Buying a house is the biggest financial purchase we are likely to make in our lifetime. Whether you are buying your first home or moving to accommodate a growing family, there are many things to consider. From finding the right property to securing a mortgage and all the associated financial products and making sure you understand all the related costs and fees. We’ve put together a list of some of the most important considerations to help you along the way.
Source – @walking_abby
Working out how much you want to spend and how this aligns with the size of your deposit is key, as often, the deposit you can put down will dictate how much a lender will allow you to borrow.
The majority of first-time buyers will need a mortgage that covers the bulk of their house purchase price. For most lenders, you’ll need a deposit equal to at least 10% of the purchase price. In addition, for most lenders, a bigger deposit equals a better mortgage rate. You’ll also need to take into consideration other important factors within your budget, such as your debt to income ratio affordability, and incorporate additional costs associated with a house purchase, including the following:
1. Mortgage arrangement fee
2. Valuation Survey
3. Stamp duty depending on property value
4. Homebuyer reports
5. Building Survey
6. Solicitor fees
7. Removal costs
Contacting a mortgage broker early in the process can help you budget and set expectations. In addition, working with a mortgage broker or lender directly can help you get a mortgage agreement in principle, putting you in a stronger position when viewing and making an offer. You can then begin searching for a property with the peace of mind that you can obtain a mortgage when you are ready to do so.
There are three main types of mortgage available to homebuyers. It’s essential to understand the advantages and disadvantages of each type to work out which one would best suit your needs:
With a fixed-rate mortgage, you will pay the same amount of interest – and therefore monthly repayments remain consistent – for the length of the deal. These are the most popular choices in today’s economic climate, with 6 out of 10 consumers opting for them, mainly due to the certainty of payments and the low-interest rates available. Fixed mortgage deals can vary in length. However, fixed deals between 2 and 5 years are the most common, before moving on to the standard variable rate.
There are two types of variable mortgage deals: tracker mortgages and discount rates.
A tracker mortgage tracks the Bank of England base rate. A discount mortgage offers a discount off the lender’s standard variable rate for a fixed period. For example, if a lender’s standard variable rate is 4% and their discount rate is 1.5%, you will pay 4% – 1.5% = 2.5% interest.
Look out for lenders that offer a rate band with an upper and lower limit, often referred to as a collar. This will ensure your payments don’t fluctuate too much.
These are a rate set by the lender. They are not set by the bank of England, so they can be whatever the lender wants. A standard variable rate can go up and down over the life of a mortgage. Lenders can change the rate at any time, and if there are indicators the Bank of England base rate might go up, it increases the likelihood of this happening.
Find out more about mortgages with our handy mortgage guide
Once you’ve had your offer accepted and (assuming you have) a mortgage offer in place you will need to appoint a solicitor to act on your behalf throughout the purchase. The whole process without any hitches or complications can take between 8-12 weeks. It’s also advisable to get at least three quotes to fully understand what is and isn’t included. It’s a good idea to ask friends and family for recommendations, and it’s also worth checking out the solicitor’s online reviews to see how previous clients rated them.
There is no legal requirement to conduct a property survey; however, it is strongly advised. A surveyor will assess the property’s overall state and highlight significant issues before contracts are exchanged. Your mortgage lender will insist on a valuation survey. This is purely for their benefit and will only confirm that the property is worth at least the amount they are lending before approving your mortgage application. There are different levels of property surveys available, ranging from a Home Condition Report at the lower-cost end of the scale to Home Buyers Reports and Building Surveys. Consider carefully what type of survey you choose and if any major issues are uncovered, you can go back to the seller to renegotiate.
Buying a house is a substantial financial commitment, so you’ll want to ensure you and your home are protected should the worst happen. There are several types of insurance you should consider taking out when buying a home:
Your mortgage lender will insist you have buildings insurance in place before releasing the funds for your purchase. Buildings insurance insures the ‘bricks and mortar’ of your home against any major damage. It covers the walls, roof, floors and in most cases, fixtures and fittings such as kitchens and bathrooms.
Like buildings insurance but for your belongings, protecting the contents of your home to a specified value from fire, theft, flood and other factors.
Life insurance will provide your family with a lump sum payment in the event of your death during the mortgage period. This will allow the mortgage to continue to be paid and any associated household bills and other expenses. Life insurance isn’t always a condition of a mortgage deal. Still, it’s important to consider taking a policy out to ensure your family is financially looked after if the worst happens.
Critical illness cover can usually be taken out alongside life insurance and would cover your mortgage repayments and any other bills should you be taken seriously ill with a condition such as cancer, stroke and heart attack by providing a lump sum payment which can be used towards household costs or to cover private medical treatment.
If you fall ill, are involved in an accident, or are made redundant, income protection insurance is designed to replace your income for either a fixed period or until you can return to work. If falling ill or being made redundant would mean you would be unable to pay your mortgage, you should seriously consider taking out a policy.
There are lots of important considerations when buying a house, whether this is your first or fifth house move. Making sure you understand the importance of each element and taking out protection where needed for your purchase can help the whole process go smoother and give you peace of mind for the future.