BUYING A HOMEPart 2

Jason Butler,

Head of Financial Education, Salary Finance

STUFF HAPPENSWe’ll all face many changes in our lives, many of which involve money.

Some will be welcome, like buying a home – the subject of this guide. Others will be more challenging. Some are planned and happen slowly, while others come suddenly and out of the blue.

A HELPING HANDTo help you navigate these changes, we’ve produced a series of easy-to-read guides.

Each guide looks at a different, life-changing event, and sets out simply and clearly what you need to know and, more importantly, what you need to do to make smarter money decisions.

This is an educational guide. Salary Finance does not give financial advice. Seek help with planning your financial numbers from a competent financial planner/ coach and use a regulated financial adviser to purchase any investment, pension or insurance products.

SO, YOU'VE FOUND YOUR IDEAL PROPERTY NOW WHAT?

Once you've found your ideal property, you might think the hard work is over. But before you relax, there is still some way to go.

Because buying a home isn't something we do regularly, it's easy to get overwhelmed with the complexity and various moving parts

So, in part two of this homebuying guide we outline how to :

• Negotiate the purchase price

• Navigate the financial and legal formalities

JUMP TO:

View, negotiate and agree on a price

Get your full mortgage offer

Appoint your conveyancer or solicitor

Commit to buy - exchange of contracts

Get ready and move in

Checklist

HERE'S WHAT'S INSIDEHere are the steps we cover in part two of this guide, to help you on this journey.

VIEW, NEGOTIATE & AGREE ON A PRICE

Next, you’ll want to find a property you’re happy with – and make an offer.

DON’T REVEAL YOUR WHOLE HAND UP FRONT

Tell estate agents that you’re willing to spend a little less than you really are – and be consistent about what you tell the various agents you approach. They’ll show you more expensive houses in any case.

This way, at times when house prices are rising, you’ll have room to make an offer on the one you want, without stretching yourself. And in a buyers’ market (when prices are static or falling) the agent won’t ask you to offer more than you need to.

FOLLOW A PROCESS & AVOID SHOWS OF EMOTION

You need to make a clinical inspection of your prospective new home and these useful tips for viewing properties could help you with that.

Whatever you do, avoid showing any affection for properties you view – either to the agent or the seller. Remember the agent works for the seller, not you. And if they see you’re keen, they’ll ask you to pay more than you need to.

MAKE YOUR OFFER(S)

Before making an offer, find out what similar properties in the area have sold for. If there’s enough home sale activity, you could do this online here.

Make your initial and any revised offers through the estate agent, confirm them via email and ask for confirmation of receipt to avoid risk of confusion later on. Again, remember that the agent is working on the seller’s behalf, so treat with caution any ‘guidance’ they give you on what offer is acceptable.

If you’re uncomfortable with negotiating, you could ask for help from a family member or friend or hire a buying agent, but you’ll pay fees for that.

Make your first offer some way lower than what you’d be happy to pay. How much lower depends on various factors including:

• The general state of the property market, nationally and locally

• Whether the asking price is fair (if the property has been on the market for a long time it suggests the asking price is too high)

• How keen the seller is to sell

• How ‘ready’ you are to buy.

If your initial offer is below other bids, the agent should tell you and give you a chance to make a revised offer. Just don’t go above what you’re happy to pay.

If the seller has received offers at the asking price and this is your dream home and property prices seem set to rise, you could consider raising your offer above the asking price to secure the deal. But never start there. And remember, if you’re a first-time buyer (or you’re a cash buyer because you’ve already sold your previous home) you’ll be more attractive to the seller without offering any more money.

TRY TO AVOID OVER PAYING ON A SEALED BID

Sealed bids have become a normal way to sell a home in some areas. In this situation you’ll be asked to ‘seal’ your written offer in an envelope which the agent then passes (along with competing offers) to the seller.

The idea (which works in rising markets) is to get buyers to increase their offers because they know they only have one shot at the deal. You just need to make sure that you don’t offer more than you’re happy to.

Note also that even if you don’t win a sealed bid contest, you could make an increased offer via the agent later on.

TRY TO AVOID GETTING GAZUMPED

Sadly, the practice of ‘gazumping’ (where sellers pull out of your deal to accept a new and higher offer) still goes on and especially so in fast-rising markets.

