Buying your first home: the process
Often the most daunting thing about buying your first home is simply not knowing how the process works. Its highly likely you are an expert in your field, so the prospect of parting with tens of thousands of pounds (or sometimes millions) without fully understanding everything can be irritating at best.
Therefore, we have broken down the process of buying your first home into bite sizes pieces, with as little jargon as possible.
If you follow this buying your first home step-by-step process, you should have a smooth run. You don’t have to of course, as the sales process in the UK is frighteningly loose, but if you don’t want any nasty surprises, what follows is the suggested course of events.
Getting your ducks in a row when buying your first home
When making a large purchase, its sensible to know what your budget is. Both in terms of what you can buy at and what it will cost on a monthly basis. As interest rates are so low, affordability isn’t really an issue anymore. So people are often pleasantly surprised at how much they can borrow when buying your first home.
Therefore, it is more often the dynamic of how much you want to spend each month on a mortgage that will drive how much you would like to borrow, and therefore buy at.
As a very rough figure, you can borrow around 5 x your income, less any commitments like Credit Cards, Loans etc. This is quite a complex area, so if you want a more detailed answer feel free to read our blog here or speak to an adviser. Only brokers have access to all the market, and very often exclusive deals, but on top of that, they work for you and have your interests at heart. A bank will only tell you about their products and only really care about their share price, so choose the party that will look after you.
Once you have spoken to an adviser, they can arrange an initial agreement to lend, often referred to as an AIP (Agreement In Principle). A high quality adviser will probably want to see proof of income and your credit file as a minimum to achieve this, as without accurate information, you can’t get accurate advice. You will then know how much you can borrow and how much it will cost. Add that together with your deposit and you will be ready to go house hunting for buying your first home with peace of mind that you won’t get any surprises when it comes to applying for a mortgage.
Exactly the same can be said on the legals. While there is little or nothing they can do prior to you finding a property, you can do the beauty parade now while there is no time pressure. Also get a clear idea of all the additional costs such as stamp duty, legal fees, disbursements etc. Again, just another way to ensure there are no surprises down the line when buying your first home
So once you have your ‘dream team’ lined up, you can go house hunting with the full knowledge of what you can buy at and what the costs will be. Down the line this will be hugely beneficial when you come to make an offer. An Estate Agent will take you so much more seriously when you say – here are my brokers details, here are my lawyers details, here is my offer and this is when I want to complete. The golden rule in business is make it easy. So if you make the Agent’s life easy by being prepared, it can be the difference between being successful on a buying your first home or not.
If you follow the steps above, you can go shopping with confidence. And be confident. Strong buyers are always hard to find, so our key advice would be.
Set your budget and stick to it (don’t be ‘tempted’ by that one just outside your budget).
Set your area and stick to it. (You can chase your tail forever looking at different areas. The general dynamic is the more space you get, the further out of town you are. So make your mind up about what is most important to you and make peace with that off the bat).
See as much as you can. Do not judge a property by the pictures online alone. (A good photographer – and bear in mind, some agents employ professional photographers now – can make a ‘phone box seem like a palace, and a bargain look like a bin. Go in open minded and see whatever is in your budget and in your area), but be clear on your requirements. Do you want a garden? Spare room? Make your mind up about this stuff as early as possible.
- Find a good local agent. In nearly every area there is a dominant local agent, that maybe only has an office or two with a small online presence. These are the gems and often have the best stock. Hit the streets and walk around where you want to move to when buying your first home and pop into the local agents in the area. Property is still an old school game, so get out and meet the players. That way you’ll outmanoeuvre the online shoppers.
Submitting an offer when buying your first home
Once you have seen all you can, and whittled down your short list, gone back for 2nd or 3rd viewings, driven past at night to make sure there aren’t hooded youths marauding the streets, you can then be confident enough to submit an offer.
All offers have to be submitted in writing and it is a legal requirement for the Agent to pass them onto the Vendor. DO NOT get put off by the agent from submitting a lower offer. One of the most commonly asked questions we hear is – how much should I offer? The answer is we have no idea as it is so dependant on the property and the area. However, my reply is always the same “if you aren’t embarrassed by your first offer, you have gone too high”. What is the worst they can say? Hearing a no isn’t so bad is it? Welcome to big school and be brave. We have never met an agent who wouldn’t prefer a low offer to no offer, so play the game and enjoy it.
If you want to be really serious, offer money up front for exclusivity for a period of time to arrange the financial and legal work. If you have found “the one” don’t mess around, pay what is needed and get it done. So many times over the years we see people buying your first home lose out over haggling over a relatively small amount, its just not worth it in the scheme of things.
