Buying a house is a long-winded process, and one that can be especially confusing for first-time buyers who have no prior experience.
If you’re thinking of buying your first home, this guide will cover everything you need to know to make things run as smoothly as possible.
After reading you’ll have a comprehensive understanding of the house-buying process, as well as knowledge of common pitfalls and how to avoid them.
Here’s what’s covered:
- The cost of buying your first home, including everything from mortgage and deposit, to childcare costs on moving day.
- Sources of help when raising the money to buy your first home.
- How to get a mortgage for your first home.
- What you need to know to be ready to make an offer.
- What homebuyer surveys are, and how they work.
- What gazumping is and how to avoid it.
- What happens on completion day.
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The costs you’ll have to pay when buying your first house
There’s no getting around the fact that buying a home is expensive.
Having an accurate picture of the costs gives you control over the situation, as well as a clearer picture of the properties you can afford to buy.
Try not to be daunted by the costs mentioned in this guide! Remember that the joy and achievement of owning your home will far outweigh the financial considerations in the long term.
This is a proportion of the property value that is paid upfront.
A deposit will be anywhere from 5% of the property value - the realistic minimum for most mortgages - to 40%, where the best deals will be available.
You may also be asked to pay a deposit to the seller. This is a small interim payment to demonstrate your intent to buy, but it is conceptually separate to the mortgage deposit.
This is a loan taken out to cover the remainder of the property cost.
This will be, by far, the biggest cost associated with buying a house. A mortgage covers the entire price of the property minus the deposit, support from schemes, and any other money you have to put toward the house.
To make their money, lenders charge interest on mortgage repayments. The rate will either be fixed or variable, and you will pay it for the duration of the mortgage.
You’ll want to understand the initial rate, the rate(s) after the initial period, and the rate of rate increase. We explore mortgage rates for first-time buyers later in this guide.
Unfortunately the costs don’t stop there! You may have to pay various fees:
- Mortgage account fee: Covers lender’s admin costs.
- Arrangement / product / completion fee: The fee for the mortgage itself.
- Booking fee: A small non-refundable fee for applying for a mortgage deal.
- Estate agent fee: A percentage commission of the value of the home, taken on sale.
- Legal fee: Your solicitor will charge for their time.
- Valuation and survey fees: To cover the lender valuing the property.
- Telegraphic transfer fee: Also called CHAPS (Clearing House Automated Payment System), this fee covers the lender transferring money to your solicitor.
- Local authority search fees: To ascertain whether there are restrictions relating to the property (whether it is listed, under compulsory purchase order, or similar).
- Broker fees: The cost of a mortgage broker’s services.
That’s still not the end of the list! There are other miscellaneous costs to be aware of, too:
- Missed payments: Lender’s will usually charge a fee if your repayments are late.
- Stamp duty: A percentage fee charged on all properties over £125,000. We go into more detail on stamp duty later on.
- Moving costs: Getting your furniture and possessions into your new home may require a removal company.
- Childcare and kennels: Having small children and animals around on moving day can be unwanted stress!
- Bills: Utilities and council tax will be due from the date you move into the property.
- Mail redirection: You may have to pay the Post Office to redirect mail from your previous address, to ensure nothing slips through the cracks.
- Decoration: Once you’re in, interior design or repair may be required.
- Insurance: Keeping your home and its contents safe has costs attached.
Things to consider when thinking about costs
- A mortgage broker can advise on costs, as well as providing an illustration of monthly repayments and how these may change over time. Their information will be based on years of experience, and professional training.
- Remember to take into account future earnings when budgeting for mortgage repayments and other expenses.
What help is available when buying a home?
Various government schemes exist to help people buy their first home. Some schemes reduce the amount that must be borrowed as a mortgage by offering interest free loans, while others allow certain property types to be purchased at discount rates.
Our Guide to Deposits for First-Time Buyers has lots of information about each of these schemes, as well as information on who is eligible.
