🏠 How to buy a house

So, you're thinking about buying a house? Congratulations!

Sometimes the process will be stressful, sometimes it will be exciting, and sometimes you'll spend weeks waiting for your conveyancer to answer a single question.

To get through it (and remain sane), research and prepare thoroughly, including reading this guide.

Here, we explain the process of buying a house. Whether you're a first time home buyer or looking for a buy to let, we have the tools and tips to help.

The 8 key phases to buying a house

There are 8 key phases to buying a house:

  1. Organising your finances
  2. Getting an Agreement in Principle (AIP)
  3. Finding your home
  4. Making an offer
  5. Formally applying for a mortgage
  6. Hiring a conveyancer or solicitor
  7. Signing your life away
  8. Completing the purchase

Some stages take longer than others, either because they're more complex or just labour intensive.

Organise your finances to buy a house

Whether you're a first time buyer or home mover, you need to organise your finances before you apply for a mortgage.

Ignoring your messy financial situation could mean your mortgage application is rejected. This could affect your future chances of securing a mortgage as it negatively impacts your credit score.

You need to be able to prove to mortgage lenders you can afford to buy a property and repay your mortgage every month.

Should you buy or carry on renting?

First time home buyers often rent before they bite the bullet and buy their own place. There are pros and cons to buying a new property over renting.

Before you make the drastic (and costly) decision to buy your first home, ask yourself:

  1. How much have I saved for a deposit?
  2. What can I afford to borrow and repay?
  3. How long do I plan to live in the property I buy?
  4. Which would I prefer: the stability of my own property or the flexibility of renting?
  5. Do I want to be responsible for repairs and maintenance?
  6. What are my financial, career and family goals?

There are instances where you can buy the property you rent at a discount. This is known as Right to Buy. The scheme is only available for council or a housing association tenants who have lived in the property for five years or more.

There is also a government Help to Buy scheme called Rent to Buy. This lets you rent a property at a discounted price, and then buy the property when you're ready.

Should you do up your property or move house?

Anyone already on the property ladder may be wondering whether to make the most of their current house or move.

The property market is not as buoyant as it has been in the past and the rate of property price increases has slowed. So, you may not make as much profit as you'd like by selling up and moving on.

As a "second stepper" (a first time property owner looking to buy their second), you are not entitled to the same benefits as first time buyers. This includes stamp duty relief and access to certain Help to Buy schemes.

It will most likely be cheaper for you to stay where you are. Especially if you're happy with the area you live and you have planning permission to improve or extend your property.

How much can I borrow?

Alongside sorting out your finances, you need to know what property you can afford. And before you do that, calculate how much how much you can borrow.

How much mortgage you can get depends on your regular income, outgoings and debt.

Mortgage lenders may lend you a maximum of 5 times your yearly salary and all will thoroughly assess your affordability. They need to know you can afford to repay the mortgage loan...plus interest.

The amount you can borrow on top of your total depositA chunk of cash (usually 5% or more) from your own savings to buy a property. The mortgage lender usually provides the rest. shows you the property price you can afford to pay.

The bigger deposit (either as cash or home equity) you have, the better your rates. The size of your deposit determines how much you'll need to borrow in relation to the value of the property. This is known as the loan to value ratio, or LTV.

What can I afford?

There is a difference between how much you can borrow and what you can afford.

How much you can borrow relates to the lump sum of the mortgage loan. What you can afford is more in line with your monthly repayments.

As a general rule, your mortgage repayments should not be more than 30% of your take-home pay. Paying any more than that could make you "house poor", where you own a property but have little money left over for other expenses.

To make your payments as small as possible, you'll need a smaller mortgage. To do this, either save up for longer so you have a larger deposit, or look for cheaper properties.

Find out your credit score

Your credit score is a good indication to the state of your financials.

It's a representation of your credit file dating back 6 years. Mortgage lenders do not see the same score you do because they have their own unique (and top secret) algorithms to rate you as a borrower.

You credit file is held by three different credit reference agencies (CRAs): Experian, Equifax and TransUnion. They each score you differently:

  • Experian scores you out of 999
  • Equifax scores you out of 700
  • TransUnion scores you out of 710

A good credit score can make it easier for you to get credit. A bad score can make it harder to secure a mortgage because it could mean you're bad at making credit repayments.

