apartments, other buildings and land.
if the purchase price is £125,000 or less you don’t pay any stamp duty land tax
at all. if it’s more than £125,000, you pay between one and four per cent of the
whole purchase price, on a sliding scale.
the following table highlights the purchase price against the rate of stamp duty
land tax for residential property.
less than
£125,001 £250,001 £500,001 dandara.com
-
-
-
-
£125,000
£250,000
£500,000
more than
0%
1%
3%
4%
SPECTRUM, MANCHESTER
if you’re buying a property in certain areas designated by the government
(usually in areas of regeneration) you don’t pay any stamp duty land tax if the
purchase price is £150,000 or less.
CHECK LIST
we have included a sales progress checklist so that you can keep track of the
purchase of your new home once a sale has been agreed.
ACTION
DATE/COMMENT
day 1
mortgage agreed in principal
sale agreed: price
solicitor instructed
within approx 7 days
local search fees paid to solicitor
mortgage application submitted
& valuation fee paid (if applicable)
mortgage source:
within approx 14 days
survey & valuation completed
within approx 21 days
mortgage offer received
contracts signed & deposit paid
within approx 28 days
agreed exchange date:
agreed completion date
if you would like to dicuss buying your first property further please do not
hesitate to contact a member of our sales team on:
0161 829 3040
[email protected]
dandara.com
ground floor west, lowry hotel
50 dearmans place, chapel wharf
salford, manchester, m3 5lh
t: 0161 829 3020
all images are indicative only. this document is intended
to be used as a guide only, its accuracy can not be
guaranteed. all statements made in this particular are made
without responsibility to the developer, may 2007.
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