From start to finish the house-buying process can seem like a real pain – but the night you shut the door on your new home for the first time makes it all worthwhile. Our Complete House Buying Guide is designed to soothe those troubled brows.
A home is not a home unless you own it and buying your own property is central to the British way of life. Even today, when it is more difficult than ever to get a foot on the housing ladder, the ambition remains the same. But whether you are a first-time buyer or someone who is moving up the property ladder the process is fraught – so much to do, so much to think about and the ever-lurking danger that the whole deal might fall apart. As house prices have risen, so the number of first-time buyers has dwindled but recent interest rate rises point to a slowing down of the market with June 2004 a watershed moment as month-on-month rises in London and the south east dropped to 1.2 per cent – a 12-month low. A by-product of this was that the rest of the country saw prices rising faster, thereby the north-south divide shrunk.
The leading building societies reported in mid-2004 a spread of between £149,020 and £188,962 for the first time home – an average year-on-year rise of about 15 per cent – it is not difficult to see why it is so difficult to break into home ownership. In London the figure is £250,300.
As a consequence first-time buyers represent only 30 per cent of all house purchase transactions compared to around 50 per cent five years ago. But first-time buyers are vital to sustaining the market in the long term. Just 367,000 of them entered the market in 2003, down from 525,000 in 2002. The maths clearly reveal a fast widening gap between mortgage and purchase price so as a consequence, the average deposit paid by first-time home buyers has jumped by almost 250 per cent in five years to stand at around £23,000. Back in 1998 the deposit was around £6,500. In London today’s figure is higher at £37,100, jumping from £10,186 over the same period. The modern first-time buyer has to save for an average of almost four years before they have enough money for a five per cent deposit and the value of private loans – from friends and family – to cover deposits is estimated at around £1.36bn.
There are some initiatives to change the market around like the government’s starter homes scheme aimed at key workers like nurses, teachers and police officers. A target of 10,000 homes for these workers desperate to climb on the property ladder is but a drop in the ocean. The reason for this anguish is that the whole house-moving process seems to be out of your control. You feel so helpless, so financially and emotionally exposed. You’ve ridden a roller coaster that in England and Wales ends up with one in 10 home purchases falling through, and 12 per cent of sales failing after the offer has been accepted. There is no cure to it all but a little bit of discipline and organisation can be very soothing and calming. It can help you keep your focus and make the whole experience a little more pleasant.
What it boils down to is doing what you have to do today and following the rules, even if they do seem a given thing. THE MORTGAGE To buy a house, any house, most of us require a mortgage – that chain of debt that dangles heavily around your neck for 25 years. It seems a long time to be in debt and in an uncertain world where jobs can disappear at the stroke of a pen, taking out a mortgage can frankly be frightening – especially for the first-timers. But it is not as daunting as it seems. You can protect your payments with insurance, you can take out mortgages that fast track to final payment and – most importantly – you can raise the money to buy something that will eventually be yours. Given that house prices tend to rocket in Britain, £100,000 of mortgage today could turn into £500,000 worth of house, or more, over 25 years. Since 1995 the number of £1milliion-plus properties had increased 11-fold from 232 in 1995 to 2,434 last year. The majority are in London and the south east. It adds up to 6,000 homes in London that have sold for seven figures since 1997 and more than 2,000 in the south east. In the north there have been 16 such sales and nine in Wales. All this has been brought about by a shift in cash from shares to bricks and mortar. And if house prices rose at an annual 4.5 per cent for the next 50 years, the average UK property would go from £100,000 today to £1m by 2052; London would reach this mark by 2039.
The housing market boom however, has created problems and a strategic rethink on the length of mortgages. Some advisers have suggested you should consider a mortgage term of up to 50 years. Such an arrangement would reduce your monthly payments but increase the amount you pay in total. You have to consider what lies in wait in the long term. You might not be able to do much about them but consider that interest rates could soar. Be wary of taking out a mortgage with terms that extend beyond your retirement age because how are you going to pay for it once your earnings have stopped? How do you get a mortgage? You go to the building society or bank. At least that’s the simple way. Today, it might be prudent to see a mortgage broker because they understand the business inside out and can cut the cloth to suit your budget. Furthermore it is a competitive business with hundreds of potential mortgage sources available.
