The House Buying Process – a Guide for First Time Buyers – Part 1

Before looking at the actual house buying process, the first item you will need to consider are your reasons for wanting to buy a house at all.

Historically, buying your own home was seen as the thing to do, and it still is a valid solution to a great many needs. Owning your own home provides a secure environment in which to raise a family, and allows you to become established and build relationships with those in your community. Historically, it has been a good investment, and for most, is the most valuable asset they will ever own. The ever diminishing stock of social housing means that for families, it is the only option which ticks all the boxes.

However, buying a house is not necessarily right for everyone. Young single people in particular have often been encouraged to get on the housing ladder at the earliest opportunity, when waiting would have made more sense.

For example, a young professional working for a national or multi-national employer is likely to have to relocate several times during the early years of establishing his or her career, and if this involves selling and repurchasing each time, the costs and hassle involved would make renting a better option.

If you are considering buying with a partner or a friend, it is worth giving serious consideration to the strength of your relationship. Forced sales which result from joint owners no longer wanting to live together are rarely without problem, and if the value of the property has fallen, you may well be trapped and unable to sell.

Assuming that you have carefully thought about your motives, and have decided to take the plunge, what is the process?

Save a deposit.
At various times, there are lenders who offer schemes to those who do not have a deposit, but the ongoing regular supply of 100% mortgages is not certain. Even when 100% mortgage are available, the cost is likely to be significantly higher than would otherwise be the case, and there may be enhanced charges or further restrictions. Saving a deposit will almost certainly get you a better deal with lower charges.

In terms of the amount of deposit, you will normally need an absolute minimum of 5%. There are quite a number of lenders who will normally consider an application for a 95% mortgage, and there should be a reasonably wide choice of product available. However, the interest rate charged is likely to be significantly higher than if you had a larger deposit, and most lenders will want to charge a Higher Lending Charge (HLC). The HLC is explained in greater detail later, but suffice it to say that it usually amounts to several thousand pounds and is best avoided if possible.

If you are able to save a deposit of at least 10%, then the mortgage deals available will be considerably better. Not only this, but in most cases the dreaded HLC will not apply. There are further advantages to having a larger deposit, and the very best schemes are limited to those wishing to borrow less than 75% of the value of the property. However, the difference between a 75% mortgage deal and a 90% mortgage deal is far less than the difference between a 90% mortgage deal and a 95% one.

Quite often, we are met with the argument that a 100% mortgage is needed, as the applicants find it impossible to save a deposit. Whilst we accept that there are sometimes occasions where a family find themselves in rented accommodation where the rent is far more than a mortgage would cost, this is the exception rather than the norm. For most, the inability to save a deposit should really be taken as a warning that committing to buying a house may be the wrong decision at this time. Owning your own home always has uncertainties, and repairs and maintenance always seen to be needed at the most inconvenient of times. Mortgage rates can and do go up as well as down, and therefore surplus of income over expenditure is an absolute must, and if this doesn’t exist now, it is unlikely to after you have taken on a mortgage.

Once you have saved your deposit, or decided to buy without a deposit (if suitable schemes are available), the next stage is;

Complete an accurate budget planner.
This part of the process is essential, and if you want help, just ask. The Mortgage Warehouse has years of experience in helping first time buyers assess whether or not they can afford to buy. We can supply you with a blank budget planner, and will even help you fill it in if required.

One of the most common mistakes made when calculating a budget is to seriously underestimate the costs of living, especially what is spent on entertainment and leisure. As a guide, the Abbey have released figures obtained from the Office of National Statistics Family Spending Survey showing the average cost of living, excluding mortgage/rent payments and any other credit commitments. A single person averages £521 per month and a couple £1056. A family of two adults and two children reputedly spend a total of £1,270 per month.

As soon as you are happy that you have accurately budgeted for your expenditure, and know how much you can afford, the next stage is;

Contact a Whole of Market mortgage broker.
Obviously, we would hope that you would contact us at The Mortgage Warehouse and ask us to help you with your mortgage requirements, but if not, you should make sure that you speak to another whole of market adviser.

