WHAT HAPPENS NEXT? FIRST TIME BUYER GUIDE
Are you a first-time buyer? Are you thinking about taking your first step onto the property ladder? If the answer is yes then this step-by-step guide is for you. Deciding to buy your very first home can be an exciting time. Choosing your dream home, furnishing it to your own tastes and finally having the independence of your own space is very appealing. However, moving home comes with its challenges but here at Keystone, we understand how daunting buying a property for the first time can be so we pride ourselves in giving our clients the best possible advice and guiding them through the process as smoothly as possible. You will be asking yourself lots of questions in this initial stage. Can I afford it? Will I get a mortgage? How much deposit will I need? Sit back, relax and let us guide you through this process stage by stage.
TIMELINE FOR BUYING A HOUSE Before we delve into a more detailed account of buying a property for the first time, here is a summary of the process and a rough estimate of the timeline. Please note, as much as we try to ensure a smooth purchasing process here at Keystone, unavoidable events can occur which means there could be delays so this timeline is not set in stone! 1. Secure a deposit and a Decision in Principle from a mortgage lender – this can take anything from 10 minutes to a few days to obtain this. Sometimes called a DIP or AIP (Agreement in Principle). 2. Find your dream home and make an offer. This depends on the property market and what is available to you within your price range. The negotiating stage can take a few hours or a few days to agree on a purchase price with the lender. 3. Pre-contract stage. This usually takes around 6 to 10 weeks. At this stage there will be multiple things happening: Your solicitor will draft contracts and apply for searches from the local authority; your mortgage lender will send out a surveyor to check the property and will then issue a mortgage offer.
FIRST TIME BUYER GUIDE
4. Exchange of Contracts to completion. Can sometimes happen on the same day or the solicitor will set the completion date a few days after exchange. Solicitors will swap signed copies of the contracts and you will give your deposit to the solicitor. Your solicitor will draw funds from the lender ready to give to the seller on completion day. Now let’s take a look at purchasing a property for the first time in a little more detail.
DEPOSIT It is highly likely that you have already trawled Rightmove looking for your dream property but wait just a minute because before you can do anything, you are going to need a mortgage and in order to secure that mortgage, it is highly likely you will need a deposit. Normally, lenders ask for a 10% deposit of the purchase price. However, some lenders may offer a mortgage with a 5% deposit. Speak to one of our mortgage advisors here at Keystone - who are able to access mortgages from the whole market – they will be able to tell you if there are any lenders who are currently offering mortgages with a 5% deposit. Accessing mortgages from the whole market means our advisors are able to look across the market for the very best deal. Whilst you may be able to access a mortgage from your own bank, they can only offer their own mortgage products. At Keystone, our advisors can potentially find you a mortgage with a much better interest rate meaning lower payments. It is important to remember that if you can secure a higher deposit (10% or more), it is likely you will receive a better rate of interest. Deposits come in all different forms. The bank of mum and dad are sometimes on hand to help their children gain that crucial step on the property ladder or you may simply be saving your own money. If you are planning on buying your first property with a partner, it is important to consider a couple of factors when it comes to the deposit and the legalities of selling your property should your relationship break down.
