The journey to owning your own home may seem long and arduous, but the reward is well worth the wait. It may take a bit of patience, but with some prudent housekeeping and an understanding of the process, you can take the necessary steps that will get you on the housing ladder. Here are our recommendations on how to approach the biggest investment of your life.
- Change your mindset from renting to buying
Renting a property has long since stopped being cheaper than paying a mortgage. According to recent figures, the average UK monthly rent is £912 per household, compared mortgage repayments of £723 at a rate of 2.48%. Did you know that people renting in London spend more than a third of their pre-tax salary on rent?
While high (and rising!) rental payments means there’s little left to save towards a deposit, it means you need to be single-minded in your pursuit. Take advantage of every financial opportunity to put yourself in a better position to get you on that property ladder.
Start saving for a deposit
First off, establish the deposit amount you are working towards. Assuming a 5% deposit on a £300,000 property, for instance, will give you a target of £15,000 plus associated purchase costs such as surveys and legal fees.
Start by making small, everyday changes to adjust your lifestyle to be more frugal. You’d be surprised how even the smallest savings, such as doing without regular takeaway meals or coffee, can lead to significant savings over time. Monitor your progress with a spreadsheet or spending app and set yourself monthly/yearly targets to keep on track.
Consider setting up a Lifetime ISA as a tax-efficient way to save up to buy your first home. You can put in up to £4000 per year and the government will add a 25% bonus up to a maximum of £1000 per year. Check if you’re eligible for other government schemes designed to help people onto the property ladder such as Shared Ownership and Help to Buy Schemes.
- Get a mortgage sorted
Contrary to what many people think, buying a flat or a house doesn’t start with bricks and mortar. It starts with getting a mortgage in place. “All too often recently, sales have progressed right up until the point where finance has been refused, wasting time and money,” warns this house buying guide.
Speak to an experienced mortgage broker as soon as you have your deposit ready. These are specialist finance professionals who know the industry inside out, who can recommend the best product for your needs and get you the best possible deal. Make sure you have a mortgage offer in principle agreed before you go house hunting, and certainly before you spend any money on a survey or solicitor.
- Find the perfect property
Having got the necessary finance agreed, now is finally the time to start looking for properties. Make use of online property portals such as Rightmove and register with a selection of local estate agents to take a look at what is available in the marketplace.
Consider your budget, the property’s size and location as a first marker of suitability. Would you like to be close to public transport, shopping and nightlife, or good schools? Up-and-coming areas that are undergoing major regeneration or infrastructure investments may offer a cheaper alternative to more aspirational locations, but with the promise of added value in the longer term.
If you can be flexible about relocating to a different part of the country, especially if you’re thinking of heading north from London, there are many areas around Birmingham and Manchester that are still genuinely affordable.
- Know your leasehold from your freehold
You probably know that property in England and Wales is usually sold on either a freehold or leasehold basis. Briefly, a freehold property means full ownership (albeit with a mortgage) of the building and the land it stands on, giving the owner full reign (subject to planning regulations) to do as he pleases.
Flats are almost always leasehold, meaning you acquire the right to occupy the property for the duration of the lease, which can be as long as 999 years. However, the trouble with leasehold properties is that they are, by definition, a depreciating asset. If the lease has less than 90 years left to run, you may have trouble reselling the property or getting a mortgage for it. You have the right to a statutory lease extension but once the lease has dropped to 80 years, this can get very expensive indeed.
What’s more, the recent leasehold and ground rent scandal has highlighted weaknesses in this type of property ownership that can easily be exploited.
- Make an offer on a property
Once you’ve found the right property in the right location at the right place, you need to put in an offer to the estate agent. There may be a bit of haggling to be done but as a first-time buyer you are in a strong negotiating position since your don’t have anything to sell and you are not part of a chain.
When your offer is accepted, the seller should agree to stop marketing the property and you’ll receive a memorandum of sale ‘subject to survey and contract’. It is worth pointing out that nothing is legally binding at this point and both the seller and the buyer can decide to pull out at any time until contracts are formally exchanged.
You are now in a position to finalise the mortgage with your lender for your chosen property and instruct your solicitor to begin the conveyancing process.
- Carry out a home survey
The importance of commissioning a professional property survey cannot be stressed enough. After all, you are making one of the biggest financial commitments of your life, so why wouldn’t you spend a few hundred pounds to ensure the property is worth the money?
Speak to a RICS accredited surveyor who knows the local area and can advise on the best home survey for your needs. He will conduct a property inspection and produce a report on any serious defects identified. Major problems such as damp, timber decay and structural movement may not be obvious to the layman, but can cost many thousands of pounds to fix.
A professional home survey will give you all the information you need to make an informed purchase decision, whether this means budgeting for essential repairs, renegotiating the purchase price or walking away from the transaction.
- Instruct a specialist conveyancer
Transferring the ownership of a property from one person to another is known as conveyancing. It’s a specialist legal process that involves checking all the information and making sure the correct process is followed.
Your solicitor acts as the middleman between you, the seller and the mortgage lender. He carries out local searches and deals with the Land Registry, sorts out Stamp Duty payments and draws up / looks over any contracts that pass between you. Finally, he will be managing the transfer of money during a sale.
Once everything has been checked, both parties will be invited to exchange contracts, which makes the sale of the property legally binding. A deposit is paid and the date for completion will be set, which is usually the day when you get the keys and move into your new home. Don’t forget that you need to insure your new home from the date of exchange (not from the date of completion).
- Move into your new home
The days and weeks before you can take possession of your new property are often frantic with organisation and logistics. From informing utilities companies to instructing a removal company and 101 other little things, this is when the practical process of moving home becomes very real indeed.
It’s hard to believe that you are about to reach the end of the journey, and that on completion day, you will be a home owner. Congratulations!
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