How to Buy a House – First Time Buyers Guide

Buying your first home will be one of the biggest investments that you will ever make, so it is important to understand how the property buying process works.  Having bought my first home a couple of years ago, I have written this post with first-time buyers in mind, but it should also be a useful reference for existing owners looking to move home.

One word of warning – this is a mammoth post, but it will give you an excellent advantage in your search for a home.  If you are just browsing through, please bookmark this post so that you can refer to it when you need more information.

The post contains the following sections:

  • Understand What You Can Afford
  • What is Your Monthly Budget?
  • Searching For a Property
  • Searching on the Internet
  • Local Papers
  • Estate Agents
  • Viewing a Property
  • Home Information Packs (HIPs)
  • Making an Offer
  • How to Negotiate a Better Purchase Price
  • Formalising the Offer
  • After You Have Made Your Offer
  • Conveyancing
  • Finding a Conveyancing Solicitor
  • Managing Your Conveyancing Solicitor
  • Key Deliverables / Activities for Completing the Sale
  • More Home Buying Resources

First Time Buyers Guide

Understand What You Can Afford

Money will be the biggest constraint in determining the type of property that you can afford.  Most people will need to get a mortgage to enable them to buy their home and with mortgage companies becoming much more stringent about their lending in recent years, you may find that your choice of properties will be limited.

To get a benchmark, start by talking to your bank or a recommended mortgage company to see what they will offer you.  With this figure in mind, you can then go to other mortgage providers directly or find a good financial advisor who will search the market to find you a suitable mortgage deal.

Mortgage companies will use your annual salary as a guideline for the size of mortgage loan they will offer you.  At one point they were offering mortgage loans four or five times a persons annual salary, but since the recession kicked-in they are much more constrained and will probably only offer two or three times your annual salary.

Buying with a friend or a partner is advantageous as the combined salary will be greater and hence the potential mortgage loan will be much higher than it would be for somebody buying on their own.

Another key factor that mortgage companies will look at is your deposit and whilst you could previously put down a deposit of less than 10% (and in some cases get a 100% mortgage), the lending criteria is again much more constrained, with minimum deposits now starting at 30% to 40%.

You should also bear in mind that in addition to your deposit, you will need to have saved up enough money to cover the other home buying costs, which are:

  • Legal fees – This is for a process called conveyancing, whereby a solicitor will undertake all the legal changes required to transfer ownership of the property to your name – Costs start at £600 – £700 but vary based on the type of property and complexity of the situation
  • Stamp duty – Currently 1% for properties costing between £125,000 and £250,000 (full breakdown here – http://www.hmrc.gov.uk/sdlt/rates-thresholds.htm), although recently the Chancellor announced a stamp duty tax break for first time buyers in the next budget.
  • Land Registry Fees – Between £40 and £800 depending on property value
  • Mortgage Administration Fees – Most mortgage companies charge various administrative fees for setting up the mortgage (not that they don’t make enough money from the interest they charge!). Costs will vary from about £500 to £3,000 depending on the company.
  • Survey – Before lending you the money your mortgage company will require a basic survey of the property you are buying to ensure they agree with the valuation. This will cost you between £100 to £300. For peace of mind you may want to have a more in-depth survey undertaken and you can either opt for a Home Buyer’s Report (about £300 to £500 depending on the property) or an even more comprehensive Building Survey (£1,000 +)
  • Furnishings – Once you have bought the property, you will want to kit it out with furniture, curtains, blinds, carpet, pots & pans, crockery, etc. Costs will vary depending on the quality and type of furnishings, but be prepared to spend at least £3,000 getting your new home to a condition that you like.

With your deposit and home buying costs figured out, you should be able to get a ‘mortgage offer in principle’ from your mortgage provider.  This is an agreement that the provider will offer to lend you a certain amount of money, subject to survey and further checks.  These offers will last for a fixed period of time, normally three to six months and will form the basis of your budget for buying a new home.