If you have to go to sealed bids on a very popular property, our top tip is – pick an odd amount. For example, if the property is on the market at £750,000 and you are told only bids in excess of this figure will be considered as multiple bids at this level have already been submitted, why not go for £777,897. The exact figure will of course vary but you get the idea. Go odd and go high! You won’t regret it in 10 years’ time.
Getting the offer agreed
After you have jumped through those hoops, and the seller has agreed the sale price, the real work can start. If it is not offered, it is prudent to agree an exclusivity period in order to get the legal and finance work done. Normally 4 weeks to get a mortgage agreed and survey conducted is good time and I would push for this. After all the work you have put in, for someone to come and outbid you by £1k once you have started spending money is no good at all. So push for a period of time for the property to be taken off the market and no more bids are to be entertained.
This isn’t always possible, so if not, go into this with your eyes open and make sure you move quickly! A popular phrase in boxing is “speed kills” and nothing is truer in property. By moving quickly, you often blow any other interested party out the water when buying your first home. Think of this from the seller’s perspective. Who would you sell to – the people who are organised and nail down the process, or the people who are wish- washy and drag their heels – I know who I would rather sell to.
Formal mortgage and legal applications when buying your first home
Now you have the price agreed and are clear on the timescales you need to move to, time to spend some money! Most lawyers will want funds on account at this point so they can start the ball rolling. Good lawyers will kick off the process from day 1. More, shall we say, relaxed firms, will wait until the mortgage offer is produced. If you have followed these steps correctly, you will know the funding is in the bag, so push them to move if needed. This will save you valuable time and headaches down the line. Any good broker will also really start to control the process from here when buying your first home.
On the mortgage itself, if you are already agreed, you are good to go subject to getting a survey report back. You will most likely need more documentation for the mortgage such as Bank Statements, Proof of income, proof of deposit etc but your broker will talk you through this. Once the application is submitted and agreed (which is nearly always done online these days and updated instantly), that usually triggers the mortgage survey, which is really the only variable no one can control until it is done.
When instructing the survey, you have 3 options:
- The clue is in the title. This is purely to asses the value and viability of the property being adequate security for the lender.
- A more detailed report which looks more closely at the internal parts of the property but not the externals, roof or structure of the building.
- The most comprehensive report you can undertake as it looks at literally everything on the property.
This is a very big subject on its own, so if you want more detailed reading, I would suggest looking at the relevant page of our survey partners – Alexander Lyons – which can give you a lot more information on this.
Just at a high level, we often just recommend the basic survey when buying your first home unless you have a specific concern or query about the property. Reason being that they are often free from the lender and they will flag any major issues which you can then go back and look at with a firm such as Alexander Lyons. We strongly discourage anyone getting a more detailed report though a lender, as not only does this cost more, it also removes the ability for you to make your own decisions whether to proceed on the property. This is explained by the outcomes that you get following a survey, which are:
No issues, happy to proceed.
- The property is valued at the amount you have agreed and no issues were raised by the surveyor.
Down-Valuation, no comments.
- This is great news. A professional surveyor has visited the property and decided it is not worth what you have agreed. This gives you excellent scope to go back to the seller and renegotiate the price DOWN.
- This does come with a risk warning, even though a surveyor does not agree with the value, it does not mean that the seller has to accept that. They could choose to tell you to proceed regardless, or choose to re-market the property again and try a new buyer. So common sense is best applied here. If you really want to buy the property, you may need to take a view on what to do next. Again, a broker is very well placed to talk you through the options.
- Please bear in mind that the lender will ONLY work on the surveyors value, so that may affect the amount you can borrow or deposit you will need when buying your first home.
- Surveyors are humans and do make mistakes. So take this with a pinch of salt, consult knowledgeable people in the market/area before deciding your next steps.
Down-valuation, adverse comments
- As above, but with a reason. So typically – Damp, Structural issues, Concern on building regulations etc. often if the issue can get fixed before completion, the surveyor will then revisit the property and value the property at the agreed level. If that is not possible, see above for next steps.
- Specialist reports may be required such as a Damp Report. This is in your interest so worth exploring. Depending on the nature of the issue, it can be very fixable and a chance to reduce the price in your favour, but as ever, seek professional advice before proceeding so you fully understand the consequences of your actions.
- As per the above, but the surveyor may also do something along the lines of “we suspect there to be issues with Damp in the property, which we estimate to costs £15,000 to fix. So until resolved, a retention of £15,000 is advised”. This means that if you fix the issue before completion, no problem, this restriction will be removed. However, if you proceed with the purchase, fix the work, you can then go back to the lender and they will release the £15,000 back to you once confirmation has been received that the work has been completed. This obviously has impacts on cash for you, so again, go into this with your eyes open. However, it is important to note that the surveyor does not deem it such a big issue that the lender should not offer you a loan, so that is a positive.
