Buying a house

Basic procedure
Finding the right property
Mortgages
Estate Agents
Solicitors
Surveyors
Insurance

Basic Procedure

The basic procedure involved in buying your first property is pretty much the same as is followed by all first-time buyers, namely:-

Consult various sources for getting a mortgage i.e. Building Societies, banks & specific mortgage companies. Have a meeting with one or more mortgage advisors from these companies. They will be able to quickly let you know whether you stand a chance of getting a mortgage or not (based on your job, salary etc) and if so, how much you can have. By seeing several different advisors you can gauge how much they are all trying to influence you. It is wise at this point to also check that you will have the finances required for all of the other expenses that you will occur e.g. the deposit (5% to 10% is the norm for first time buyers), Solicitors fees, Surveyors fees, Mortgage application fees & removal costs.
If all looks well on the finances front it is now time to start looking. Most people will simply visit the Estate agents. In most UK towns there is generally an area near the High Street where they congregate. It costs nothing to visit them or use any of their usual services. Ask them all to put you on their mailing list for the type of property you're after. Ah?, I suppose now would be a good time to define this!
Find your ideal property. If you have a range of property types that you like, or a range of areas that you'd like to live in, try to see all types and view the places objectively. Once you've found the place you want you must now call the estate agent and put in your first bid. DO NOT offer the initial asking price. The estate agent has already put a mark-up on the property to allow for a certain amount of leverage. A good starting point is to offer around 5% to 10% less. It is unlikely that any first offer will ever succeed, as the estate agent will always try to squeeze the most from you as they earn commission on the sale price :-). If there are several properties you like, try making offers for all of them. This is particularly effective if the properties are with different agents! This gives you a large amount of resistance to falling for the "oh go on then, it's only £3k more than I wanted to offer but...".
Once an offer is accepted it is still only accepted subject to satisfactory survey and contract-exchange. This is the norm & protects you. At this point you must now do two things:-
- Apply for your mortgage, supplying any evaluation fees required.
- Contact a Solicitor to work on your behalf.
The Mortgage company will discuss the level of survey you wish to have done for the property. They will then instruct the Surveyor to perform the survey. A report is then returned to the Mortgage company.
If the survey was successful a formal offer-of-mortgage is sent to you. Once signed you are bound to this mortgage, with hefty get-out clauses. A copy is also forwarded to your solicitor.
Your solicitor will now draw-up contracts for the purchase & send them to you when complete.
The contracts for the property are then exchanged between the two parties solicitors. At this point you generally have to provide the funds for the deposit, which the solicitor handles. A completion (moving) date is then set which may be anything from a week to a month.
The mortgage company now sends the remainder of the purchase funds to the solicitor ready for transfer. During this time period it is now up to you to get in contact with the Gas & Electric boards, the phone company, house-insurance company & post-office to arrange the reconnection of services etc. to the property.
On the completion date your solicitor forwards the funds to the house-sellers solicitor. On this day you may then collect the keys from the estate-agent and move-in!

Finding the right property

When looking for a property there are lots of things to look into. These will have different priorities for different people, but in terms of a list, look at the following:-

Required Area? Is it quiet or noisy? High council tax?
Easy to work/schools?
Near good shops/schools?
Is car parking easy?
Does the place look to be in good repair?
Is there much work that needs doing on the place? i.e. redecorating or windows/central heating or even structural work?
Will the property be cheap to heat/light?
Check on what fixtures/fittings go with the sale i.e. curtains/lights
Is the place freehold (you own the property and the land outright i.e. lots of houses), or leasehold (you own the right to live in the property for a specified time i.e. most flats)?

Mortgages

Mortgages are often the main source of concern when thinking of buying property. There are several basic types and many special schemes all designed to entice you to a certain company. Click here to view a list of banks and building societies based on the Isle of Wight.

How Much can I/we borrow?

The rules of thumb that almost all lenders stick to are:-

For a single purchaser: 3 X Gross Salary
For a couple: 2.5 X Joint-Gross Salary OR
3 X Higher Gross Salary + 1 x Lower Gross Salary

You will get Tax-Relief on the interest charged on the first £30,000 of your mortgage.
To view Average Island house prices click here.

What about other fees?

The lender is likely to charge a High-loan-to-value fee if you are borrowing more than 75% of the property cost. This may be anywhere between £200 up to several thousand depending upon property price. Note that this cost is often added onto the mortgage itself and so is not incurred in one hefty lump sum.
Certain types of mortgage will also incur separate charges, termed application fees, for setting up the mortgage.

What type of Mortgages can I get?

There are basically three types of mortgage to look into.