What is Your Monthly Budget?

Whilst your mortgage provider will use your annual salary as guidance on what they can lend you, they will also want a detailed breakdown of your monthly spending and what you will be able to afford to repay each month, as the last thing you want to do is take on a large commitment like a new home and find that you don’t have enough money to cover it, due to other commitments, such as a car loan.

During the mortgage application, you will be asked a number of questions about your monthly spending, so that the provider can build up a picture of what you earn and what you spend. 

Before you meet with your mortgage provider or financial advisor it is worth producing your own budget to show monthly earning and spend – click on this link to download a Free Budget Template.

If you are currently living at home with your parents, don’t forget to include estimates for all the essential home ownership costs you will incur when you move in – these will include:

  • Mortgage – £650 to £1,100
  • Utilities (gas, water, electricity) – £80 to £110
  • Telephone & broadband – £25 to £35
  • Council Tax – £100 – £120
  • Home and contents insurance – £12 to £20
  • Life insurance – £15 to £25
  • Ground rent and management fees (for leasehold properties) – £50 to £60
  • Food shopping – £200 to £250
  • Television licence – £12

* Above monthly cost estimates based on a one bedroom flat

These costs will need to be added to your other spending:

  • Clothes
  • Mobile phone
  • Gym membership
  • Car insurance
  • Commuting costs
  • Going out / entertainment
  • Satellite / cable TV
  • Pension / savings

Plus any other loan commitments that need to be re-paid each month:

  • Car loan
  • Student loan
  • Hire purchase agreements
  • Credit card debts
  • Bank loan

Drop all of your current spending figures and your forecasted home ownership costs into the Free Budget Template.  Ideally your spending figure should be much lower than you earning figure.  This means that you will adequately be able to afford your home and build up a nice little savings egg for a rainy day.

If, however the amount you will spend each month will be more than what you earn, then you should seriously consider whether buying a property is the right thing to do at this time. 

Consistently spending more than you earn each month will only see you getting yourself into greater and greater debt, and you may want to wait a couple of more years until you are earning a larger salary before you try to buy your property.

Searching For a Property

With your Mortgage in Principle, you can finalise the criteria for the type of property that you want to buy:

  • Number of bedrooms / bathrooms
  • Flat / house / maisonette
  • Location – centre of town / suburbs / countryside / close to railway line or motorway
  • Features – balcony / garden / parking
  • Age – new build / traditional build

It is worth writing down your criteria in a notebook, so that you can quickly refer to it when talking to estate agents.  You can then bring your notebook to all your property viewings to write down positive & negative items to help you make your decision.

Searching on the Internet

The Internet is a great place to start your search and do a bit of armchair-based home buying.  There are a range of property portals that estate agents list their properties for sale on and by entering your criteria you can quickly see what is available for you. 

There are also a number of websites that enable you cut out the estate agent and buy directly from the owner.

Most of these property search portals allow you register your details and receive email alerts when an appropriate property becomes available.  Some will also register you with local estate agents if you wish them to do so.

Click on this link for a list of all these property search portals.

Local Papers

In addition to the Internet, estate agents often advertise their property listings in local papers.  As with the Internet, local paper property listings can give you a good idea of what is available and what represents a fair price in the local market.

Estate Agents

Whilst the Internet and local papers are really useful in giving you the background knowledge to help make a smarter property buying decision, it is definitely a good idea to take the time to go and see the local estate agents in person to get yourself registered on their books.

Like all successful business deals, buying the right property at the right price is all based on forming a good working relationship with the vendors and their agents.  By walking into the estate agents office and registering yourself personally, you not only get a good idea of how professional they will be, but you are also more likely to stick in their mind and be remembered when a good property becomes available.

This is especially important in a competitive, sellers market like London, where there are so many potential buyers, it is only those with a well established working relationship with the agent who will be offered the best properties to view.