Until you’ve exchanged contracts (in England and Wales – the rules are different in Scotland) any deal you agree to purchase a property is not legally binding on you or the seller. So, before ‘exchange’, either party can pull out.

That said, if you’ve put down a holding deposit you could lose that if you’re the one to pull out. Holding deposits are not very common and should only ever be paid into a special account by a solicitor – not paid over to the seller.

Being gazumped after you’ve paid out perhaps thousands of pounds in survey and legal fees is a big problem. And whilst you could make a counter offer to outbid the gazumper, it’s better to avoid that situation if you can.

So, once you’ve agreed to buy your property (and demonstrated that you have the necessary funds) it’s perfectly reasonable to ask the seller to stop marketing their property to show they’re serious about accepting your offer. They’re not obliged to do so but many will, and this reduces the chance of you getting gazumped after you’ve paid out for survey and legal fees.

FINALLY, TRY TO STAY CALM

You can probably tell by now that there are a lot of things (and people) in this home-buying game who might test your patience. But you’ll make a much better job of this critically important purchase if you’re able to stay calm and focus on facts rather than emotions.

GET YOUR FULL MORTGAGE OFFER

Once you’ve agreed to buy a property (and if you’re not a cash buyer) you should now contact your chosen mortgage lender (or broker) to complete a full mortgage application. If you obtained a decision in principle (DIP) earlier in this process you might already have a mortgage application and if you’re still happy with those terms, you can use that.

To get your application processed quickly, take your time on it: answer all the questions you need to and mark 'not applicable' to any others. Leave no gaps in the form. Then send in your form with payment of the lender’s fees and any documents they’ve requested to verify your identity, address and your income.

Once your lender has run all their checks – and is happy that you can afford the mortgage and that the value of the property covers the mortgage – they’ll send you an offer stating how much they’ll lend you, over what term in years and at what rate of interest.

HOW LONG DOES THIS TAKE?

The time it takes (from application to offer) varies between mortgage lenders but depends largely on the quality of your application. Typically, it will take between 20 and 40 working days. So, you’ll want to get this process moving as soon as you’ve agreed your purchase.

YOUR SURVEY CHOICES

Your mortgage lender will require a survey of the property you’re buying. If you’re buying without a mortgage, it still makes sense to have a survey.

As a minimum, your lender will require a survey for their benefit to check whether the property is valuable enough to cover the money they’re lending you. This mortgage valuation survey is relatively low cost but will only look superficially at the structure. So, it won’t necessarily reveal all the issues that could cost you money to put right in the future.

The next level of survey is a Homebuyer's report (some of which also cover the valuation for the lender) but which is carried out on your behalf. This report will help you find out if there are any major structural problems, such as subsidence or damp, but does not look beyond the floorboards or behind the walls.

A structural or 'full' property survey is the most comprehensive and therefore the most expensive. It thoroughly examines the condition of the property and is often recommended for older or more unusual properties. The surveyor will report in depth on current and potential defects and advise on what repairs might be required.

You can find out more general information on homebuyer surveys here and your lender (or mortgage broker) can advise you on their survey options. Costs will depend on the type of survey and on the purchase price/valuation of the property.

If the mortgage valuation comes back lower than the purchase price you’ve agreed, it will mean that your Loan to Value (LTV) ratio will be higher than you originally thought and this could result in you: a) being unable to get a mortgage on this property or b) having a reduced choice of mortgages or c) having to pay an increased rate of interest.

Your lender is unlikely to refund fees for valuations undertaken. So, get a good estimate of value for the property you want to buy. Search current property prices online before making offers and especially before applying for a mortgage.

APPOINT YOUR CONVEYANCER OR SOLICITOR

At the same time as making your mortgage application, you should also appoint a conveyancer or solicitor to handle the legal side of your property purchase.

Their ‘conveyancing’ task is to transfer the legal title on the property from the seller to you – which includes:

• Dealing with the seller’s solicitor and handling and checking contracts

• Carrying out local council searches to make sure (amongst other things) that there are no plans for your property or rights of way that you’ve not been told about

• Checking with the Land Registry that the property title is acceptable and transferable

• Transferring the funds to purchase the property

So, these are vital tasks and you need to choose your supplier carefully.