Getting a mortgage for your first house
When you’ve made the decision to buy a home, it’s time to start thinking about getting a mortgage.
First-time buyers often end up paying more for their first mortgage than those buying a second home; this is not because lenders specifically penalise first-time buyers, but because first-time buyers are attracted by low-deposit mortgages which work out more expensive than other products over their duration.
The proportion of a property value required by a first-time buyer will determine the amount borrowed, and a higher mortgage will lead to a longer repayment period. This in turn means that interest has more time to accrue, and this is where first-time buyers are hit hardest
Saving a higher deposit can reduce the ratio of the loan required relative to the cost of the property (loan to value: LTV). UK Finance reported in 2018 that the average LTV for first-time buyers was 82%, versus 74% for movers, meaning propensity for longer and higher repayments.
What are mortgage rates like for first-time buyers?
There is no fixed answer to this question, as rates vary depending on buyer circumstance, the performance of the market, interest rates, and various other factors.
A tool from Moneysupermarket.com collates data from many high street lenders, and when we last checked, first-time buyer mortgage rates varied from 2.6% to 5.4% APRC (which stands for annual percentage rate of charge). APRC shows the effective rate across the whole mortgage term, meaning it factors in variable rates, introductory offers, and so on.
In 2017, the Telegraph reported that "the average two-year fixed rate for someone with a 5% deposit has increased from 4.16% [in September] to 4.26% [in October]." During the same period, the rates for a 40% mortgage were only 1.66% and 1.69% respectively.
Over the duration of a mortgage, this can make quite a difference.
Then, in 2018, the Telegraph reported information to the contrary, that "banks are making it easier for first-time buyers to get on the property ladder by offering the lowest mortgage rates since records began in 1995."
In short, the housing market is somewhat volatile and hard to predict - especially at time of writing (Brexit!!!) - so a clear answer on average first-time buyer mortgage rates is not easy to give.
There are ways to get more favourable rates, though.
Often preferential mortgage rates are available to people who hold current accounts with the bank they are borrowing from. Below are examples of these preferential rates. Both use a 90% LTV:
- Ulster Bank: 3.6% for account holders versus 4.3% for non-account holders.
- KBC: 3.3% for account holders versus 3.5% for non-account holders.
How do I find the best first-time buyer mortgage?
The mortgage market can be a daunting place, especially for first-time buyers who are not familiar with the process. There are a large amount of lenders, each offering a range of mortgage products with slight variations, all of which depend on various other factors.
Navigating the marketplace is possible without experience, but drafting in the expertise of a mortgage broker is often an easy and reliable way to cut through the noise, and to get help finding the perfect mortgage for your circumstances.
Getting ready to make an offer
Once you’ve lined up a mortgage you like the look of, the next step is to make an offer on a property you like the look of, safe in the knowledge that if it’s accepted you’ll be able to afford to buy.
- Does the area have everything you need? Schools, good transport links, shops?
- Are you happy with the state of the parking on and near the property?
- What are the neighbours like?
- Is the property safe and fit for purpose?
Homebuyer surveys are designed to provide the peace of mind that your home will be safe to live in. This section of our guide outlines the different types of property survey, their costs, and what information they will provide.
What is a homebuyer survey?
In a homebuyer survey, an independent qualified surveyor inspects the condition of a property and highlights any existing or potential problems.
They will look at structural problems, fittings and other areas, and will provide a description of the property and review of its condition. The extent of their inspection and information will vary depending on which type of survey you go for.
What does a homebuyer survey do?
The information given by a survey prevents expensive surprises when moving into a property, and gives you the opportunity to understand the cost of required or potentially upcoming repairs.
With these figures you may be able to request a discount on the price of the property, or request the owner to address the issues before moving in. They’re designed to make sure you don’t get caught short later.
Should you get a homebuyer survey?
Surveys are not compulsory but they are recommended, especially if you have concerns about the state of the property.
Old, unusual or listed properties are also recommended to be surveyed, preferably by an expert in the relevant type of property, as the potential exists for more esoteric problems.