Viewing a Property

There are some key rules to follow when viewing properties:

  • View more than one property – It is well worth viewing several properties to ensure you that you are getting the best deal. Once you have viewed a couple, you will have become somewhat of a ‘property expert’ and will know what to look for and what represents good value for money.
  • View at different times of the day – Once you have found a property that you like and want to make an offer on, make sure that you get a couple of additional viewings, so that you can see it at different times of the day and night. This way you will be more likely to pick up on difficult neighbours or spot any problems.
  • Take notes and pictures – When viewing properties, make sure you bring your notebook to write down your thoughts and any questions that you want to follow-up on. After seeing several similar properties this is a useful way to remind yourself of what you liked and didn’t like. Taking pictures of the inside of the property also helps, but check with the agent before you do so, as many vendors may consider this an invasion of privacy.

When looking around properties, try to look beyond the interior decoration or the fixtures & furnishings that the current owner has.  Walls can always be painted and the furniture will go with the owner, so what you need to take into account is the size of the rooms, the layout and the quality of the building itself.

It is useful to prepare a property viewing checklist before you start viewing, which should include the following checks:

  • Signs of damp or condensation problems – Look out for signs of mould, the smell of damp, flaky paint or peeling wallpaper
  • Signs of subsidence – Doors that don’t close properly or cracks in the wall often indicate a subsidence problem
  • Is the property well insulated? – Does it have double glazing and if relevant, does it have loft insulation?
  • What sort of heating does the property have? – If it is central heating then check how old the system is and how efficient it will be? Is it gas or electric?
  • Electrics – Old-fashioned, round-pin type plug sockets may mean the electrics are ancient and the property needs re-wiring.
  • Plumbing – Are the pipes and boiler lagged? If not you may need to account for this expense. Old-fashioned lead pipes may indicate that the property needs re-plumbing.
  • Fixtures & fittings – Is the vendor planning to leave any items such as curtains or kitchen appliances as part of the sale?
  • Leasehold or Freehold – The ownership status of the property will make a significant difference to the buying price. If the property is leasehold, check to find out how many years remain on the lease and what the annual lease & management charges are.

If you do come across any build quality issues, but are still keen to purchase the property then you should arrange for a survey to be undertaken by a qualified professional.  Your surveyor may then advise you if there are any risks in proceeding with the property purchase or that if you do proceed then you reduce your offer to cover the cost of repairs.

Home Information Packs (HIPs)

Note: As of 21 May 2010 HIPs have been suspended, although the Energy Performance Certificate will remain as it is required under European law.

HIPs were introduced a couple of years ago to try and make the home buying process more transparent and efficient.  They are paid for by the vendor and contain a number of items of information to help the buyer assess whether the property is right for them.  So when you are looking at property you should be given access to the HIP, which will contain the following items:

  • Energy Performance Certificate – To see how energy efficient the property is
  • Sale statement – Provides details of the sale, such as whether the property is freehold or leasehold
  • Property searches – These are checks to see if there are any planning decisions or road building schemes taking place that would impact the property owner, plus other checks on things like water and drainage services to the property.
  • Evidence of title – Proof of ownership of the property
  • Sustainability information – Required for newly built homes
  • Property Information Questionnaire (PIQ) – basic, useful information on the property to help the buyer make their decision
  • A copy of the lease – For leasehold properties only

A copy of the HIP must be given to you for free, however the agent or vendor may make a reasonable charge for printing and posting the document.

Making an Offer

Having viewed a number of properties, you will hopefully have found the home that meets your criteria and will want to make an offer.

Before doing so, there is a quick checklist of items that you should have in place:

  • Mortgage Agreement in Principle – Without a mortgage agreement in place, you will not know whether you can afford the property and there is a greater chance of the deal falling apart if you are unable to get a mortgage agreed in time
  • Conveyancing Solicitor appointed – Best to do this at the beginning of your search, so that you have more time to find a decent legal firm to undertake your conveyancing work
  • Market research complete – Having viewed several properties and browsed through many more on the Internet, you should have built up a level of expertise that will enable you to calculate a fair offer

How to Negotiate a Better Purchase Price

Whilst properties are advertised at a specific price, it is common practice for buyers to try and negotiate a better deal by putting in offers below the asking price.

