First Time Buyer’s Guide to Moving House
Moving house for the first time may seem like a daunting experience, but it needn't be stressful. With highly skilled conveyancing experts behind you and some forward planning, you can help to minimise some of the hurdles that face many people buying their first home.
Sorting out your finances
Before you jump in, we recommend you speak with a mortgage adviser to discuss your plans and your current financial status. A mortgage adviser will give you guidance as to how much you can borrow, how much cash you are likely to need for various expenses incurred. Expenses to expect should include:
- the loan deposit
- mortgage arrangement fees
- survey fees
- buildings insurance
- Stamp Duty (now known as Land and Buildings Transaction Tax)
- removal services fees
- legal fees
Your mortgage adviser can give you advice on other areas so that your finances are in the best possible position before making a purchase. Putting together a budget of your finances will also give you and your mortgage adviser an idea of what you can afford – and it can also give you the incentive to cut back in areas to help you save cash.
The house purchasing process
When you find a property you like, you should request a home report from the owner. This will contain a valuation survey, an energy report and a property questionnaire, which gives answers to typical property queries. Not all properties are required by law to have a home report instructed; sellers of new builds and properties newly converted into residential properties are not required to commission a home report for their properties. In some cases, with older properties, the prospective buyer may feel a full, structural survey should be made on the property to make sure it is in sound condition. These can be costly, but could save you more expense in the long run.
Getting a mortgage
A mortgage is a loan for the purchase of property or land. The loan is usually for around twenty-five years, but this can vary depending on your personal circumstances. The amount you borrow is ‘secured' against the value of your home. This means if you can't keep up your mortgage repayments, the lender will repossess the house and sell it to get their money back. The mortgage lender you choose will want a detailed breakdown of your income, as it is in their interests to ensure you can make repayments, where there is a rise in interest rates, or where you have an unexpected expense. Mortgage lenders favour individuals who are good with money and can show that they can save, and make repayments to loans, etc.
You will be charged interest on the money you borrow (the capital) until the loan is paid off. There are two ways of arranging your mortgage; the 'interest only' option, or by paying both interest and capital each month in a Repayment mortgage. With a repayment mortgage, some of the interest and capital is paid off each month. With an interest-only mortgage, only the interest on the loan is paid off - this is not advisable as a long-term solution, but it can work for a short period until finances improve. Your mortgage adviser may advise a combination of both options. As well as options for paying back your loan, there are also different types of mortgage to choose from. You can decide if you want a fixed or variable rate repayment plan. The fixed rate means that for a fixed period, your mortgage payments will remain the same. This is a good option for first-time buyers who are not as flexible with finances. The variable rate mortgage is another option, the rate of which fluctuates in line with the Bank of England base rate.
How much deposit will I need to buy a house?
Depending on the lender, you could be asked to put down a 20% deposit mortgage for your home or more. However, a growing number of mortgage lenders are now offering 95% loan-to-value (LTV) mortgages. The drawback here is usually the more deposit you put in, the better the deal you will be offered because there is not as much risk involved. Saving as much as possible will mean you can take advantage of a better deal on your loan.
Land & Buildings Transaction Tax (LBTT)
When you are considering a house purchase, you need to take into account any tax that may be applied to the purchase. The Land and Buildings Transaction Tax is a Scottish tax on properties sold for over £145,000. The tax rate depends on the value of the property, and a supplementary charge of 3% is charged on top of the standard rate for those purchasing second homes and buy-to-let properties. This will apply whether the buyer is a private purchase or commercial property purchase. The rate for each band is applied only to the part of the price over the relevant threshold and up to the next threshold. In Scotland, buyers will pay 2% on the amount above the threshold for homes that sell for between £145,000 and £250,000, 5% for homes between £250,000.01 and £325,000, 10% for homes between £325,000.01 and £750,000, and a 12% rate is payable on homes costing over £750,000.01.
Making an offer
Once you have spoken to your mortgage adviser about how much you can borrow, you can start to think about making an offer on a property that fits your budget. When you have found a property you are interested in, you can ask your solicitor to note interest in the property with the estate agent. This means that if anyone else wishes to offer on the property, you will be informed so that you also have the chance to offer. Where the property is offered at a ‘fixed price', you can make an offer for the price stated (you can go in with a lower offer if you wish depending on the condition of the property or the length of time it has been on the market). The seller can accept or reject your offer, and this can depend on a number of factors, such as proposed move in dates. Properties advertised as ‘offers around’ are inviting offers close to the given price, and work much in the same way as the ‘fixed price’ advertisements. Properties advertised at ‘offers over’ a sum are generally looking for an offer over the amount stated. Your lawyer will be able to advise you how much to offer, given the current market situation, or depending on how long their house has been on the market, or how much interest it has. If you are waiting on the outcome of a survey, you can make your offer ‘subject to survey’ which will mean if the survey report is not satisfactory you can retract your offer.
When more than one person has noted interest in the property, a closing date can be announced, which is the final date for offers on the property. A closing date is not essential, if there is only one interested party, then a sale price can be negotiated, however, when a closing date is in place it works to the advantage of the seller because of the competition involved in the offers.
The sale transaction
If your offer is accepted, a qualified acceptance will be issued to you. This means, if both parties can agree on the terms of the contract, the property will be yours. Once all the contract details have been agreed upon, the solicitors will exchange a number of letters, known as ‘missives’. Once these have been signed, the sale is complete. Your solicitor will go through a series of checks on the property title to make sure everything is as it should be. The seller will then sign and transfer the title deeds to the buyer. This is known as the disposition.
You should contact your mortgage provider with details of the purchase and the date of entry. A fee will normally be applicable at this stage for the arrangement of the mortgage. Finally, your solicitor must register the deeds in the Land Register and pay any LBTT tax due.