Buying your first property is a seminal moment in your life, but it can also be incredibly confusing. Almost from the start, you are inundated with jargon and find yourself in a process which can seem archaic and confusing.
So with the help of some Frequently Asked Questions, I wanted to write a short guide to help with some of the terminology and to offer a timeline so you can see the stages from beginning to end.
What exactly is a mortgage?
A mortgage is a contract that enables you to obtain funds from a bank or building society for purchasing a property. In exchange for providing the funds, the bank will have a legal claim on the property. This implies that if you fail to make payments, they have the right to sell the property to recover their funds. Once you have fully repaid the loan to the bank or building society, the claim is released, and the property becomes your own.
Where do I start?
The first step it to speak to a qualified mortgage adviser who will help you work out how much you can borrow and what you can afford.
How much can I borrow?
All lenders have a responsibility to ensure that you can afford the monthly repayments. To establish this, most will use an affordability calculator. They look at your income and expenditure and work out how much you can pay, and in turn, how much you can borrow.
Will I need a deposit?
Normally yes. Most lenders require a minimum deposit of between 5-10% of the purchase price.
What's an agreement in principle?
Once you know how much you can borrow and that the repayments are affordable your mortgage adviser can obtain an agreement in principle with a lender. The bank will carry out a credit search and if you pass, agree (in principle) to lend you the money. Now you're ready to start viewing property.
Who is an estate agent?
It may seem like a trivial question since they are so widespread, right? Estate agents are responsible for selling houses, but they represent the seller. This distinction is crucial. While they can be extremely helpful in assisting you in finding your ideal property, it's essential to bear in mind that they are working on behalf of and being paid by the seller, not you.
What's the difference between leasehold and freehold?
The majority of transactions in England are either leasehold or freehold.
When you own the land and the property, it is referred to as freehold, which is the most common way houses are sold.
When you have a leasehold, you purchase the right to live somewhere for a specific duration. The right is acquired from the freeholder, which is the common method of selling apartments in England.
Your legal adviser will check this as part of the work they do.
After finding a property I'm interested in, what should I do next?
To take the next step, you should make an offer. Contact the estate agent and express your intention to make an offer. You can mention that you have a mortgage agreed in principle and share your mortgage broker's information. The agent will then communicate with the seller to initiate negotiations. If the seller agrees to your offer, the property will be marked as 'sold subject to contract'.
What comes after this?
In England and Wales, offering and accepting an offer are not legally binding. This means that both parties, the buyer and the seller, can decide to withdraw from the deal. The agreement becomes legally binding only when the parties "exchange contracts". To reach this stage, you must have a formal mortgage agreement in place and ensure that your legal advisor approves of the purchase. The initial step involves submitting a complete mortgage application.
How long does the mortgage application take?
Typically around 2-3 weeks assuming you have already obtained the agreement in principle. The lender will ask for proof of what you have told them and will arrange for a surveyor to look at the property. The surveyors report will be used by the lender to establish if the property is suitable for them. You can then have a more detailed inspection carried out for your own reassurance. This will typically cost between £3-500.
Once the lender is happy with the documents and the house, they issue a formal mortgage offer which is normally valid for 6 months.
Do I need a legal adviser?
Yes.
Now the finance is in place you need someone to check the legalities.
Does the seller really own it? Did they get planning permission for that extension?
Your legal adviser will check that everything is as it should be.
They work for you and your lender and need to be able to confirm they are happy with what you are buying. The legal work will normally take between 2-3 months but can be longer especially if you are buying a leasehold apartment.
How long will it all take?
Typically around 3-5 months from when you make an offer to when you move in.
When do I move in? The sale becomes binding on both parties when you exchange contracts. At this point, a 'completion' date will be set. On the day of completion (typically a week or two after exchange of contracts) you get the keys and the property is yours.
When do I start paying the mortgage?
After you move in your lender will contact you with details of the first payment date and amount. Typically this will be around 2 weeks after you move in.
What is Shared Ownership?
Shared ownership can also be described as part buy/part rent. Properties are usually offered via housing associations and enable you to buy part of the property and pay a rent for the other part. Because you are only buying part of the property, you need a smaller mortgage and this can often be a more affordable way of buying your first home. Shared ownership can be available for both new build houses and existing property.
So now what?
Ready to start?
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