- This means the property is not suitable for lending and there will be a specific reason mentioned. This will be something very major like Structural Issues, not conforming to the lenders policy or a very specific concern.
- Again, it is worth noting that may be due to the specific lender you are looking to use, another lender may take a different view, so again, consult your broker or property professional to asses what the issue is and best course of action from there.
To put your mind at rest, more than 9 out of 10 applications go through without any issues in our experience. The only major issue that comes up is that of value. As alluded to above, if you are buying a property that needs work, or a quirky construction, a good broker will deal with that at the outset so the survey results shouldn’t come as a shock. If the property turns out not to be good security for the loan, it is worth considering whether it is worth proceeding at that stage, as if a lender won’t lender, the re-sale of the property could also prove problematic.
Mortgage offer when buying your first home
Once all the above has been successfully navigated, the lender will issue a Binding Mortgage Offer. As the name suggests, unless a material change comes to light (such as losing your job, or a change in your credit profile), the lender issues a document to you which is a rubber stamp on the lending. Typically, most lenders offer this for 6 months, which in most instances is ample time to complete the legal work and any other loose ends you need to tie up.
If you are buying a New Build with a completion date outside of 6 months, some lenders offer 12 months offers and a few even 18 months. Again, best to deal with this at the front end and a good broker will explain this which gives you peace of mind with a delayed completion, which is very important.
A copy of this goes to you, the broker and the lawyer. Largely, the job is done from a mortgage perspective at this stage, but any good broker will be on hand to help you through the next steps and kick any party that is dragging their heels!
As mentioned above, once the mortgage offer is produced, and a copy of the survey sent to the lawyer they can tie up their loose ends.
Legal work in the UK can be very complex, especially in London and especially with Leasehold properties or high value transactions. That is exactly why we suggest picking up on this as early as you can.
Recommendations can be obtained via brokers, friends and Estate Agents. As they have first hand experience they are best to rely on as opposed to just going online and finding the cheapest option which rarely works for you. We work with an excellent firm called Adams Kaye who we have had a very longstanding relationship with the partners there from before they started their own firm. Please use whoever you wish, just please do your research!
All being well, they will report back to you once all the legal work is done, documents checked and searches carried out and advise you to proceed to exchange of contracts. If there are any major issues they will be flagged at this stage and a good lawyer will recommend a plan of action. A poor lawyer will just flag issues and ask if you want to go ahead. On what is likely to be your largest transaction to date, that is why is pays to have a good lawyer in your corner.
Last word of caution. if you are buying in a large chain, meaning multiple sales are wrapped up in one transaction (so you buying this property frees the seller to buy their next property, which frees those sellers up to buy their next property and so on), the legal work can be a very slow and painful process. As no matter how good your firm is, you can only move at the pace of the slowest link in the chain.
Exchange of contracts when buying your first home
If there are no issues with the property or finance, you will be advised to exchange contracts. This is the only point of the process in which you are then tied into the sale. Typically 10% of the property values changes hands at this point and the completion date is set. If anyone pulls out after this stage, they will be financially penalised for doing so, or a new agreement needs to be reached. It is also worth noting that anyone can pull out at any point up to this point, which can be very frustrating and costly. Welcome to the UK property market. Please see point on Speed Kills!
Largely a formality for the finance and legal teams, but for you, the best day of the whole process as you get to pick up the keys! Celebrations should be on hand, bubbly drinks consumed, and house warming parties organised. For many you will learn the art form of the Allen Key as flat pack deliveries a plenty will be entering your life at this stage.
On a technical level, the monies are transferred for the purchase, legal work completed and stamp duty paid. So quite an expensive day! This whole process can take at least weeks, if not months to complete, so there are rarely surprises, but if there are any last minute hiccups, which sadly does happen, your Dream Team will be on hand to help.
From the point of the highest indebtedness you are likely to experience at this stage of your life, so starts the process of getting debt free! A good broker will help you manage the debt down, or advise on the best course of action should you wish to do renovations or upsize/downsize down the line. Until then, we advocate annual reviews even if you have a longer term product. Naturally, a good broker will pick up with you a few months before your current mortgage deal expiring, but a lot of value can be added along the way, which will be touched on at a later date. But for now, bask in the glory of being a homeowner, as you have achieved what an ever decreasing amount of people are able to achieve.
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