These are the main types of mortgage you could be offered: Variable rate Payments rise and fall as lenders change the interest rates, which will be largely influenced by changes to the Bank of England base rate. Some lenders will make the change to your payment as soon as the rate change takes effect, others will adjust your payments once a year, based on any increases or reductions in the interest rate over that period. Capped rate As with a variable rate, however some lenders will, for a guaranteed period, ensure that your rate does not exceed an upper limit, even if interest rates rise beyond that limit. The lender may charge an arrangement fee. An early settlement charge may also apply. Fixed rate This mortgage provides you with the option to fix your rate for any period between one and 25 years, however each lender may have only a limited range of options. Generally the shorter the term of the fixed rate, the lower the interest rate. At the end of the fixed rate period, some lenders may offer an extended fixed rate option. The lender often charges arrangement fees and early settlement charges are frequently applied.
Discounted rate For an agreed limited period, the lender will apply a discount off their standard variable rate. Generally, the shorter the discount terms the larger the discount. The lender will often charge an arrangement fee. An early settlement charge may apply. Flexible mortgage Allows you to vary your payments within given parameters and some lenders offer payment holidays. The greater flexibility of the arrangement enables you to pay off your mortgage earlier.
Cash back mortgage In most cases you will pay the standard variable rate; however you will receive a cash lump sum at the start of your mortgage. This will often be an agreed percentage of the amount borrowed. An early settlement charge will apply. Base rate tracker The lender agrees a rate linked to the Bank of England base rate in the form of either a loading or discount for a set period. The Bank of England reviews the base rate every month, although the reviews do not necessarily result in a change of rate. The lender may charge an arrangement fee. Repayment mortgage This works in the same way as most types of loans.
You make a regular monthly payment to the lender and the payment is made up of capital and interest. So, provided you keep up the payments, at the end of the term you have repaid the loan in full. Interest only mortgage With an interest only mortgage, you pay only the interest to your lender. This means you need to make a separate payment into some sort of savings plan, so you can build a lump sum to pay off the mortgage at the end of the term. The three main types of savings plans are: endowment policies, ISAs and pension plans. Whichever savings plan you choose, it is vital you keep up the payments, and also to make sure your policy is regularly reviewed to ensure it is on target to repay the mortgage at the end of the term. It is important to remember that these types of investment are long-term commitments and are unsuitable for people who might not be able to maintain their payments until the end of the term. Combination mortgage Some lenders may allow you to combine both repayment methods. This may occur, for example, if you took out an endowment mortgage for your first home for £100,000 and you are looking at purchasing your second home at a cost of £150,000. You may want to keep your £100,000 endowment until the policy matures, but borrow the additional £50,000 as a repayment mortgage.
MOVING Once you have found your home, made the offer, had it accepted and raised the mortgage the real stress kicks in and you need to be well organised. Confirm the date of moving with the seller and start organising quotes from removal companies and ask what other services they offer, such as packing, packaging, cleaning, insurance and storage. You should try to book one as soon after you set a date as possible. If you are doing it yourself, check out van hire, and book your friends. Check the situation with your buildings and contents insurance provider and arrange transit insurance for the move if necessary. This can almost always be done through your removal company. Make sure you check any policies thoroughly for exclusions and ensure that a policy will be in place to cover the contents of your new home once you have moved in.
Have a good look around the entire contents of your house and make a long list of everything major. Write a list of everything that you intend to leave behind in the property and pass it on to your solicitor. It is important that this is accurate. For insurance purposes, and to assist you in your packing inventory later on, make a list of all the major items you are taking with you. This should be quite detailed and include costs, dates and place of purchase. As the day approaches arrange the parking at your new home. Do you require residents’ permits or special permission from the council for the removals van to park outside your new house? You should have got an idea of the situation before you booked the removals company and now is the time to finalise the details.
Arrange to visit the person you’re buying from so you can measure up for curtains, get their forwarding address and make any other arrangements you may need, such as agreeing to transfer the phone accounts. Once you have your completion date you can start informing people of your new address. Start packing those seasonal items like Christmas decorations. Next arrange to switch utility services to the new address. Or settle up the account on your current address by organising metre readings for the morning you move. Arrange for a switch on in your name at the new house. Sort out your post by paying for it to be redirected. Defrost freezer and refrigerator.
Cancel future milk and newspaper deliveries and settle all other outstanding bills. Send out final moving notification letters and change of address cards. Double-check the crucial things (removal company, key exchanges etc.) two or three days before the move. Double check closet, drawers, shelves, attic and garage to be sure that they are empty. Carry important documents, money and jewellery yourself. Arrange with your removal men to set up the bed, or beds, where you want them in the new house and make them up early because you will need somewhere to sleep after this most exhausting of days. Suddenly all that worry and stress seems very worthwhile.