House Purchase (updated April 2020)

Question 1

Buying a home - the key steps

Accepted Answer

Buying a home can be a long and complex process, but typically, it involves going through these steps:

Note: Be aware that the process of purchasing a property in Scotland differs from the rest of the UK. Whilst this handout will highlight the main differences in the house buying processes, individuals are to fully familiarise themselves with the specific rules prior to beginning the search for a home.

Checking your credit rating

If you have a bad credit rating, it is likely that you will be able to secure a mortgage that easily. The lender will run checks with credit reference agencies to make sure that you have not been repossessed in the past, or that you don’t have a history of bad debts.

If you are in doubt, you should check what information is held about you by using one of the main credit reference agencies; Experian, Equifax or Noddle. A credit report costs around £2 for your statutory credit file, although sometimes agencies offer free reports.

You should also check that the details each agency holds on you is correct. If you can prove that they are not, you can get the agency to correct your record and inform the lender that there was a mistake.

Find out how much you can borrow

Affordability is key – not how much you earn. Speak to an Independent Financial Advisor (IFA) to get an idea of how much you can borrow. There are a number of firms that have a specific understanding of the nuances of Service life. Members of organisations such as the Services Insurance and Investment Advisory Panel (SIIAP) must be able to demonstrate specialist knowledge and experience in the provision of financial advice to members of the Armed Forces and show that they have the knowledge, expertise and ability to serve the Armed Forces clients effectively.

All IFAs and/or Mortgage Advisers must be regulated by the Financial Conduct Authority (FCA), which works to protect consumers from the harm that can be caused by bad conduct in the financial services industry.

They will be able to search the market for the best available deal and help you maximise your borrowing power. You will need to give details of how much you earn and all the things that you spend money on each month.

When working out how much you can afford to put down as a deposit, remember to keep some savings aside to meet stamp duty and other fees, and to furnish your new home. Get information about the different mortgages on offer and start thinking about whether you want to go for a fixed or variable-rate deal.

Define your criteria

Decide what you are looking for in a property for example, whether you need parking and a garden, how many bedrooms you need, if it’s a flat, whether you want it to be freehold or leasehold – and pick an area on which to focus your search.

Consider what you want out of the location: are local schools, transport links and shops important to you? How long are you planning to live in the property for?

Beginning the search

Start scanning the internet and local newspapers and register with estate agents. Some properties sell before they are advertised online, so it is worth being on the agents’ books. If you see a property you want to look at, call the agent and arrange a viewing.

Bear in mind there are lots of different property websites out there you can use for your search – you don’t just have to use the big ones.

Remember, understanding how much you can borrow first is key, before you find the perfect property but can’t afford to buy it.

Out and about

Visit some properties. You are unlikely to find the home you want straight away, so don’t despair if you don’t like the first place you look at. This is probably going to be your biggest financial outlay, so it is worth waiting until you find the right place.

Don’t be shy about asking questions when you are looking around a property, or afterwards. The estate agent should be able to provide you with basic details about the property, and to pass on any other queries to the people who are selling.

Making an offer

When you find somewhere you like, make an offer. Before you do so, try to glean as much information from the estate agent as possible. Ask how long it’s been on the market and if the seller wants a quick sale. Some websites have details of when a property was first listed, although this won’t tell you if the seller has switched to a new agent. Alternatively ask your financial adviser as they will have access to this type of information.

Many buyers initially make an offer below the asking price, and often this is accepted. You may want to start low and negotiate with the agent to find a price that satisfies both parties. But if you want to be sure you get the property you like, and you think it is worth the asking price, you may want to offer the full amount straight away.

Acceptance

If your offer is accepted, ask the estate agent to take the property off the market.

For Scotland: If an offer is accepted in Scotland the process moves onto the Contract (Missives) Negotiation. Once all the contract details have been agreed, the two solicitors exchange letters. These letters are known as conclusion missives. At this stage both parties are now legally committed to the sale.

You now need to instruct a solicitor. If you need to find a solicitor, ask for a few quotes and follow up personal recommendations.

Getting a mortgage

Once your offer has been accepted, call your IFA or a broker or a lender to formally process your mortgage application. At this point you will need to provide lots of paperwork declaring and proving your income and outgoings.

Paperwork

Instruct your solicitor to start working on a contract. They will also send the seller a list of questions to answer, including a questionnaire asking which fixtures and fittings they intend to leave when they move out.

Surveys

Your lender should arrange a surveyor to value the property within a few days of agreeing the mortgage in principle. Its valuation will be very simple but you should arrange your own survey to get an idea of what problems there may be with the property.

For Scotland

Prior to marketing the property for sale a seller must arrange to have a Home Report to show to buyers interested in their property. This must include:

Survey An assessment by a qualified surveyor from the Royal Institution of Chartered Surveyors (RICS) pointing out the condition of the property, where repairs are needed and a valuation of the property. A mortgage valuation may also be included. The level of information contained in the survey is broadly equivalent to the Homebuyers report mentioned below
Energy Performance Certificate (EPC) This reveals how energy efficient the property is and where improvements could be made
Property Questionnaire Sellers have to provide an accurate account of the property including its Council Tax band, any Local Authority notices served on it, alterations made, parking, any history of flooding as well as factoring in arrangements covering any repair and maintenance.

To save money, it can sometimes be worth asking the lender’s surveyor to also put together a survey for you, but this is not always the case. Ask for a quote and compare it with quotes from other surveyors. Again, ask around for recommendations.

The most expensive and comprehensive option is to ask the surveyor for a full structural survey of the building, and this is particularly worth doing if you are buying a property that is very old, has been extensively renovated or clearly needs work. It is also a good idea if you are planning to build an extension or structural changes to the building. However, a cheaper, although less comprehensive, homebuyer’s survey and its report should highlight any major problems and is a good option in most circumstances.