Check your credit score before you apply for a mortgage to reduce the chance of being rejected.

Your credit score is not the be all and end all of securing a mortgage. Lenders primarily assess your income vs. outgoings. Your (glowing) credit file adds extra weight to your application to show you can repay money on time.

High interest bank accounts

Right now, interest rates are generally low on savings (and loans) because of the Bank of England base rate, which is currently at 0.75%.

So, finding a savings account with a decent interest rate is not easy. Some require you have a linked current account with the same bank and additional qualifying criteria like a minimum monthly deposit amount.

The higher the interest rate, the bigger return on any of your savings.

As a first time buyer, a better option than a high interest savings account could be a Help to Buy ISA. It's a type of cash ISA and the government adds a 25% bonus to your savings. To get the bonus, you must use the money for your first property. The Help to Buy ISA scheme ends in November 2019.

Alternatively (or in addition depending on your circumstances), open a Lifetime ISA. The government adds a 25% bonus here too, but pays it in whilst the account is open. This means you earn interest on the bonus money. You'll incur a 25% penalty charge if you withdraw any money during the first year.

The Help to Buy Equity Loan and Shared Ownership are two other government schemes designed to coax first time buyers onto the housing ladder. The rules and benefits are different for each.

The total cost of buying a house

The total cost of buying a house stretches further than the property itself.

Fees are the biggest reason for this and crop up all over the place, at different times and in different forms.

Here are just some of them:

  • Mortgage arrangement fee
  • Stamp duty
  • Booking fee
  • Estate agent fee
  • Valuation fee
  • Surveyor fee
  • Conveyancer / solicitor fee
  • Land Registry fee
  • Removal costs
  • New furniture
  • Regular leasehold charges, like ground rent, service charges and maintenance fee

The total cost of buying a house is of course different for everyone. Shop around for the best deals, but beware of just opting for the cheapest. The cheapest home survey, for instance, could cost you large later on.

Most of these fees will come out of your savings, which will reduce the size of your deposit and affect how much you can borrow for a mortgage.

Get an AIP

An AIP is an agreement in principle. It is sometimes called mortgage in principle (MIP) or decision in principle (DIP).

An AIP is a written statement from a mortgage lender saying how much it might lend you to buy a property. It is not the same as a formal mortgage offer.

You usually need an AIP before you make an offer on a property. Estate agents may not take you seriously without one.

Depending on where you apply, you could get an AIP online, over the phone or in your local bank branch. Lenders will most likely check your credit file, which is why it's good to make sure it's in order first.

You do not have to get the mortgage from the same lender you get your AIP from.

Finding your new home

Once your finances are all sorted and you have your AIP, you can start looking for your new home!

This is the fun part but it can often take the longest. It helps to know what you're looking for, so write a list of non-negotiables and nice-to-haves.

Keep in mind what you can afford at all times. It's a waste of time (and far too tempting) to look around properties outside your budget.

Decide which area you want to live in

Use a property search site like Zoopla or Rightmove to find areas where you could afford to buy a house or flat.

Off the back of that, create a short list of areas where you'd be happy to live. Do lots of research. Do you want to live in a quiet area? A buzzing one? Somewhere with lots of vegan cafes? Somewhere close to a train station? Now is the time to decide what you really want!

Think about commute time and costs, school catchment areas and crime rates. Location is one of the only things you cannot change about a property, so it's important you get it right for you.

Come to terms with compromise

In almost every case, you will need to make some compromises when finding your next home.

Here are some possible compromises to think about:

  • Property size
  • Length of the work commute
  • Outdoor space
  • School catchment areas
  • Proximity to family and friends

Remember that some compromises can be fixed in the future. You might be able to build an extension or put in a new kitchen. But some things are harder to fix, such as distance to family or good schools.

Try a few nights (or weeks) in your chosen area

It might seem like a crazy idea, but why not try renting a flat or Airbnb in an area that you'd like to live?

By spending a few days in an area, you'll get a much better feel for the place. What's the road noise like? How bad is the traffic during the school run? Do you like the local cafes, restaurants and shops?

You're about to make one of the biggest decisions of your life. Why not do a bit more research to make sure it's really the right place to live?

Make an offer on a house

Today, we are so used to buying things at face value, we have little experience in how to negotiate.