WHAT TO CONSIDER WHEN CHOOSING A SOLICITOR OR A CONVEYANCER

Both solicitors and licensed conveyancers are regulated and insured, and both will follow a similar conveyancing process.

Licensed conveyancers specialise in property law and transactions. A solicitor is trained in many aspects of law.

Fees for conveyancing can vary widely both between and within each profession, so they’re difficult to compare. The key is to find the expert who can properly deal with the work you need done at a fair price. A fully qualified solicitor may be your best choice if your property purchase could be legally complex. For instance, if there’s a boundary dispute or the sellers (or you) are divorcing, then having a solicitor with knowledge beyond property conveyancing would be valuable.

For most simple property purchases however, a conveyancer will be able to handle it all.

Service is the KEY issue to watch out for because you’ll want to be kept up to date on progress or issues as they arise. Many professions struggle to provide great customer service and levels vary across both of these professions too. So, choose carefully and take recommendations from family or friends and other professionals (your mortgage broker or lender or estate agent) who will have lots of experience in this area and who have an interest in you getting an efficient legal service.

Online conveyancing is growing, largely because of its low cost. Be aware that you may only have access to your conveyancer by email or phone and might not deal with the same person each time you call.

That said, some ‘tech-savvy’ firms allow you to track how the purchase is progressing online, which can save you time and frustration with phone calls. And multi-adviser firms might offer a more continuous service than some small solicitor practices – which might struggle during holidays and busy times. So, if you go with a small firm of solicitors, ask them how they will cover your needs during holidays or in the event they’re off sick.

You can find more detail on the conveyancing process here

COMMIT TO BUY – EXCHANGE OF CONTRACTS The exchange of contracts in England and Wales is when your purchase becomes legally binding. The process in Scotland is outlined here

So, before starting this stage be absolutely sure that you want to go ahead on this purchase. And double check that you’ll have the money you need for your exchange deposit (and a holding deposit if required) and to cover your other costs (like stamp duty if applicable) as outlined in part one of this guide.

Here’s an outline of what your solicitor/conveyancer will do and what actions you’ll need to take. Check with them for details in your case.

YOUR SOLICITOR / CONVEYANCER WILL: YOU’LL NEED TO:

Provide you with a contract setting out their charges and the deposits you’ll need to make

Review this and agree it when you’re happy

Write to your seller’s solicitor to obtain a contract pack (the contract for sale and other details)

Examine the contract pack and raise and resolve (if possible) any queries with the seller’s solicitors and with you

Make yourself available to review and give input to queries as they arise

Undertake various searches (with the local council, the Land Registry and other organisations) to ensure that the property is legally transferrable. And, to minimise the risk of nasty surprises about rights on your property or its condition or that of the surrounding land

Check that the essential searches are done and agree any additional searches you require. These searches are often charged as extras, so factor them into your conveyancing cost estimate

Obtain a copy of your mortgage offer – and explain the terms and conditions to you

Ensure you understand all the terms of your mortgage and sign it if you’re happy with it

Send you a report on the contract pack and statement of the financial transactions that will follow

Check this report thoroughly, paying attention to what’s included (e.g. fixtures and fittings) and the leasehold length if that applies. And sign if you’re happy with it

Arrange for all parties to the transaction (you and the seller and their solicitors) to agree on dates for exchange of contracts and the completion date

Check that you (and your partner if you have one) can cope with this date before agreeing to it. Noting that it might be the date you need to move out of your existing home if you have one

YOUR SOLICITOR / CONVEYANCER WILL: YOU’LL NEED TO:

Request you transfer the exchange deposit* plus any Stamp Duty tax and solicitor fees ready for completion

Check the amounts and, if happy, transfer the monies

Organise buildings and any other necessary insurances to be ready to put in force on the exchange date.