Ultimately your ability to negotiate a better deal will depend on the level of supply and demand in the local market.  If there are many similar properties for sale in the area and very few buyers, then you will be in a strong position to make an offer below the asking price.

On the other hand, if there are only a few comparable properties available in the area and many potential buyers, then the seller is in a much stronger position to set the purchase price and the potential reduction will be little or nothing.

The first step in the negotiation is to set your initial offer and to do this you need to decide what you think the property is actually worth.  Having viewed several properties and browsed through more on the Internet and in local papers, you should be able to compare the price to others and make a judgement on a reasonable value.

Having decided on the actual value of the property, you should then think about any other factors that might support a further discount.  Things to look out for include:

  • Length of time on the market – If the property has been on the market for a number of months, this would suggest it is over-priced and the owner may be open to a lower offer
  • Hurry to sell – Very often people have financial, work or family pressures that require them to sell their homes quickly. If this is the case with the property you want to buy then you may find the owner is likely to accept a lower offer
  • First-time buyer status – Sellers like to do business with first-time buyers as they are not encumbered with a home to sell themselves and are therefore much lower risk. Letting the seller know that you are a first-time buyer with your finances in place ready to go will greatly increase the chance of them accepting your offer

When it comes to making an offer, people generally opt for something 10% to 15% below the asking price, although the factors above may enable you to put in an even lower offer.

It is worth remembering that when pricing their property, the owner will probably have built in that 10% to 15% extra on the expectation that people will make a cheaper offer, so if you can find ways to justify stretching the percentage discount then you may be able to get more off the asking price.

However, try not to get greedy and make ridiculously low offers, as this will only annoy the sellers and agents and prevent them from taking you seriously.

Once you have decided on a realistic figure, contact the agent or vendor and let them know what you would be prepared to offer.  Again make sure you back this up by explaining that you are a serious first time buyer and are ready to proceed with the purchase as soon as the offer is accepted.

One of two things will then happen, either the offer is accepted or the vendor will reject your offer.  If this is the situation, the vendor may come back with a revised price which is closer to your offer or they may just stick to their guns and maintain their original sale price.

Depending on how much you want the property, you can go back with a revised offer and continue the negotiation process with the vendor until you both agree a price.

Throughout the process, try not to get too emotionally attached to the property as frustration and disappointment are very commonly felt emotions when buying a home.  Instead, remain calm and try to look at the process purely from a business perspective.

Time is often an ally to first time buyers and provided you are not in a hurry to purchase a property, you can afford to sit and sweat it out a bit during the negotiations.  You may even find that a time-pressured vendor who turned down one of your previous offers, suddenly decides they are not going to get anything better and makes contact to accept your offer!

Formalising the Offer

Once your offer has been accepted by the vendor, it needs to be formalised in writing.  If you are buying through an estate agent, then the agent will tend to undertake this task or if you are dealing with the vendor directly then either you or the vendor will need to document the offer.

They key items that need to be covered are:

  • The agreed purchase price
  • Any fixtures or fittings that were agreed as part of the sale
  • Any work that needs to be undertaken on the property prior to completion of the sale

Ensure that the offer is ‘subject to survey and contract’, which means you are not legally obliged to purchase the property until a survey has been completed (with the survey considering the building as satisfactory) and signed contracts exchanged.

You should also ensure the property is taken off the market immediately, which helps to prevent the vendor accepting a higher offer from somebody else further down the line (a practice known as Gazumping).

After You Have Made Your Offer

Once you have made your offer, you tend to take on the role of project manager, coordinating the various parties involved in completing the paperwork that will allow you to exchange contracts and complete the purchase.

