Buying a property for the first time can be daunting especially when you’re unaware of how the conveyancing process works. Laura Vanstone, Licensed Conveyancer in Coodes Solicitors’ Residential Property team, outlines the top things first time buyers need to know to make their first move go smoothly.
For most people, buying a house is one of the biggest investments of their lives. When you start looking at buying a home it can be a minefield of confusing information and legal jargon and it can be difficult to know where to start. It’s important to have an understanding of the conveyancing process so that you have an idea of timelines, what you need to do and what others do for you. Here are some of the top things first time buyers need to know.
1. How do I find out which properties I can afford?
The first thing you should do, before contacting a solicitor, is to contact a mortgage broker or financial advisor. They will help you work out your borrowing options and affordability, which will enable you to work out your budget. You will need to provide details and evidence of income and outgoings, including debts, as well as information on the deposit you have available. They will then inform you of the maximum house price you can afford.
First time buyers often receive financial support from parents or other family members to help them to get onto the property ladder. If your deposit is being fully or partly gifted, it is important that everyone understands the implications for tax and financial planning.
Whether or not you have found a house that you want to buy, your mortgage advisor will arrange your mortgage by setting up an Agreement in Principle with a mortgage lender. These usually last for three months.
2. How does the conveyancing process work?
Once you have instructed a solicitor to work on your behalf, you must provide ID, proof of address and proof of funds. By this point you have probably found a property you wish to buy and may have made an offer or agreed the purchase price.
The seller’s solicitor will then issue draft contacts and your solicitor will apply for searches, review all of the legal documentation and raise any necessary enquiries. You will receive a property report, which includes the results of the searches and the contract for signature.
After this, you will be asked to pay your deposit and you will then be ready to exchange contracts. To do this a completion date must be agreed – this is the date you will get the keys and be able to move in. Once contracts are exchanged it becomes legally binding. You can exchange and complete on the same day but there is usually at least a week between the two stages as this is the amount of time mortgage lenders require. When purchasing a new build property, you could exchange months before completion. As you are waiting for the building work to finish, you will be given a window of completion in case of delays– this is called Exchanging of Contract on Notice.
You can also see our step by step guide here.
3. Other than the deposit, are there other charges and fees?
The biggest payment you will make in this process will be the house deposit, but this isn’t the only thing you will need to pay for. Many first time buyers only initially consider saving enough for their deposit and don’t budget for other fees.
You may need to pay for the services of your mortgage advisor and you will also need to pay legal fees. When approaching a conveyancer to assist with your purchase, it’s a good idea to ask a few firms for an estimated quote and see which works best for you. The Legal fees cover the time undertaken by the conveyancer to check the title documents, search results, dealing with the transfer of ownership paperwork and requesting your Government bonus if you have used a Help to Buy ISA. In addition, disbursements will be payable to third parties such as search providers and the Land Registry. We will organise and settle these on your behalf but will request some money on account at the start of the transaction to enable us to do so. The fees and disbursements will not include your survey as this is something you will need to arrange direct with a qualified surveyor.
First time buyers are exempt from paying Stamp Duty Land Tax which can be a hefty sum of money. Stamp Duty is a tax you pay when buying a property or land over a certain price and the amount you pay depends on the value of the property.
4. What help is available for first time buyers?
There are some great schemes available for first time buyers including the Help to Buy Equity Loan Scheme and Help to Buy: Shared Ownership.
First time buyers can purchase a new build property with as little as 5% deposit using the Government’s Help to Buy Equity Loan Scheme. Buyers can receive a loan from the Government of up to 20% of the purchase price, which is interest free for the first five years, allowing buyers to put down a 5% deposit and have a 75% mortgage. After the sixth year, you will start to pay a monthly interest fee of 1.75% which will rise each year by the Retail Price Index plus 1% until the loan is repaid. You must also pay a £1 monthly management fee via Direct Debit for the duration of the loan.
The loan must be paid back when you sell the property, pay off the mortgage or come to the end of the equity loan term. It’s important to note that you will need to pay back 20% of the property value at the time of repayment, not the value of when it was first purchased.
Help to Buy is changing next year. It is currently available to anyone who meets its current guidelines but after 1 April 2021 the scheme will only be available to first time buyers and will end on 31 March 2023.
Shared Ownership allows you to buy part of a property. This means you can purchase between 25% and 75% of the value of the house and have a mortgage on this share while paying rent on the remainder. You can then buy bigger shares over time when you can afford to do so. This is called staircasing. Some Shared Ownership schemes allow staircasing up to 100%, which means you could eventually own the entire property.
Shared Ownership is available on new build homes and existing homes through resale programmes from housing associations. It’s worth noting that Shared Ownership properties are always leasehold.
5. What is the difference between freehold and leasehold?
It is crucial to know whether the property you want to buy is leasehold or freehold. If the property is freehold it means you own it outright, including the land it’s built on.
A leasehold property has a landlord, and sometimes a Management Company, who owns the freehold of the building and land. You own the lease of the property for a certain length of time.
Flats and apartments are common leasehold properties. In this instance, you will likely have to pay ground rent and maintenance fees for the upkeep of the building and communal areas, whereas with freehold properties you are responsible for the maintenance.
The lease can vary in length and can be as along as 999 years. If you are taking over a leasehold property you will be buying what is left on the lease. If the lease has 80 years or less left, it may be difficult for you to get a mortgage.
6. I’m buying a house with someone, do we both own the property equally?
If you’re buying your house with someone, whether it’s a partner, friend or family member, it’s important to decide how you will both own the property; whether you will be Joint Tenants or Tenants in Common.
Joint tenants have equal rights to the entire property which means you both own 100% of the house. This also means that in the event your death, the other owner would automatically inherit the property and also means you can’t pass on the house in your Will.
Tenants in Common can own shares of the property, whether it’s 50/50, 60/40 or 70/30. This means the other would not automatically inherit the property if you die and would likely go to your next of kin or to whom you have left it in your Will.
7. How long will it take for me to buy my first house?
The average property purchase takes between six and ten weeks. However, it depends on a number of factors such as how long it takes for the mortgage to be agreed and how long the searches take. Above all, it depends on the people who are selling your property, who may experience delays with their own move. You may hear people refer to ‘the chain’. This means the people who are selling the property you wish to buy, their own sellers and so on. An issue with another house purchase can cause delays for others in the chain.
While six to ten weeks is the average in normal times, purchases are typically taking much longer because of the Covid pandemic and the current average timescale is 20 weeks. While the housing market can continue, some parts of the process are taking longer because of restrictions.
For further advice, please contact Laura Vanstone of Coodes Solicitors on 01409 255907 or Laura.firstname.lastname@example.org