DECLARATION OF TRUST It is not pleasant to consider what might happen if your relationship breaks down but it is wise to be knowledgeable about the financial implications of this event before you purchase your first property. It is important to note that where there is a mortgage in joint names, both parties are jointly and wholly responsible and liable for that debt regardless of who is occupying the property. Take this scenario for example: upon moving into a property, both parties decide to split the monthly mortgage payment equally. The relationship then breaks down and one person moves out but refuses to contribute towards the mortgage payments. In this scenario, the lender is entitled to require payments from the remaining party to cover all of the mortgage and it is not possible to argue that s/he is only liable for a share of the payment. This is known as ‘joint and several liability’. When it comes to paying the deposit, if one party is planning on paying a higher share of the deposit, it might be worth considering putting a Declaration of Trust in place. Without it, each party is legally entitled to 50% of the equity in the property – regardless of how much each of you have contributed to the initial deposit and subsequent mortgage payments. A Declaration of Trust protects everyone’s interests in a property, ensuring each party gets what they are entitled to by their initial investment when it comes time to sell the property or sell a share of it. There have been many cases where relationships have broken down and one person ends up footing the bill for the entire monthly mortgage payment. What is often deemed unfair though is that even if one person refuses to pay and the other party takes on the whole debt, unless one name is removed from the mortgage, both parties are still entitled to an equal share of the equity when the house is sold. Likewise, if, during the relationship, one party has financially contributed more to the mortgage payments, maintenance costs and furnishing etc, they also have no legal standing to claim a higher percentage of the equity from the sale of the property, should the relationship break down. Additionally, if you decide to contribute to the deposit and mortgage payments but your name is not on the mortgage, legally, you are not entitled to any of the equity when the house is sold if your relationship comes to an end. For more information on
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Declarations of Trust, please consult your solicitor who can give you more detailed advice.
SECURE A DECISION IN PRINCIPLE (DIP) Once you have done the hard bit and obtained a deposit, the next thing you’ll want to know is: how much can I lend? At Keystone, we can search the whole of the market and look for the best possible deal for your circumstances. In order to obtain a Decision in Principle, our mortgage advisors at Keystone will ask you for some basic details initially. You will need your last three months’ payslips, last three months bank statements and general details about yourself and your employment status. You will also need to provide details of any outstanding loans or credit cards. If you have missed payments on any financial arrangements, this will show on your credit history so it is best to be upfront with our mortgage advisors about this before a credit check is carried out. They will know which lender is likely to offer you a mortgage depending on the severity of any credit problems so it makes sense not to have a credit check with a lender if they are likely to decline your application. Once you have secured your Decision in Principle, the lender will carry out further checks on all parties named on the mortgage and they will send a surveyor out to the property who will check it over for any obvious defects that could impact the value. They will also confirm to the lender that the property is worth the price that you are planning to pay for it. Once this is confirmed, the lender will issue a mortgage offer which is usually firm confirmation that the lender has agreed to lend you the funds to purchase the property.
SEARCH FOR YOUR DREAM HOME Obviously, when searching for your dream home, your first port of call will probably be Rightmove. However, it is really important to let your local estate agents know that you are in the market for a new home. That way, they will bear you in mind if a suitable property comes available. By registering with all your local agents, you may be able to view a property before it even goes onto Rightmove. Here at Keystone, we will sign you up
to our property alerts system – ‘Heads Up’, whereby you will automatically get notifications when we have a property that matches your circumstances. Also, look out for our ‘first look’ videos on Facebook. These videos are an excellent opportunity for potential buyers to view a property online before it even reaches Rightmove – our properties often sell at this stage.
NEGOTIATE AN OFFER We often get involved in doing this on behalf of our mortgage clients but can only do so if they are buying from another Estate Agent. We can use our experience to try to negotiate a good deal sometimes saving our mortgage clients thousands of pounds. Negotiating the very best deal is often a minefield and it all depends on the market conditions at the time. At the time of writing this article (Early 2022) over the past year you have often needed to offer over the asking price due to the rapidly rising market and the fact that there are usually multiple buyers for every property that comes to market. Please speak to our experienced Advisers on how to negotiate the best deal in the current market conditions. Once you agree on a purchase price, keep the champagne on ice for now as there are many pitfalls one can encounter between making an offer and the completion of contracts. Issues can arise with your mortgage, your solicitor may bring unexpected disputes to light and sometimes there can be problems with other people in the chain. Another unfortunate aspect of the property market is the practice of gazumping and gazundering. Let’s take a closer look at what this is and what it could mean for you if you find yourself on the receiving end of a gazumping or a gazundering.