What will a homebuyer survey look for?
In short, the condition of the property will be assessed to ensure it is safe and habitable, and to increase the likelihood of larger problems being nipped in the bud.
Depending on the depth of the survey, the following things may be looked at: structural issues such as unstable walls, roof or chimneys; issues like subsistence, rot and damp; fittings and plumbing; boundary issues.
Types of homebuyer survey
There are three levels of property survey provided by the Royal Institute of Chartered Surveyors (RICS), each providing more detailed information and recommendations, and two other types by other providers:
Level one: Condition Report: £300 and up
A traffic-light breakdown of the property’s condition, from green for OK, to red indicating vital repairs necessary. No further advice or valuation is provided.
Property type: newer and conventional properties.
Level two: HomeBuyers Report, survey only: £350 and up
Advice given based on descriptions of obvious problems. This is non-intrusive, so does not look under carpets, within walls, or behind furniture.
Property type: properties in a reasonable condition.
Level two: HomeBuyers Report, survey and valuation: £450 and up
Detail, commentary, and provider are the same as above. This type also includes a valuation in the form of an insurance reinstatement value: how much you would receive in insurance if the property burned down.
Level three: Building Survey: £500 and up
Much more detailed commentary, including advice on and reasons for required repairs, and estimates of cost and timings. Based on intrusive inspection of floors, ceilings, walls, and roofing.
Property type: larger or older properties.
Home Condition Survey: £400 and up
A non-technical report on inside and outside property condition, general description of condition, any health and safety issues. High detail, looks at all issues mentioned previously.
Property type: larger or older properties.
Provider: Residential Property Surveyors Association (RPSA)
New-build snagging report: £300 and up
Description of issues with the property, from small things to more structural. Aimed to give you the power to request rectification before / soon after moving in.
Property type: new builds
Choosing a survey
The information above should guide you toward the survey type most suitable for the property you are living in. While another expense may not be so welcome at this stage in the buying process, consider it an investment. The knowledge provided by a surveyor may save you hundreds, or even thousands of pounds later on.
Making an offer on your first house
When you’ve found a property you like, located a suitable mortgage, and confirmed that the property is safe and habitable, it’s time to make an offer.
You’ll tell the estate agent what you’re willing to pay, and by law they have to pass on each offer to the seller. It’s good to have a paper trail at this stage, so always put the figure in writing somewhere. If you make an offer over the phone, follow-up with an email confirming the amount.
If the seller is interested in your offer, negotiations can take place. Again, this happens via the estate agent.
After making an offer one of a few things can happen.
- If everything goes smoothly, your offer will be accepted and you’ll move one step closer to completion.
- If your offer is not high enough, you may be rejected outright.
- If your offer is lower than the seller expects, you can both negotiate to try and find something agreeable to both sides.
- It may be the case that your offer is accepted, then later rejected in favour of a higher offer. This is called gazumping.
Having an offer accepted and then later refused is one of the most frustrating things that can happen to you when buying a house.
There are ways to reduce the risk of this happening, though. This section of our guide will show you how, and explain how a ‘sealed bid’ can improve your chances of having an offer accepted.
How does gazumping happen?
Because estate agents are obliged by law to tell sellers about all offers made on their property, gazumping is a risk right up until contracts are exchanged.
It is deeply frustrating for buyers, especially if other costs have been paid and the wheels are in motion, but sadly there is no law against it.
Gazumping: what can be done?
If you are gazumped there are a few things to consider:
Firstly, if you are chain-free or in a position to buy outright, the opportunity this offers for a quick transaction may be convenient enough to sway the seller into accepting your slightly lower offer.
You might also consider offering more money if you are particularly attached to the property. It is possible that your higher offer will be successful, although be careful not to let emotion dictate your decision here. You don’t want to offer too much money and find yourself in tighter financial straits later on.
Another option is a sealed bid. This method is often used by sellers to decide who to sell to, especially if multiple buyers are interested.
