The first-time patrons’ step-by-step information to purchasing a house
- How to work out what you can afford – and cover all the other costs
- What the mortgage and legal process entails and why you need a survey
The prospect of buying a home for the first time can be as daunting as it is exciting.
For the majority of people it will be the biggest financial decision of their life, and this brings up plenty of questions.
Can you actually afford this? Should you trust the estate agent? Are you overpaying? Will your mortgage be refused? What horrors could the survey uncover, and why is the legal process taking so long?
The weeks and months of viewings, negotiations and paperwork can mean that when the house keys are placed in your hands, you may just feel relieved it’s all over.
But the prize at the end is your first home – and if you understand the process from the beginning, it will make things much easier.
This is a guide to all the steps involved in buying your first home.
New adventures: The home buying journey can take months – here’s what you must know
Work out what you can afford for a home
The first step is to work out how much money you have to spend on your home.
This will be determined by a combination of your deposit and the mortgage you can get based on your income, age, other debts and monthly outgoings.
When it comes to your deposit – the money that you put down – lenders will usually ask for at least 5 per cent of the property’s value, and in many cases 10 or 15.
Having a bigger deposit as a proportion of the purchase price will mean you own more of your home outright and have less to pay back overall.
It will also open you up to cheaper mortgage rates, as you are a less risky borrower, as well as reducing your chances of falling into negative equity if house prices were to fall.
The bigger your deposit is, the lower your mortgage rate should be in theory. Mortgage rates are often available in tranches based on the size of the mortgage versus the property’s value known as loan-to-value. For example, 90 per cent loan-to-value, 75 per cent loan-to-value and 60 per cent loan-to-value.
Once you have your deposit settled, you need to know how big a mortgage you can borrow.
An easy way to establish this is by speaking with a mortgage broker. They will be able to run an affordability check to see what the maximum you can borrow is.
They will need information from your bank statements, payslips or tax returns to do so.
As a rough rule of thumb, most lenders typically limit people to borrowing no more than 4.5 times their annual income.
However, it can be lower dependent on any other loans and debts you may have to factor in, or potentially higher if your incomings and outgoings are robust.
It is also possible to borrow more than 4.5 times your income with certain lenders, depending on how much you earn and how large your deposit is.
There are also certain lenders that provide higher multiples for certain professions.
This is why it’s well worth speaking to a qualified mortgage broker who understands the market.
You might find you have to change your expectations, but hopefully your deposit and maximum mortgage borrowing will be enough to buy the type of home you’d be happy with, in the area you want to live in.
> Check the mortgage you can afford with This is Money’s partner L&C
On the ladder: Buyers don’t only need to save a deposit, but also fees, taxes and moving costs
Budget for other home buying costs
It’s important to go into the home buying process with your eyes open. Buying a home involves additional costs alongside your mortgage and deposit.
Stamp duty
First-time buyers, who have never owned a property before, get a tax break, with stamp duty starting at £425,000 rather than the standard £250,000 threshold.
If you are a first-time buyer buying a home for more than £425,000 you will need to factor in stamp dut, which is paid upfront at purchase.
If you are buying for between £425,001 and £625,000, then you’ll pay 5 per cent stamp duty on that proportion, but still get relief on the first £425,000.
If the price is over £625,000, you cannot claim the relief at all and therefore have to follow the rules for people who’ve bought a home before.
This would mean for example, if you were buying a £500,000 property, you would be required to pay £3,750 in SDLT.
If you were buying a property for £650,000 you would need to pay £20,000 of stamp duty, because the exemption is lost completely.
> Stamp duty calculator: What tax would you pay to buy a home
Stamp duty calculator
How much tax would you have to pay on a home or buy-to-let?
Conveyancing and surveys
To purchase the property you will also need to pay fees to a conveyancer or solicitor, which are typically around £2,000.
You will also likely pay for some form of independent survey before you exchange contracts, which can highlight if anything is wrong with the property, such as subsidence, damp or rot.
Depending on what survey you opt for and the size of the property you are buying, these tend to range from anywhere between £300 and £1,500, but it is something that shouldn’t be skimped on.
The Royal Institution of Chartered Surveyors explains that there are three levels of survey for buyers to choose from, depending on the type of property and the level of scrutiny they require. You can find out more in our guide to property surveys.
Maintenance and furnishings
Then there are costs you will have to factor in after you purchase the property, such as home insurance, unexpected repairs such as fixing a boiler and any decorating or improvement work.
You will also likely need to buy furniture and appliances which could also add up to thousands of pounds.
Home insurance
Home insurance is made up of two parts, buildings insurance and contents insurance.
Buildings insurance is an essential and covers you if something happens to your property, ranging from storm damage to the worst case scenario of it burning down. It is usually a condition of your mortgage.
Contents insurance covers what is in your home and your possessions, often outside of it too, and is something many people will already be familiar with.
The cost will depend on the rebuild cost of your home and how valuable your belongings are. Budget about £500 to £1,000 per year.
> Read our guide to home insurance and how to find the best cover
Life insurance
All homeowners should serious consider life insurance and if you own a property with a partner or have children, it is an essential.
Life insurance comes in many different shapes and sizes, with some policies providing cover until you die, and others set for a period of time, such as the duration of a mortgage.
The cost depends on the amount of cover and the type of policy. Budget about £20 to £40 per month.
> Read our guide to life insurance and how to get the best cover
Get house hunting
Once you have worked out your budget, you can start going to viewings.
This should be the fun part. Getting out and seeing properties will allow you to meet estate agents and assess the market.
Signing up with estate agents allows you to build a relationship with them, but also might get you first dibs on newly-listed homes before they hit property portals Rightmove, Zoopla and OntheMarket.