GAZUMPING Gazumping is the term used for when a seller initially accepts your offer but then ends up rejecting it before contracts exchange in order to accept an offer (usually a higher one) from another buyer. Gazumping can occur if there has been a delay in the sale process and the vendor becomes
FIRST TIME BUYER GUIDE
frustrated with the hold-ups. The vendor can then reject your offer (despite previously accepting it) and instead choose to go with another buyer who is in a better position than you and is ready to move more quickly. For example, a cash buyer or somebody with no chain behind them. Once your heart is set on a property, it can be devastating to find you have been gazumped and this practice will mean you are forced to either start your property journey all over again or increase your own offer to compete with the new buyer. Luckily, gazumping doesn’t happen too often and despite being duty-bound to put forward all offers to a vendor, most agents try to discourage gazumping. As a buyer, there are some things you can do to prevent gazumping. These are: • Speed is of the essence! Complete and sign any solicitor’s documents and send them back as soon as you can. •
Don’t dispute and delay sending information to your mortgage lender either. Yes it can be frustrating if your lender asks you to resend your payslip or bank statements for the third time (believe us, it happens) but it is pointless getting frustrated and complaining – cooperate with the lender and send outstanding documents as soon as you can to ensure the buying process is not delayed.
• Try asking the seller to take their house off the market. They are not legally obliged to do this but it is worth a try. This can limit the availability of the property to other potential buyers.
GAZUNDERING Gazundering is the blanket term for when a buyer withdraws their original offer, usually just before contracts are exchanged, and puts in a lower offer. The reasons this happens are not always straightforward. The buyer may see that the vendor is in a vulnerable position so tries to take advantage. For example, the vendor may be under pressure to exchange contracts on their onward property because they are purchasing a new-build property and the builders have put strict deadlines in place. The potential buyer sees this as an opportunity to purchase the property at a lower price at the last minute. Whilst this example appears very underhand, there can be some
genuine reasons for gazundering. A survey report may show that a property has unforeseen defects which could potentially cost the buyer thousands to remedy so a new purchase price may be offered to reflect the repair work. In short, gazumping affects the buyer and gazundering affects the seller. However, if you are caught in a chain where this is happening, it ultimately affects everyone. Whilst the practice of gazumping and gazundering is not illegal, many deem it immoral and as previously stated, many reputable estate agents will discourage this practice which ultimately cause suspicion and mistrust within a property chain. In fact, in March 2021, the UK government reported that they are looking into ways to prevent buyers and sellers gazumping and gazundering at the last minute.
SOLICITORS As a first-time buyer, you will only need a solicitor to deal with the purchase of your new home. Here at Keystone, we have a bank of solicitors who we can recommend for your conveyancing needs. Expect this cost to be between £1000 and £1500 and this includes legal searches the solicitor has to order from the local authority. Additionally, you may be liable for a Land Transaction Tax (In England, this is called a Stamp Duty Tax). As of December 2021, the current Land Transaction Tax threshold in Wales is £180,000 so you will only pay the tax if you purchase a property above this amount.
REMOVAL VANS You should start comparing quotes for removal vans about 6-7 weeks before your move. You can pencil in a date with your chosen company and then firm it up later when you are given a date for completion. Some companies offer a packing service too so check this out with the company you choose. You may not even need a removal hire company if you are a first time buyer so a better option may be to hire a ‘man with a van’. The cost of hiring a van to transport your belongings can vary from £100-£1000. It depends on your needs so ensure you research and think about what transport you will need when you move.
FIRST TIME BUYER GUIDE
AND FINALLY... So there we have it. Hopefully you are now more knowledgeable about the buying process. Please remember, it is in everyone’s interest to ensure a smooth, quick purchase of a property so it is important that you remain patient and cooperative in the buying process. Here at Keystone, we aim to offer a stress-free buying experience by keeping you informed of what is happening at each stage and we pride ourselves on excellent customer service so give our team a call today and begin your exciting property journey. We look forward to your call.
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE GET IN TOUCH TODAY 01244 836 636 mail@keystonepmc.co.uk keystonepmc.co.uk