Our research found that making an offer on a house was one of the most stressful parts of buying a property.

How to make an offer on a house

Do not be afraid to offer below the asking price. Sellers and estate agents expect it and price the property accordingly.

You need to put an offer on a house via the estate agent (unless the property is listed privately or with an auction house). You can do this over the phone or in person, but always send a follow up email as written proof of the verbal offer.

Remember, the agent may push you to pay more. This is because they'll get a bigger cut.

However, it's in everyone's best interests to push the sale through quickly. So the agent will want to avoid too much back and forth by forcing you to pay above and beyond.

Ask the estate agent as many questions as you want about the property and the seller. The more information you have, the better an offer you can make, if at all.

How much to offer on a house

The common consensus is to offer around 5% to 10% below the asking price. How much less you offer on a house is really up to you and how you rate your negotiating skills.

In May 2019, online property portal, Zoopla, released data showing that the average gap between the asking price and the achieved price is 3.9%. In more expensive areas like London or Oxford, the average gap is more like 5 or 6%.

Whatever you do, do not offer more than you can comfortably afford. Research how much other similar properties in the area have recently sold for.

Keep an eye on the property to see how long it's been on the market and for what price.

After a bit of back and forth with the agent, the seller will hopefully accept your offer.

Once your offer has been accepted, get a homebuying survey. Your surveyor will let you know of any major or minor problems with the property.

Gazumping

Gazumping is when someone makes a higher offer on a property than the person whose offer has already been accepted. The seller then takes the higher offer. It generally causes delays for everyone involved.

When a seller has accepted your offer, ask the estate agent for the property to be taken off the market. This reduces your chances of being gazumped.

Formally apply for a mortgage

After you have an AIP and your offer on a property has been accepted, you need to formally apply for a mortgage.

You do not need to apply with the same lender or institution who gave you your AIP.

The exact mortgage application process will vary from lender to lender.

What you need to apply for a mortgage

You need a lot of documentation to apply for a mortgage. The main purpose is to back up all your personal and financial information.

Here's a list of what most mortgage lenders require for a mortgage application:

  1. An accepted offer on a property
  2. A very good / excellent credit rating
  3. At least 2 utility bills at your current address
  4. At least 3 months of payslips and a P60 from your current employer
  5. Anyone self employed will need at least two years of business accounts (certified by a qualified accountant), and an SA302 tax return form
  6. Passport or driving licence
  7. Proof of any benefits you get

Our research revealed this to be one of the biggest pain points when it comes to buying a property. You need to gather a huge amount of personal information in one go. Plus, things get lost on their way to mortgage lenders/brokers/conveyancers, or get left at the bottom of one of their piles.

One way to get a handle on this, is to start collecting all the documents you need as soon as you know you're serious about buying a property. Make copies of everything you send and only send important documents via some kind of tracked delivery.

Find a mortgage that's right for you

There are myriad mortgages on the market, each with different benefits and eligibility criteria.

The one most suitable for you can depend on whether you are a first time buyer, remortgager or home mover.

The property value and mortgage amount (known as loan to value or LTV) is a key factor when it comes to determining what mortgage rate you can get.

The mortgage term refers to the number of years you decide to spend paying it back. The most common is 25 years, though you can opt for a longer term to reduce your monthly repayments.

The main two rate types are fixed or variable. Fixed rate mortgages have interest rates that stay the same for a set amount of time. 2 year fixes are very popular, although more and more borrowers are now opting for longer deals, such as 5 or 10 years.

The interest rates on variable rate mortgages can move up or down, usually in line with the Bank of England base rate. Variable rate mortgages carry an element of risk, but generally offer greater flexibility than their fixed rate counterparts.

Mortgage brokers, like our partners Mojo, can offer advice on the mortgage that's best for you. They should steer you towards mortgages you'll be likely to get. You may not always be eligible for the cheapest mortgages because of the lender's eligbility criteria and your affordability.

Lenders determine your affordability largely based on your income, outgoings and debt.

The mortgage application

You can apply for a mortgage online, over the phone or in person. You have the choice to go directly to a mortgage lender or via a broker.

Mortgage brokers are approved by the Financial Conduct Authority (FCA), which means they can give you financial advice.

