Buying a property for the first time can be a long and confusing process but working out in advance who is responsible for what and when can make the process that little easier.
In this article we will assess the exact roles and responsibilities for every component of the purchasing chain.
It may seem obvious but the best place to start is with the property vendor – in essence the person or entity that is selling their home to you. In every way this is the most basis of the entire transaction – without a property vendor there will be no sale!
Once you have identified your target property and have placed an offer, you will then need to find finance to purchase your home.
Very few of us will have the capital to purchase a home outright so in which case we will need to raise funds from a mortgage lender who will in turn make their return by charging interest on the granted loan. We would advise that you choose your lender very carefully – this is a contract that will last for many years so the wrong decision could cost you a significant amount of money! It is also imperative to remember that unless mortgage payments are maintained you could lose your home.
Choosing the right mortgage it thus crucial – with so much competition for your business it is a good idea to take expert advice and shop to ensure the right deal for you. Regardless of the deal that you broker with the lender, knowledge is key and please see below a useful financial jargon buster to help you navigate your negotiations!
Some useful phrases to note:
- Interest: This is added to the capital loaned at a pre-arranged rate (the interest rate).
- Deposit: This is a one off cash sum that you put down on a house to secure the mortgage. It is usually set at a minimum of 5%, thereby leaving a mortgage of 95%. These days however 100% mortgages are becoming more common but these come with a higher interest rate and a higher risk profile.
- Capital: This is the amount of money you borrow from the mortgage lender to pay for your property.
- Application Fee: This is an initial amount charged by some lenders to set up your mortgage.
- Mortgage Term: This is the set duration of the loan – in essence the time in which you have to pay back the capital and all the additional interest.
- Mortgage Indemnity Guarantee (MIG): Sometimes known as a mortgage indemnity premium (MIP). Some lenders charge this when you’re putting down a fairly small deposit (25% or under). It effectively protects the lender if you fail to keep up repayments and your home has to be re-possessed.
- Exit Penalty: This is a fee that lenders charge if you wish to leave your mortgage and switch to another provider.
- Negative Equity: This is a not a place you want to be! This is where interest rates rise to the point where you are paying more in mortgage repayments than your house is actually worth.
- Redemption Penalty: Also known as a lock-in or tie-in. These are fees which lenders charge should you wish to leave their mortgage after some special deal they offered you has expired. Take careful note of these, as they can add up to thousands of pounds.
Accessing mortgage providers is pretty straightforward – Most high street banks, building societies and online finance outlets provide mortgage lending services and regardless of your credit rating there will usually be a provider to meet your requirements depending on the amount of interest you are willing to pay.
Securing a mortgage is one of the first steps in buying your own home. We would advise that you contact a number of lenders to compare quotes and get the best deal for you. As well as paying close attention to the keywords above, you need to be careful when obtaining a number of quotes, as lenders may perform credit checks as part of the process. More than three checks in a six month period will harm your credit rating and make it harder for you to get a mortgage secured. It is a little nonsensical but sadly a fact of life.
We therefore recommend that you insist that they do not run a credit check on you during initial inquiries and wait til a later date as agreed with them.
Once you are satisfied that you have found the best possible deal, you need to get a mortgage agreement in principle. A mortgage lender will provide you with this in principle if all the information you gave them is correct and check out within their internal due diligence process. Once you have this, it will help you to speed up the process of actually getting a mortgage when you have found a suitable property. Getting a mortgage agreement in principle also means estate agents and sellers are much more likely to take you seriously.
The Estate Agent
Estate agents essentially act as a broker between the buyer and seller to facilitate contact and ultimately set in place a deal.
Working to a commission per sale, the bigger the sale – the bigger their individual commissions are so it is in their interest to promote a given vendor. The estate agent may also charge other fees for administration, listing and viewings. The role of the estate agent in short is to:
- Get suitable properties onto the housing market and reach as many potential buyers as possible.
- Represent saleable properties to potential buyers in a fair and honest way.
- Liaise with sellers in presenting their property in the best possible light to attract sales.
- Progress the sale through to a successful conclusion in the fastest possible time.
- Negotiate the sale at the best possible price.
Unlike most other countries, anyone in the UK can set up as an estate agent and need neither qualifications nor training to setup a firm.
A good estate agent will always help to make the buying/ selling process as stress free and advantageous for all parties. Whilst many do a valuable service for both buyer and vendor, there are some that do not and as such we would suggest you take the following into consideration:
- Local Knowledge: Is this Estate Agent a local specialist? Only agents with excellent local knowledge and connections will be able to advise clients in an informed manner.