At The Mortgage Warehouse we don’t charge fees, unless your mortgage is very small (less than £60,000). This means that not only can you be confident that we are recommending the best mortgage for you from the whole of the available market, but we will look after your mortgage application and it won’t cost you a penny. Many people don’t realise just how valuable this service is until they have had a taste of sitting in the queue waiting to get through to the lenders’ overseas call centre themselves.

If you decide to call us, we will discuss with you your individual requirements and decide the best way to proceed. This is important as each applicant has different circumstances and theses need to be taken into account. For instance, it is often said that a first time buyer should obtain an agreement in principle or mortgage promise before looking at property. This is true, but only where the applicant is hesitant about their credit score. In such instances, we will identify the most suitable mortgage product and request an agreement from that lender, and will normally receive an answer the same day.

For those who are confident that they have a good credit score, it is not necessary to get an agreement in advance of looking for property, especially as one can usually be obtained within hours if required. The reason for this is because lenders are introducing and withdrawing mortgage rates far more frequently than has been the case. What may be the best mortgage deal available on one day may have been superseded the next, and it is very likely that the application would be with a different lender than the one who has granted the initial agreement. Each agreement in principle or mortgage promise requires a credit search to be conducted, and too many credit searches in a given period of time can actually lower your credit score. For this reason we suggest waiting until an offer is to be made before finalising the mortgage lender and scheme.

Looking for property
For many, this is the fun part, but there are a number of do and don’ts that should be borne in mind.

• Do take your time, and view as many properties within your price range as possible. Having a set number of pre-conditions may mean you miss out on something which could be ideal.

• Do look in all the places you might find property for sale. Register with all the estate agents in the area you are looking, and get the local papers, especially if there is a local “property” paper. Look on the internet; there are now many property listing sites, and most estate agents have websites with interactive search facilities.

• Do view your favourite properties more than once and in different weather conditions, and at different times of the day.

• Do have a critical eye, and be aware. The smell of bleach or air freshener may indicate a house proud owner, but might just as easily be covering up the smell of damp. Ask the seller to demonstrate things like showers; are they acceptable, or is there just a dribble? Look closely at things like the internal joinery and how wall and floor tiles and other flooring has been installed; are there faults? Can you live with them?

• Don’t forget that the estate agent has only one job, which is to get the best price for the seller.

• Don’t be hurried, either during a viewing or into making an offer.

• Don’t be misled by sharp sales practices. Most property is not selling quickly, and there are in reality, very few properties which are that special or unique that you won’t find one similar or as cheap.

• Don’t forget that the agent is obliged to pass on any offer you make without applying conditions. You are not required to see their financial adviser before having an offer passed on, and you are not required to make the offer in writing or in person at the estate agents office. If the estate agent refuses to pass the offer on, you are quite at liberty to contact the seller direct.

The seller and their estate agent can quite legitimately ask you to demonstrate your financial ability to complete the sale. Unfortunately, there are people who will make offers with no realistic chance of being able to purchase, and this is just a waste of time, effort and money for all involved. However, a copy of the agreement in principle or mortgage promise is quite sufficient, and there is no requirement for you to disclose personal financial details to either the estate agent or the seller.

• Don’t be taken in by discounts, paid deposits or other incentives. In most cases, the net price after the discount or incentive is the true value of the property, and is the figure the lender will use. Occasionally, having a 5% deposit paid by a national established house builder will be acceptable, but most lenders will still require you to put in at least 5% of your own money as well. Carpets, curtains and white goods are normally true incentives and well worth negotiating, especially with a new property.

• And lastly, don’t forget that most property is a compromise between features. Properties built in the 60’s and 70’s tend to have larger than average gardens and larger than average rooms, but are likely to be architecturally uninspiring at best. Modern executive developments often feature properties with character which are visually appealing, but they will have smaller gardens and smaller rooms, and will almost certainly be built “cheek to jowl”.

Part two of this guide contains details of the process which starts with having your offer accepted.