According to the FCA's recent mortgage market study report, in 2016, 98% of first time buyer mortgage transactions were advised. 97% of home movers and 96% of external switches (when you remortgage from one lender to another) were advised. And 49% of internal switches (when you get a new mortgage with your current lender) were advised.

An advised mortgage is where a lender or intermediary helps a borrower find the most suitable product. This is down to the mortgage market review (MMR), legislation the FCA introduced following the advice from the Financial Ombudsman.

Execution only mortgages - where lenders stick to a script when speaking to borrowers - used to be more common, with only only around 70% mortgages qualifiying as advised.

Mortgage brokers

A mortgage broker is a licensed mortgage advisor to help you find and apply for the most suitable product for you.

As experts in the complicated mortgage world, they can help you understand the market better. They may have access to certain deals or lenders you cannot get on your own.

Some lenders have 'direct only' deals with the aim to bypass mortgage brokers. Your broker can still recommend a direct only deal, but could not do the application for you.

The most cited downside of using a broker is the cost, but there are plenty of free ones out there.

Whether or not you decide to use a broker, always do your own research. Information is power! And if you can arm yourself with enough of it, you (and your broker) could land the best mortgage deal out there.

You do not necessarily need to find a local mortgage broker. Many people are totally satisfied with online mortgage brokers, or brokers that you speak to over the phone.

Hire a conveyancing solicitor

A conveyancing solicitor (also simply known as a conveyancer) is a qualified solicitor who specialises in property. Conveyance is the legal process of transferring property ownership from one person to another.

It is against the law to buy a property or land without a property solicitor. They handle all the legal documentation to transfer property ownership from the seller to you, and carry out "searches" before you buy.

The aim of searches (listed below) is to uncover any potential issues with the property and the surrounding area, such as risk of flooding, upcoming building work and radon gas.

Conveyancers also review the Land Registry for the property boundaries and make sure the current owner has the right to sell.

They check how much stamp duty you need to pay (unless you're exempt under first time buyer relief) and register you as the new property owner.

The whole conveyancing process can take between 8 to 12 weeks. Conveyancers usually charge between £500 and £1,500.

Extra charges can be added on top. These include:

  1. Anti-money laundering checks
  2. Bankruptcy search
  3. Local search
  4. Drainage and water search
  5. Land Registry search
  6. Land Registry fee
  7. Stamp Duty Land Tax (SDLT)
  8. Title deeds
  9. Telegraphic transfer fee

Get a homebuyer survey

A surveyor conducts a survey to examine the condition of a property. It is not the same as a mortgage valuation, which is carried out by your mortgage lender before it approves your mortgage application.

Your surveyor must be RICS (Royal Institute of Chartered Surveyors) accredited, so they are fully vetted and insured.

There are three different levels of house survey:

  • Level 1: Condition report (£250+) The condition report is most suitable for new builds or properties in excellent condition. Primarily a back-up to a mortgage valuation, it uses a traffic light rating system. Red means there are serious problems, amber refers to non-urgent issues and green means everything is ok.
  • Level 2: Homebuyer report / home condition survey (£400+) The homebuyer report (or home condition survey) is the most popular type of homebuyer survey. It provides you with a more in depth analysis as to the state of the property.
  • Level 3: Building or full structural survey (£600+) This is the most costly and thorough survey you can get. It is a case of you get what you pay for - this survey could uncover issues the other two could not. It is perhaps the most appropriate type of survey for older, larger properties, or if you're planning to do a lot of work on the house, like build an extension.

A homebuyer survey is not compulsory (unlike a mortgage valuation), but it is highly recommended. An upfront house survey cost now could save you a lot of money in repairs later down the line.

Buildings insurance

As soon as you exchange contracts with the seller, the property is no longer covered by the seller's insurance. For this reason, you should have your own buildings insurance in place.

This means you are financially protected should anything happen to the house.

Signing your life away

If you've come this far, congratulations! You're almost there. Now all that's left to do is exchange the contracts, complete the sale and move in.

Ok, so that's quite a bit. But the finish line is in sight!

Exchange of contracts

You need to voice any major concerns you have - such as any spanners the survey has thrown in the works - before you exchange contracts.

Once the exchange of contracts has gone through, there is no going back - you are legally bound to go ahead with the sale. You will incur huge penalties if you pull out between exchange and completion. The same goes for the seller.