Repayment Mortgages
This is the simplest and safest form of mortgage. Essentially just like a large loan. This mortgage ensures that the full mortgage will be paid off in full at the end of the mortgage period (normally 25 years).
Endowment Mortgages
This type is complex and merits a WWW site of its own! Endowment mortgages comprise two separate payments, one is the interest on the loan and the other a premium on an endowment held with a life assurance policy. This is done so as to build up a lump sum which aims to repay the mortgage. The risk is that after the mortgage period has elapsed there may not be enough to pay the mortgage off. This type of mortgage is very flexible however and is more easily added to, to accommodate house-moves etc.
Pension Plan Mortgages
This is a popular choice for self-employed people and people who cannot join company based pension schemes. It basically combines mortgage payments with pension payments. There are also various tax savings for a mortgage of this type.

There are other types of mortgage such as Investment-linked mortgages and Interest-only mortgages but they are far less common. Details of these types can be obtained from any lender.

Other mortgage choices. For any standard variable-rate type of mortgage the interest rate on the mortgage will fluctuate with the economy. It is approximately 7.5% at the present time. There are special options however to reduce this figure for a short period of time. There are basically three types:-

Discounted rate mortgages.
This rate will reduce whatever the present mortgage rate is (e.g. 7.5%) by a fixed percentage (say 2%) for a fixed pre-agreed time, say 2 years.
Fixed rate mortgages.
Fixes the interest rate that you pay for a specified time period. The reduction possible is less than that of discounted schemes but has the main advantage of rigidly setting your monthly payment for a reasonable period.
Capped rate mortgages.
Combines the above two ideas to give a slight reduction in rate under normal circumstances but prevents your rate rising suddenly. These mortgages run for a preset time period.

The only downside to any of these options is that it is generally difficult to move house in the allotted time period, and these types generally incur a fixed charge to set them up. Note: All high-street lenders print leaflets describing house purchasing procedures and mortgage offers & types. It is well worth getting all of these to browse through.

Estate Agents

As a buyer, the estate agent's services to you are free. It is the seller who pays fees and service costs.
One good thing to come out of the housing market explosion/implosion of the 1980's is that estate agent's are no longer legally allowed to describe properties resembling third-world-shacks as "sought after character properties!".
The only money you may have to spend with estate-agents is leaving them a small holding-deposit (£200). This is to show good intention regarding buying the property. You do not have to do leave a cheque but it may/or may not :-) speed-up the buying process. The cheque will be cashed by them and sit in their bank-account until completion (earning them interest), when it will be refunded to you. To view a list of estate agents on the Isle of Wight click here.

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Solicitors

Buying a house involves legal work. This is known as conveyancing. The solicitor will check contracts, perform local-authority & title searches, liase 100% with the seller/their solicitor and look into lease's for leasehold properties. Even for the cheapest of houses expect to pay several hundred pounds in costs. If you're buying a property valued at over £120,001 you will incur stamp-duty at the rate of one per cent. Stamp duty rises to four per cent as the purchase price increases.

When to Pay - apart from search fees which are paid as you go along, you pay the main costs of the solicitor just a day or so before completion. To view a list of solicitors based on the Isle of Wight click here.

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Surveyors

Before buying a property a survey must be completed. The purpose of this is several fold:-

For the Lender, to satisfy the mortgage company that the property is worth the asking price, that it is re-saleable and that it will not fall down over-night!
For you, To ascertain how much work is required on the property.

These ideas give rise to three main survey types:-

Valuation for Mortgage purposes.
This is the minimum required and is purely for satisfying the lender of worth etc.
Report on condition & valuation.
Encompasses the search above and also looks at basic state of repair and condition of the property.
Structural survey.
The most thorough survey checks the property for all major and minor defects. This type of survey may take several days to complete overall as there is a large amount of paper, work to produce.

Surveyors are bound by law to tell you every detail. In full-surveys this will be pages & pages of information. This is because that if you latter find out a defect in the property that the surveyor should have found but missed, you can take legal action against them.
The level of survey that you take is dependant upon the type of property you're buying. For a fairly new property (say less than 10 years old) you probably only need a valuation. For somewhere a little older but still essentially a mainstream place a type(2) is probably wise. For old, character cottages etc a full structural survey is a must.
The cost of the surveyors fees is obviously related directly to the level of survey and the cost of the property. For a £50,000 property a basic valuation will be around £150.

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Insurance

The are principally three type of insurance recommended for a homeowner:-

Building Insurance.
To protect you against fire, flood, storm damage etc to the actual building itself. This may be provided in any building- maintenance charges levied by the free-holder for leasehold flats.
Contents Insurance.
To protect you against the loss of your belongings in the property.
Mortgage Repayment/Loan Repayment insurance.
This ensures that if you are no longer able to pay the mortgage for some reason i.e. ill health or death, the mortgage will be paid-off in full preventing hardship to family etc. Endowment & pension-plan mortgages have this insurance built-in.
The amount that it costs to insure is dependant upon property price and area.