Exchange contracts with your seller’s solicitor (normally by both parties reading out the contracts on a recorded telephone conversation, to ensure they’re identical, and then sending them to one another in the post**

You (and the seller) are now in a binding contract to complete the purchase (and sale if you have one) on a fixed date. So, you can press ahead with your moving plans

* Your exchange deposit. For first-time buyers, this is the same as your mortgage deposit – the property price less what you're being lent. Or, if you’re selling your current home to buy another one, your exchange deposit is typically 10% of your next home’s purchase price. And, because many existing homeowner’s deposits are tied up as ‘equity’ in their home, you’ll just need to make up the difference between your buyer’s deposit and your 10% figure. Ask your solicitor or conveyancer for details in your case. **Caught in a chain? In many cases your home purchase and/or sale will be part of a chain of transactions. And in this case your solicitor/conveyancer will only release your contract once they’re sure that all the other people in the chain are happy to go ahead. So, if only one person pulls out or delays, you (and everyone else in the chain) will have your deal held up.

WHAT HAPPENS IF YOU PULL OUT AFTER YOU’VE EXCHANGED CONTRACTS?

If, after ‘exchange’ you do not complete the purchase, you will lose all the fees you’ve incurred and your deposit. And you might owe the seller more if your deposit was less than 10% of the purchase price.

So, do everything in your power to be sure about (and ready for) your home purchase before you exchange contracts.

GET READY & MOVE IN So, the big day (completion day) is approaching when you’ll take possession of your property – normally around midday.

Your conveyancer will advise you of any final payments to make before completion day. And then, on completion day they will deal with all the necessary transfers of money, receive the deeds to your property from your seller’s solicitor and register your new ownership with the Land Registry.

If you’re selling your existing home, you could move out before the completion date – but for that you’ll need somewhere to go to and somewhere to store the contents of your home. So, a lot of people move out of any existing home on the day of completion (or a day or two before if there’s a long way to travel) Either way, you must ensure that any property you sell is in the condition agreed in your contract (with all fixtures and fittings) on completion day.

MAKE GOOD PLANS AND WORK THEM

You’ll want to have a very solid set of plans (tailored to your situation) for what to do before and after you move into your new property.

And some good starter lists of the jobs you need to consider are linked here:

Moving home checklist

Finding a good removals company

Jobs to do as soon when you move in

WHAT HAPPENS AFTER COMPLETION

After completion, your conveyancer will finish their work and:

• Pay the Stamp Duty Land Tax – with the money you sent them earlier

• Send legal title documents to the Land Registry

• Send a copy of the title deeds to your mortgage lender which they’ll keep till your mortgage is paid off

• Send you your title documents – typically around 20 days after completion

• And for leasehold properties, notify the freeholder.

Be sure to check that all these tasks are done.

It makes sense to keep all your home purchase paperwork in a safe place – along with other documents – many of which you’ll find listed here. And keep the estate agents’ sales notes – for a head start when you come to sell.

Lastly, your conveyancer will send you their final bill for payment – which, unless you’re planning redecoration or improvements, should be the end of your big up-front costs of buying your home.

And either way, this might be a time to relax for a moment and enjoy it. Home buying is an achievement.

View, negotiate and agree on a price

Get your full mortgage offer

BUYING A HOME - CHECKLIST

Appoint your conveyancer or solicitor

Commit to buy - exchange of contracts

Get ready and move in

IMPORTANT NOTES – PLEASE READ

This presentation / document is provided for educational purposes only.

Our aim is to help you make more informed decisions about your life and financial plans. This information is generic in nature.

We do not offer regulated financial advice. This means that we do not make specific recommendations for you to buy, sell or otherwise transact investments, or to engage in any investment strategies, or for you not to do any of these things.

You are solely responsible for any decisions that you make regarding your finances and investments. You are solely responsible for any losses that you may incur from the actions you take (or do not take) having read this educational material.

We do not take responsibility for the outcomes and consequences.

It is your responsibility to satisfy yourself as to the suitability of any particular investment or action you take.

Any figures that we provide here are only examples of possible costs or outcomes.

You understand the need to conduct your own due diligence before implementing investments, business plans, or other changes to your personal life.

If you require specific recommendations on investments or pensions or life assurance, then we strongly recommend that you appoint an appropriately qualified and regulated professional adviser to advise you in line with their own terms of business.

Important: This content is for guidance and educational purposes only and is generic in nature. Salary Finance does not offer regulated financial advice. Please seek independent financial advice.

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