In most cases you will be dealing with:

  • The solicitor undertaking your conveyancing (who will deal with the vendors solicitor)
  • Your mortgage company
  • The surveyor
  • The estate agent or vendor

The estate agent and the solicitor are the property professionals and will be largely responsible for completing the purchase, but house buying tends to be a long, drawn-out process and it is in the buyer’s interest to keep tabs on progress and chase people up if things start to drag on.

The buyer is also responsible for ensuring the finance is all in place, which means getting their mortgage-in-principle formally approved and ready for funds to be transferred to seller.

Conveyancing

Every house purchase involves a number of legal aspects and conveyancing is the process of making all of those legal checks and preparing contracts for signing.

Although it is possible to do the conveyancing yourself, it is highly advisable to get a professional conveyancing solicitor to do the work for you, as they will have both the experience and expertise to cover all the angles and ensure you do not complete on a property, only to discover that a new road is due to be built outside it or that you do not own as much of the land as you originally thought.

Finding a Conveyancing Solicitor

Ideally you should start looking for a conveyancing solicitor at the start of you house buying journey.  This ensures that you are not rushing to appoint one once you have made your offer, thereby reducing the risk of ending up with somebody in-appropriate to your needs.

 One of the best ways to find a decent conveyancing solicitor is to get recommendations from friends and family of firms they have used and were happy with.  You can also use the web, Yellow Pages, local classifieds or specialist directories such as the Law Society (http://www.lawsociety.org.uk/choosingandusing/findasolicitor.law) to find a suitable conveyancing firm.

Before you appoint a firm to do your conveyancing work, you need to ensure you are confident that they will do a good job and there is nothing wrong with visiting their practice to ‘interview’ your solicitor.

Ideally you want somebody with good experience, who will undertake the conveyancing with enough efficiency to stop the process from being held up, but without missing crucial details.

Remember, price is important and it does not always pay to go for the cheapest firm as you may not get the same level of quality.  On such a large investment, the key thing is to ensure you that you receive a service that is effective and represents good quality.

Managing your Conveyancing Solicitor

Once you have appointed your conveyancing firm and asked them to proceed with the conveyancing on your accepted offer, it is important to keep regular contact to ensure everything continues to progress and whilst the legal process can be notoriously slow, it is often those who stay on the solicitor’s case with catch-up calls and emails, that tend to be dealt with as a priority.

I would suggest that you get your solicitor to provide you with a list of deliverables / activities and predicted timelines for starting and completing each task.  You can then use this to monitor progress and ensure everything is going to plan, however you do need to bear in mind that your solicitor will be dependant on the seller and their solicitor for much of the information.

Key Deliverables / Activities for Completing the Sale

The key deliverables / activities that the buyer and their solicitor will need to undertake in order to complete the sale are:

  • Production of the Draft contract
  • Validation of title, contract and papers
  • Completion of Local Authority and other searches
  • Agreement of Completion Date
  • Liaison with buyer’s mortgage company and surveyor to confirm approval of funding and structural integrity of the property
  • Exchange of Contracts and administration of deposit payment to the seller
  • Administration of mortgage documents
  • Production of Transfer Document
  • Completion of final searches and enquiries
  • Sale Completion and transfer of remaining funds to the seller
  • Administration of stamp duty and land registry costs, plus completion of land registry process
  • Administration of Transfer Document and Title Deeds, plus informing all related parties that the sale is complete and provision of a Summary of Completion document

With the sale complete and funds transferred, the buyer will be able to collect the keys to from the estate agent or vendor and begin to move into their new home.

More Home Buying Resources

How to Buy a House In Scotland – The process for buying a property in Scotland is different to England and Wales and detailed in this guide.

Property Links:

Our Property – Provides house prices based on Land Registry data and allows buyers to find out what price similar properties in the area where sold for.