A Guide for Buyers

People usually purchase property to live in two ways, cash buy or via a mortgage. When you start your property search, a logical way is to work out your affordability. You should know what you can afford before you start looking for properties in specific location or types.

 

If you buy with cash, it is simple, it is just how much cash you have in your bank account. Your process starts from step 4 below. However, if you are buying with a mortgage, you need to go through a few more steps. 

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1. Work out how much deposit you have:  

This is the amount you will fund the property purchase without borrowing from the bank. The amount of deposit affect the loan to value ratio. Usually, the more deposit you can put down, the lower interest rate you can get. 

 

For example, if a house is £100,000 and you have £15,000 deposit (your savings) with £85,000 borrow from the bank, your loan to value ratio is 85%.

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2. Work out your total income: (if you buy as a couple, joint income).

As a rule of thumb, and without any bad credit history etc, you should expect to be able to borrow 4 to 5 times of your total annual income from banks. Obviously, the actual amount you can borrow is subject to personal circumstances. All you need is a capable mortgage broker. We can introduce to you several reputable mortgage brokers who we worked with for many years.

 

At this stage, you should obtain a document called "Agreement in Principle" from the lender, via your mortgage broker. This is a piece of paper to show the maximum amount of money you can borrow from that lender. This is an assurance to the estate agent and the seller that you are very likely to get a mortgage to complete the purchase and not a time waster. 

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3. Combine your deposit and the expected borrowing: Once you have done some quick calculation, you can have a rough idea on your total purchasing power. However, within that total purchasing power, you should make allowance for legal fee, home moving fee, repair and decoration, furniture costs and stamp duties etc. 

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4. Property search: You can now start looking for properties that fit your affordability level. When searching for your next home, you should consider a few basic qualities such as age of the property, condition of the neighbourhood, crime rate, local transport, parking provision, schools, GP & Hospitals and risk of flooding etc.

 

5. Arrange a viewing: You should view the house one to two times so you can see how the house look during daytime for things such as how the sun shining to the property or how the view looks. You should also make a note on how the local traffic and transportation look like during morning and evening peak hours etc. 

 

6. Making an offer:  You should look at the actual property price recently sold and make an informed decision before making an offer. Such information can easily be obtained via Rightmove or Zoopla. The property sold nearby should be similar type and conditions to the one you are buying. Every property is different so You should make reasonable adjustments to the price you are going to offer. 

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Once your offer is accepted, the estate agent will ask the contact detail of you solicitor so the estate agent can issue a "Memorandum of Sale" to the buyer and seller. This is a document shows the accepted offer, the details of the solicitors of the buyer and seller. Therefore, it is always good to have a solicitor arranged when you start viewing properties. 

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If you need assistance on finding your solicitor, we can introduce to you several solicitors who we worked with for many years.

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7. Mortgage application, valuation and survey:

At the same time, you should inform your mortgage broker that your offer is accepted, and at what price. The mortgage broker will then make a formal mortgage application on your behalf to the lender that issued you the Agreement in Principle. If successful, you will receive a document called "Mortgage Offer" from the lender, confirming they will lend to you and at what amount. 

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Usually, before the lender issue a mortgage offer, they will ask you to pay for a valuation. The bank will send a property valuer to the property and assess whether the house, in the lender's eyes, worth the value of your accepted offer. If the lender's valuer thinks that your offer is reasonably close to the market price, it is likely that the valuation of the property will be the same as your accepted offer. However, there is always a chance that the valuer thinks the property does not worth the amount you offer. The valuer will then undervalue the house. Hence, the amount the lender is willing to lend will be adjusted downward. If this happens, you can either, renegotiate the price with the seller, or make up the shortfall by putting in more your own deposit, or even withdraw from the purchase and look elsewhere. 

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In additional to a valuation, there may be a chance that the same valuer from the lender can also perform a house condition survey for you, for extra fee of course. The survey is called "RICS Homebuyer Report" and it has 3 levels. Level 1 is a very basic report. Level 2 is a very comprehensive report but without structural checks. Level 3 report is usually recommended for very old property which people usually have more concerns on the structure. If the lender does not offer additional home condition survey, you can always hire your own building surveyor to do the survey for you. 

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If you need help for the home survey, we can introduce to you to some building surveyors that local to your area. 

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8. Subsequent legal works: 

At the same time, you should also inform your solicitor your offer is accepted. They will then start doing their legal work, which involves anti money laundering checks on the source of your deposit, title deed check for the property, making queries to the seller solicitors on your behalf. The solicitor will also recommend you to do a title/property search. The search usually covers issues related to your property such as flood risk, coal mine risk, water and waste pipe location, planning application nearby etc. You should always get the search done before you complete the purchase.

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9. Final steps:

At some point, you will need to transfer your deposit to your solicitor. When the house is about to be completed, your solicitor will also get the money from the lender.

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Once your solicitors completed his legal works and received the mortgage offer from your lender, they will then propose "Exchange and Completion". Exchange means Exchange the sales contract. Once you authorised your solicitor to exchange the contract, you have to buy the property. You then have to put down 10% deposit to seller's solicitor. At Completion, your solicitor will combine your remaining deposit and lender's money before sending the whole amount to the seller's solicitor. 

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10. Chain

If there is a chain on the purchase, then all the purchase on the chain will be exchanged and completed simultaneously. A chain means that your seller is also buying his onward purchase and so on or you have a property to sell before you can buy your next one, the buyer buying your property may also have to sell their old one and so on.   A chain is completed if one end of the chain does not need to buy onward property after selling and the other end does not have a property to sell before buying.  

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11. Insurance: 

When the house is about to be exchanged, you solicitor will ask you to buy home insurance for your new property. This is because as soon as the house is exchanged and completed, the ownership of the property is transferred to you. The home insurance on the property under the seller's name will not cover the house from that exact moment. Therefore, you should have your home insurance in place to cover the house immediately.  

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12. Getting the Keys: 

Congratulations, you make it to the end. The whole process can take at least 3 months if you are lucky. It will take a lot more time if there is a chain involved. Once exchanged and completed, your solicitor will inform you immediately. Seller's solicitor will also inform the estate agent at the same time. Once you get that call, you can either go the estate agent for the key or go to the property where the seller, now the previous owner, will greet you at the front door and do the handover. 

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