How to get on the housing ladder
THERE is no doubt about it. It’s tough out there for first time buyers. But stricter lending criteria don’t necessarily mean it’s impossible to get on the housing ladder. However, you must know the basics so you can build your decision on strong foundations.
DO THE MATHS
Incentives matter. It was recently confirmed by the Council of Mortgage Lenders that the 24 March deadline for the end of stamp duty boosted loans by 74 per cent. People rushed to benefit from the temporary suspension of 1 per cent stamp duty on homes costing less than £250,000. Stamp duty is certainly prohibitive – as high as 7 per cent for purchases over £2m. But there are other “hidden” costs to look out for.
Ben Thompson, the managing director at Legal and General Mortgage Club says “don’t underestimate them as they can add up.” As well as stamp duty, extra costs may include: arrangement fees (sometimes waived); lender’s valuation fees; survey costs; conveyancing fees; land registry fees; local authority search fees; removal fees; mortgage indemnity guarantee insurance premiums.
Because transactional costs can be so high, Thompson suggests it might make financial sense for first timers to consider buying a bigger and less pricey house that has the potential to be improved and possibly extended, than a smaller, prettier house. He says: “With some clever thinking, you can buy somewhere that will serve you well for many years that you can put your own stamp on, even if it’s not perfect initially.”
Given the costs, it pays to make a plan for one-off costs, but you will also need to make a budget to assess your ability to pay back what you’re borrowing. Thompson says there are many things you need to consider when working out what you can really afford on a monthly basis.
Once you’ve determined the cost of the property “decide what your budget is and stick to it, even if the estate agent shows you properties outside your price range”, advises Paul White of Belgravia Insurance Consultants. For mortgages, the stick or twist question is whether to opt for a fixed or variable rate. Danny Cox of Hargreaves Lansdown thinks “if an increase in interest rates will cause a problem, a fixed rate is a good choice to ensure certainty”, while Thompson says “if it’s a stretch, fix your rate, even if that is the more expensive option – see the extra costs as peace of mind/insurance.” However, he adds that “if you can absorb future hikes in payments then some sort of tracker rate may well be best, as at the moment it’s the cheapest way.”
CREDIT AND MARKETS
James Carter of Independent James says first time buyers should ensure their credit file is in good shape: “It is worth checking that all credit you have is up to date and registered correctly via the credit reference agencies.” He also advises potential buyers’ to ensure their full name and address is correctly registered across the electoral roll, utility bills and any credit, and is in one common format. “This is particularly important if you are considering applying for a higher loan to value mortgage.”
Ultimately, you should “get proper advice from a suitable broker who is FSA regulated” says Andy Golding, chief executive of Kent Reliance; “who will look at the whole market rather than just mortgages from one provider.”
There is certainly no shortage of information on the market. However, if you are looking to find out more of the basics, Golding points people to the website of the Council for Mortgage Lenders. And when it comes to buying, keep calm. There is an anecdote that we take on average 20 minutes when deciding to buy a house. You don’t have all the time in the world, but look before you leap.
THE BUYING PROCESS
1 Speak to your mortgage consultant and get an agreement in principle from the lender to establish your borrowing potential
Your mortgage consultant should:
■ Explain the services available
■ Help you gain a completed AIP
■ Explain mortage costs and schemes
2 Speak to your mortgage consultant about repaying and protecting your mortgage and to get advice on conveyancing property and redundancy protection
In your follow-up meeting, your mortgage consultant should:
■ Explain any FastTrack services available
■ Establish and discuss your mortgage needs
■ Establish and discuss your protection needs
■ Confirm client identification
3 With the help of your estate agent, find your ideal home. Speak to your mortgage consultant for advice and make an offer
4 Meet with your mortgage consultant to finalise your mortgage and protection arrangements
The completion of paperwork. Here your mortgage consultant should:
■ Recommend the most suitable mortgage scheme
■ Recommend any appropriate protection arrangements
■ Collect any upfront fees/costs that are due, such as valuation/survey fee and arrangement fee (it might be possible to add this to the loan)
5 A survey/valuation is carried out and local searches undertaken
6 Mortgage offer made by lender
7 Speak to your mortgage consultant to ensure all arrangements are in place before exchange
During your customer service review your mortgage consultant should help you:
■ Review your mortgage offer
■ Review protection arrangements
■ Explain what happens next
8 Exchange of contracts
9 Completion
Deposit paid at the point of exchange/completion
plus additional costs such as
■ conveyancing
■ stamp duty
■ removals
10 Move in!