There is usually a gap of about 7 to 28 days between exchange and completion. It is possible to do both on the same day, but not all mortgage lenders allow it. The completion date should be outlined in the contract. If you want to complete quickly, you should discuss it with your conveyancer.

Once you have signed your contract (which is identical to the seller's), your conveyancer will exchange it for you.

Although you are legally liable for the property after you've exchanged, you cannot yet move into the property. You can only move in once you have completed.

Put the time between exchange and completion to good use. If you haven't started boxing up your stuff, and telling your utility providers that you're moving house, now is a great time to do it.

It's worth paying a visit to the property before you complete to ensure everything is as agreed before you move in. Keep an eye out for fixtures and fittings the seller agreed to include in the sale, and for any damage that was not there before.

Either you or your solicitor will need to send the title deeds to your mortgage lender. The lender will keep them until you have paid the mortgage off. This could be at the end of your mortgage term, or more likely, when you remortgage.

Your conveyancer should register the transfer of ownership with the Land Registry. If your property is leasehold, the freeholder must be told that the leasehold ownership is changing hands. This is particularly important should you wish to extend the lease at any point.

Mission complete

Completion can be up to 28 days after the exchange of contracts. This might be longer if there are hold-ups in the chain.

Completion day is when:

  1. You've paid all fees (including Stamp Duty) to your conveyancer
  2. The money is transferred to the seller before 3pm
  3. You get the keys
  4. You can move in

In order to complete, you need to pay any money you owe to your conveyancer. They transfer the funds for the property (your deposit and the money from the mortgage lender) to the seller's conveyancer.

Your conveyancer is also responsible for transfering the stamp duty return and money to HM Revenue & Customs.

Stamp duty

The stamp duty return must be done within 14 days of completion. It used to be 30 days, but the government reduced it on 1 March 2019.

To avoid incurring any late penalties, check in on your conveyancer to ask if they've done it.

If your new property costs less than £125,000, you do not need to pay stamp duty, but a return still needs to be filed.

Since November 2017, first time buyers are exempt from paying stamp duty on the first £300,000 of properties worth up to £500,000. The rate of stamp duty on the amount between £300,000 and £500,000 is 5%.

As a first time buyer buying a property that costs more than £500,000, you do not qualify for first time buyer stamp duty relief. The rates would therefore be the same as for all other home buyers.

Stamp duty rates for England and Northern Ireland are:

Property purchase price Stamp Duty rate
Up to £125,000 0%
Portion of the purchase price between £125,001 and £250,000 2%
Portion of the purchase price between £250,001 and £925,000 5%
Portion of the purchase price between £925,001 and £1,500,000 10%
The remaining portion above £1,500,001 12%

The rates for Scotland and Wales are different.

Move in

Once you have completed on a property, you can collect the keys from the estate agent and move into your new home!

CONGRATULATIONS!!!

If you have used an online estate agent, agree with the seller before completion on how you want to receive the keys. You may be able to collect them directly from the seller, or use your conveyancer as the intermediary.

You can complete and move in on the same day. Of course, if you are redecorating or having any work done to the property before you move in, your moving date might be after your completion date.

Now that you have the keys, when you actually move in is completely down to you.

There are a few people you need to tell about your change of address:

  1. The DVLA (this is free)
  2. Royal Mail (set up a redirection - £34 for 3 months up to £67 for 12 months)
  3. Energy and utility providers
  4. Any banks or building societies you hold accounts with
  5. Your employer and pension provider
  6. Home, car, travel and life insurance providers
  7. Student Loans Company
  8. HMRC / Inland Revenue
  9. Electoral registry
  10. Child benefit office

You may also need to register with a new GP, dentist, optician, vet etc. And make sure you cancel any services for your previous address, such as window cleaners, gardeners and cleaners.

Leave a forwarding address for the buyers of your previous property, in case you forgot to tell anyone of your change of address. Ask the sellers of your new property for their forwarding address so you do not get stuck with their post.

Collect any old spare keys from neighbours or non-resident family members. For your new place, you may decide to change the locks to guarantee the previous owners (and anyone they gave a key to) cannot re-enter the property.

Take gas and electricity meter readings when you move in. Keep a record of them (photos of the actual meters is a good idea) and relay them to your energy supplier.

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Last updated: 28 August, 2019

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