It’s a good idea to familiarise yourself with the home buying and mortgage process before buying a home. First-time buyers and anyone who has limited knowledge of the home buying and mortgage process please take note.
So you’ve been saving for ages and ages for a deposit and finally, you’ve found a house you really like. Now what? The estate agent seems to be talking another language, and every other turn just seems like another expense. If you are feeling like a rabbit caught in headlights then read on. This handy little home buying and mortgage process guide is for you.
Firstly, let’s break down the people usually involved in the house buying and mortgage process and describe their roles.
The vendor is the seller.
The estate agent agrees to market the vendor’s property for a fee or commission – Note, the agent only serves the vendors interests.
The purchaser is the prospective buyer.
The conveyancer is a legal representative of the vendor or the purchaser. Both sides will need a solicitor/conveyancer and it’s a good idea to have one in place as soon as you have your offer to buy accepted. Essentially, a conveyancer will do all the legal work involved in purchasing your property and make sure that legally everything about the property is above board. They will also prepare all the legal paperwork and oversee payment to the vendor. We can arrange a conveyancer for you at very competitive prices.
The lender is the bank or building society who will provide the mortgage or loan to buy your property. The lenders will have set criteria which determine who can borrow money from them and on what terms.
Mortgage Broker – The beginning of the mortgage process
The mortgage broker is the middleman/woman who works for the buyer to help secure a suitable mortgage and navigate the mortgage process. The broker will sit down with the buyer/s to establish some facts about their circumstances and to see what their preferences are. This usually takes around 1-2 hours to complete. Once the broker has this information he/she will go away and do some research. A short while later the mortgage broker will present them with the product/s they advise them to take. If the buyer is happy to proceed with the recommended mortgage then the broker will seek a mortgage agreement in principle from the lender. If successful, the broker will then make a full mortgage application to the lender.
The lender will usually take about 10-14 days to make a decision on whether to formally offer you a mortgage. If this is the case, a document called the ‘mortgage offer’ will be sent to your solicitor/conveyancer, and your mortgage broker. The mortgage brokers main work is essentially done – The mortgage process is complete, but the house buying process continues with the conveyancing process and the mortgage broker will continue to work on your behalf until completion.
Once you have your mortgage offer – you may think you are home and dry. This is not always the case as sometimes a mortgage offer will be ‘subject to valuation’. What this means is that the lender will want to know that the property you are looking to buy is actually worth what you have agreed to pay for it. To establish the property is the correct value and that it is mortgage-able they will usually send out a surveyor. Valuation usually takes place before a mortgage offer is produced.
The cost of a valuation is the responsibility of the purchaser/buyer but some lenders do not charge a fee for this, and when they do, usually it can be added to the loan amount. Note, a valuation is not the same as a buildings survey or a Homebuyers Report which look at the structural integrity of the property – this will be an extra cost and is recommended if the property is old or non-standard construction. We can help you find a surveyor if required, just ask.
Exchange Of Contracts
There are quite a few steps in the conveyancing process, which your conveyancer will explain to you. The one which everybody wants to be at is ‘exchange of contracts’. This is because up until this point, there is nothing to stop the vendor or the buyer from pulling out without penalties. We have all heard of gazumping, where another party makes a higher offer which is accepted by the vendor and the initial buyer is frozen out – this is a nightmare scenario!
For this reason, a big sigh of relief often accompanies exchange of contracts. So what actually happens? Once terms have been agreed between the vendor and buyers solicitors they will swap and sign the binding contracts. A date for completion will be agreed and the new owner will be added to the Land Registry. At this point, the buyer will put down their deposit which is usually 10 percent minimum. If the buyer pulls out thereafter, the deposit could be forfeited and if the vendor pulls out they can be sued for breach of contract. The buyer should be aware that buildings insurance will now be their responsibility. We can arrange defacto cover from leading insurers at the most competitive prices.
Completion – End of the home buying process
Finally, the day of completion arrives. Your solicitor will have been liaising closely with the lender to ensure that the remainder of the money is made available to the vendor. With this step complete all there remains to do is collect your keys from the estate agent or vendor.
There is the small matter of stamp duty to consider. However, new rules effective November 2017 mean that first time buyers will not pay any tax up to £300,000 and 5 percent on the portion from £300,001 to £500,000. If the price is over £500,000, you will follow the rules for people who’ve bought a home before.
If you are a next time buyer, tax will be based on the price of your property as follows:
- 0 per cent for transactions worth £0 to £125,000
- 2 per cent for £125,000 to £250,000
- 5 per cent for £250,000 to £925,000
- 10 per cent for £925,000 to £1.5 million
- 12 per cent for over £1.5 million
Buy to let properties or second homes will be subject to a 3% loading on each band as of April 2016.
If you haven’t already sorted out your removal van, don’t worry – we can help with that too. We work closely with the UK’s largest removal company Pickfords who will contact you to arrange a quote if requested.
Hopefully, this short guide has helped to lift the fog on the home buying and mortgage process. It is not intended to be a comprehensive manual, so if you have any questions about the above or anything you are not sure about then please get in touch.
We look forward to helping you with your mortgage and protection needs.