- Reputation: Is the estate agent a member of any national bodies such as the Ombudsman for Estate Agents (OEA), National Association of Estate agents, The Guild of Professional Estate Agents?
- Conduct: Has the company published a professional code of conduct or best practice? Ask to see this.
- Insurance: Estate Agents must be insured to accept deposits and receipts must be given. Client deposits must be kept in a separate client bank or building society account.
- Property Advertising: How will the Estate Agent advertise your house to the widest possible audience? Do they publish a magazine or national website, if so how many and how often?
It is absolutely crucial that you know the condition of a property prior to purchasing it.
As such, you will need a professional surveyor to conduct a thorough survey and check all the aspects of the house. Depending on the type of survey you contract them for, surveyors will provide you with a detailed report giving you a clear indication of the property’s value and listing any potential problems – this in short is your fallback should you have any problems after purchasing the property.
We always suggest that use a surveyor that is a member of the Royal Institute of Chartered Surveyors (RICS). There are three main types of survey that you can have undertaken:
- A Valuation (this is actually not a survey)
- A Home Buyers Report
- A Full Structural Survey
The Valuation Report
Your mortgage lender will insist on a valuation from a third party. This simply checks that the price you are paying for the house is fair and in line with market norms. In essence, this is to ensure that their investment is being made on sound terms, but you still have to pay for this yourself and they will recommend the company with whom they work with. A valuation is not a survey, though it can be carried out by the same people.
A survey is a far more detailed look at the state of the property and is highly recommended, as there could be any number of hidden problems that could turn your dream home into nightmare! You can have a survey done by the same company as the valuation.
A Home Buyers Report – Ideal for Most Homes in a Reasonable State
This is the most basic type of survey and will check the visible areas of the house for any obvious or dangerous problems. It is generally suitable for homes built within the last 150 years and those that are in a reasonable condition. You should be provided with a report at the end which, according to the RICS, will include the following:
- Major Defects: It is the surveyors job to judge if there are any major defects that could affect the value of the house.
- General State of Repair: Covering the interior and exterior of the property and the locality.
- Damp: Results of tests for damp in the walls.
- Timbers: This will let you know about any damage to timbers, especially woodworm or wood based rot.
- Future Maintenance: You will need to know about any work that will need to be done immediately or in the near future as this could impact the future viability of your purchase.
- Drainage: The present condition of any damp-proofing, insulation and drainage.
- Legal matters: There could be issues relating to the lease terms of occupancy, rights of way, rights and responsibilities and parking issues, etc.
- Insurance: The cost of rebuilding the property after a fire must be estimated for insurance requirements.
- Value: Based on the findings, you will be given a valuation of the property on the present open market.
- Further investigation: If the surveyor sees anything that requires further investigation but cannot be covered in this type of report, he will notify you.
A Full Structural Survey – The Report for Listed, Older and More Unique Properties
A full structural survey is a much more detailed and costly report.
It is not uncommon for a survey to reach over 20 pages in length including diagrams, floor plans and using highly technical and legal language. A full structural survey will not necessarily give you the value of the property but you can ask for this if you wish it to be included. There are legal ramifications for a licensed surveyor if they do not warn you of anything that could affect the property and the level of detail reflects this – it is their reputation on the line which is why we suggest you use a fully registered RICS surveyor. This full report is recommended for properties that are:
- Listed buildings
- Older properties
- Constructed in an unusual manner
- Going to be renovated extensively
The final part of the house buying process requires the use of a conveyancer or licensed solicitor to do the final conveyancing work.
The complex legal process of transferring ownership of a property from one person to another is referred to as conveyancing and although you can legally do this yourself, most mortgage lenders will not allow you to do so given the legal complexities in the area.
The buyer’s conveyancer or solicitor will liaise with the seller’s solicitor and you should be made aware of how the process is progressing at all times with regular updates. Conveyancing can be divided into three main stages:
- Pre Exchange of Contracts: All contracts – the lease, title deeds and such must be checked and negotiated. Formal searches such as land registry must be undertaken. Specific formal inquiries must be made to the seller of the property.
- Exchange of Contracts: Upon receipt of a confirmed mortgage offer contracts are exchanged, signed and some final searches are undertaken. The deposit is then paid.
- Completion: Assuming all the searches have been cleared, the deposit has been paid and contracts have been signed then the property price is transferred to the seller, the buyer receives keys and can officially move in!
We suggest that you shop around for the best deal and always use a conveyancer that is registered with the Council for Licensed Conveyancers.