You can also sign up to property alerts on Rightmove, Zoopla and OntheMarket. This way, whenever a property hits the market you will be notified via email.
These can be made specific to the area you are looking at and the size and type of property you are after, so you won’t be bombarded.
Putting in the hard graft on viewings will put you in a good position to assess what is good value for money and what isn’t.
Don’t necessarily take the asking price to be a true reflection of value either. The asking price can be set by an overly-ambitious seller, or by an estate agent who overvalues to ward off competition from other agents.
If you are worried about overpaying, you can also find examples of properties that have sold in the local area on Rightmove, Zoopla or on the Land Registry, which can help give you an indication of what properties are actually selling for.
When you are out on viewings try to find out as much as you possibly can about the property and the seller. How long have they lived there, or is it an investment? Why are they moving? Have they found something they want to buy? All of these things and more will help you decide and make an offer.
Viewings: Seeing homes will allow you to meet estate agents and assess the market
Get a mortgage in principle
If you want to look organised and more appealing to a seller, getting what is known as an agreement in principle, or a mortgage in principle, when you begin house hunting could stand you in good stead.
Although it won’t guarantee you’ll get a mortgage it may mean a seller will take you more seriously, which could be important if you face competition for the property.
David Hollingworth, associate director of independent broker L&C Mortgages says: ‘An agreement in principle would give a clearer outlook as the lender will check credit and score, so if there’s any anxiety about whether they will qualify it can help allay any fears.
‘Most agreements in principle will now only leave a soft footprint on the credit file so it shouldn’t affect future scoring.
‘Where an agreement in principle can help is in demonstrating to estate agents that you are in a position to proceed.’
Agents may ask you to use their in-house broker or financial advisor for this, but you should not feel obliged to do this as you may get a better value service elsewhere.
> Use This is Money and L&C’s online service to get an agreement in principle
Make an offer
When you have found a property that fits the bill, it is time to make an offer.
Don’t be afraid to offer under the asking price, but understand that a seller is unlikely to accept much below it during the initial weeks of their property being on the market.
If you see a home that has been on the market for months, or that has had its asking price reduced or re-listed with another agent, then that could be ripe for negotiation.
On the other hand, if you make an offer on a property and there are other interested buyers, you may each be asked to give your ‘best and final offer’ to decide who gets it. The agent won’t be able to tell you what others have submitted.
In this situation that advice is to offer what you believe the property is worth and what you can afford, and not get carried away.
Once your offer is accepted, make sure you get assurances from the estate agent that the property is now off the market and they will not be conducting any further viewings.
> Read our guide to making an offer on a property
Get your documents in order: A full mortgage application requires ID and proof of deposit
Apply for a mortgage
When you have found the home for you, you will make an offer to the seller via the estate agent and hopefully have it accepted.
As soon as that happens, you need to begin your full mortgage application.
You’ll need to send your broker documents including proof of ID and address, such as a passport scan and a utility bill dated within the last three months.
They will also need your latest three months’ bank statements and payslips, as well as proof of deposit. These can all be sent as PDF documents.
If you are self-employed, you will typically need to send your latest two to three years or self assessment tax returns.
The full mortgage application will involve a hard credit check, an assessment of outgoings and incomings and a valuation of the property you are buying.
Legals, solicitors and conveyancing
Once your offer is accepted, you begin an entirely different journey involving surveys, searches and the legal process of buying a home. This is known as conveyancing.
The average mortgage application takes between four and six weeks, according to the mortgage broker Habito, though it can be much faster. Once your mortgage is offered, the offer will typically last for six months.
At the same time as you start your full mortgage application, you will also need to appoint a conveyancer or solicitor to do the legal work.
Your mortgage broker, the lender and your solicitor will then liaise with one another to ensure funds are released in time for completion.
Neither you nor the seller are legally tied in to the sale until contracts are exchanged, so if you want to get any surveys carried out it is a good idea to do that before this point.
If an issue comes up, you can ask the seller to fix it or amend the price for example.
Slow moving: The conveyancing process takes around 12-16 weeks, according to the Homeowners Alliance
The exchange can take many weeks or even months to happen. Until it takes place, the seller can simply walk away or accept an offer from someone else.
The time it takes to go from ‘offer accepted’ to ‘collecting the keys’ to your new home will largely be in the hands of your solicitor, as the legal (conveyancing) process is usually the most time-consuming aspect of buying a home. On average it takes around 12 to 16 weeks, according to the Homeowners Alliance.
Your solicitor will look out for any issues with the seller’s title deeds. For example, a restrictive covenant might stop you from adding an extension, or a right of way could run across your property.
To keep the process moving, it is vital to be proactive and ensure any delays are being chased up and that you respond quickly to emails, returning documents and completing forms when needed.
Your solicitor will look over the contract and put any concerns to the sellers’ solicitors, which can result in an arduous game of back and forth.
Conveyancing timelines are also heavily influenced by the time it takes for local authority searches to be returned.
A local authority search looks into whether the property is listed or located in a conservation area, as well as presenting information relating to new road proposals, rail schemes and planning decisions that might impact the property.
On top of delayed searches, there are other issues that can also delay the legal process.
Your seller could be buying from someone else who in turn is buying from another seller, all relying on each other to ensure they can complete on their own purchase.
If any transaction in this chain of buyers and sellers is delayed or collapses, everyone in the chain is impacted.
Exchanging contracts, completion and moving in
Once the contracts are exchanged, your solicitor will set a completion date with the seller’s representatives.
At the exchange of contracts you become legally bound to buy the property. You will typically be asked to pay your deposit at this point, and you and the seller will agree a day to complete the sale.
On completion day the property is yours, and you can collect the keys and move in.