In this situation, buyers are given the opportunity to formally submit an offer in writing to the estate agent within an agreed timeframe. The estate agent presents these to the seller, who then looks over them and decides which best fits their needs.
How does the seller decide which bid to accept?
Often the highest bid will be chosen, as the seller is ultimately looking to make the most money. This isn’t always the case, though. Sometimes they will be attracted by a combination of money and convenience, and the chance of a quick sale might help them knock a few thousand pounds off of the price.
You can also use your sealed bid letter to show the seller what makes you more favourable than other buyers. Mention things like whether you are chain-free, which we covered before, or if you are in a position to move very quickly, or even mention the emotional side of things and explain why the house is such a good fit for you.
You can also propose an exclusivity agreement. This is where you pay a fee to the seller for exclusive negotiating access for an agreed period of time.
An exclusivity agreement improves the chances of an offer being accepted, but again, there is no legal obligation for the seller to honour this.
Gazumping will always be a risk, but taking precautions and being aware of other options can help reduce the likelihood.
Completion day: the end of the process
If everything goes smoothly, your offer is accepted, and you are not gazumped, the next step is actually completing the transaction! This is a huge milestone, and you are almost ready to crack a celebratory bottle of champagne in your brand new home.
What is completion day?
It is the date that parties involved in the property chain move house, and officially transfer legal ownership of their properties.
What should I expect to happen on completion day?
As a top-level summary: a few legal things take place, money is transferred, legal possession of the properties is transferred, and keys are released to their new owners. Then everyone is free to move into their new home.
The Law Society have established strict guidelines for how completion should take place, which you can find here. If you'd rather not read legal gubbins though, we've summarised the process below.
How does completion day money transfer work?
The lawyers of any sellers in the chain will request Redemption Statements, which are documents showing the Redemption Figures due on the mortgages of each property. These provide official completion of mortgages, along with a final cost including interest and fees, calculated up to the completion date.
Sellers' lawyers also issue Completion Statements that give information on all due and completed payments, as well as requesting any outstanding invoices. These statements will include any estate agent fees, legal fees, outstanding mortgage payments, and so on. Basically anything that needs to be paid out from the money being paid for a property.
The buyer's lawyer will then request the transfer of mortgage funds from the lender. This request is usually made the day before completion date to minimise the risk of delay.
All lawyers will carry out final checks to ensure everything is progressing as required by the contracts. When each side is satisfied, money will be transferred to the seller's lawyer.
Once the seller's lawyer confirms receipt of the money with the buyer's lawyer, the estate agent is notified and the keys can be released to their new owners. This is the most exciting step: the moment to move house has finally arrived!
When is completion day?
It usually takes place about six weeks after the exchange of contracts. This time frame gives everyone the chance to organising the various bits and bobs that need to happen for a move to run smoothly. Organising for furniture and possessions to be transported, for example, or submitting final meter readings.
It is not generally possible to exchange contracts and complete on the same day, merely because of the amount of jobs that need to be done.
What happens if one party is not ready to complete on time?
In this situation a Notice to Complete may be served by the people who are ready. This sets a time frame - usually ten days - after which the other party will be in breach of contract.
If a party breaches the contract, the other side can terminate it. If a buyer did this their deposit would be returned with interest and the sale would be cancelled. A seller can terminate the contract too.
Usually there will be a way to negotiate the move even if completion day is missed, but it can wreak havoc with the process.
If you have any other questions about completion day, or any aspect of the homebuying process, get in touch with our team.
Buying a house is a long process and there’s a lot to learn, but with over three thousand houses sold per day on average, it’s definitely not insurmountable.
This guide contains all the information you need to make the buying process as smooth as possible.
As we mentioned, talking to a mortgage broker is a great way to clarify anything you don’t understand, and to leverage their expertise in finding the best deals throughout the process.
If you’ve got any questions that weren’t answered, please feel free to get in touch with our team of experts. We’ll be happy to help.