A good surveyor will talk to you before the survey to find out if you have any particular concerns and afterwards to highlight and explain any issues.

Next steps

Read the survey report when it arrives. If there are a lot of problems with the property and you are not happy to carry on with the purchase, then act quickly to let everyone know, before you incur any other costs.

If you do want to pursue the purchase, but the survey advises that you get quotes for work that needs doing, arrange for that to be done - you will need to talk to the estate agent to arrange access to the property.

If a lot of work needs doing, you may want to go back to the seller and renegotiate on the price you are paying for the property.

Exchange of contracts

After your solicitor or conveyancer has completed all the necessary checks you’ll be asked to sign a contract legally committing you to the purchase. At this point you will need to pay a deposit for the property, usually at least 5% of the price but more typically 10%. At this point you will usually agree a date to complete the sale.

Book a removal van

When you know your moving date, you can start organising how to get your possessions to your new home. This could involve hiring a van and doing it yourself or hiring professional removal men. Either way, you should act fast to give yourself the best chance of finding a company to help when you need at a good price. You may also want to hire professional packers to pack up your belongings.

Buy buildings insurance

Your lender will expect you to have buildings insurance in place for the date of completion, normally at exchange of contracts. It will quote a rebuild cost in its valuation and this is the amount you need to cover.

Completion

This is when the property finally becomes yours. When your solicitor tells you that the sale is completed you can pick the keys up from the estate agent. This will probably be the day that you move in, unless you are having work done in advance. It is likely to be a stressful day, even if everything goes according to plan, but should feel worthwhile after your first night in your new home.

Question 2

Problems getting a mortgage

Accepted Answer

In some cases, it may be difficult to get a mortgage, for example, if you are self-employed or have had debt problems in the past. You might also be turned down if there are problems with the property.

Mainstream lenders are often reluctant to lend to ‘high risk’ borrowers because there is a greater chance of borrowers not being able to afford the repayments.

Potential problems

You may have problems getting a mortgage if:

You’re self-employed
You’re near retirement
You have a poor credit record

A specialist lender may still be able to help you. However, you should also think carefully about whether a mortgage is realistically affordable for you. Try to avoid any lender that charges an excessive rate of interest.

You may also find it difficult to borrow if the property you want to buy is:

In poor repair
Leasehold with only a few years left on the lease
Not a typical house or flat (for example, it’s a flat over a shop or it’s a mobile home)
Built of unusual materials, rather than brick and tile.

Paying a deposit

Lenders will not lend you 100% of the value of the property, even if you could afford the repayments. Major high-street lenders will typically lend you up to 90 or 95%.

A deposit of 10% or more will attract more competitive lending rates, and normally work in 5% step increases. Your IFA will be able to advise on works for you.

Getting a mortgage if self-employed

If you are self-employed or have an irregular income, you will usually need to give the lender your accounts for the last three years. When you’re working out what you can afford to borrow, consider the possibility that your income could fall in future because of illness, injury, or economic issues.

Be cautious and set aside enough savings to cover your mortgage repayments for a while if you run into problems.

Being turned down by a lender

Your mortgage application may be rejected for various reasons. Before thinking that you need to approach another lender, talk to an IFA or mortgage broker who might be able to help you sort any issues out.

Question 3

Buy-to-let

Accepted Answer

Buy-to-let mortgages are designed for people who want to buy a property specifically to rent out. Service Personnel are able to secure a buy-to-let property with a standard residential mortgage, and an IFA or mortgage broker can advise you.

If you are applying for a Forces Help to Buy (FHTB) Advance

FHTB is not designed to allow Service Personnel to Buy to Let. The property to be purchased must be certified by the applicant as either a Residence at Work Address or a Selected Place of Residence.

Residence at Work Address (RWA)

Where the property is to be occupied as a RWA during a current assignment, the applicant must have an expectation of at least 6 months left to serve in that assignment and of themselves, or their family, occupying the property for at least 6 months.

Where the property is to be occupied as a RWA during the applicant’s next assignment, they must have received official notice of such an assignment and the assignment must be within the next 6 months and for a minimum period of 6 months.

Selected Place of Residence (SPR)

The applicant must certify on the application form that they wish to designate the property purchased as a SPR. Where the property purchased with the assistance of a FHTB loan is not occupied as a Residence at Work Address (RWA), Service personnel may be eligible to claim a Get You Home (Travel) (GYH(T)) allowance for travel to that property, subject to meeting the eligibility criteria in JSP 752. However, where the property purchased with the assistance of a FHTB loan is subsequently rented out, thereby ceasing to qualify as a Qualifying Residence for the purpose of claiming GYH(T), and the individual elects to purchase a second property, there will be no further entitlement to claim Get You Home allowance to that second property during the period in which the FHTB loan is being repaid.

Entitlement to Service accommodation

Personnel assigned with their immediate family to an area within 50 miles of a property which they have purchased or extended with the aid of a FHTB Advance (whether designated as a RWA or SPR) are generally disqualified from occupation of SFA/SSFA or SLA.

If you used a Long Service Advance of Pay or Force Help to Buy advance to purchase your home: Entitlement to Service Family Accommodation (SFA)

If you are assigned with your immediate family to an area (within 50 miles) in which you own a property purchased or extended with the help of an LSAP or FHTB you have to occupy that property and are disqualified from occupation of SFA or SSFA, at the new place of duty, except in certain circumstances. Contact JPAC (FHTB) for more information.

Permission to let

Following your or your immediate family’s initial occupation of the property you may apply to your Commanding Officer for permission to let a property bought or extended with the aid of an LSAP or FHTB loan providing it is more than 50 miles from your duty unit. A letting or cessation of letting must be reported immediately to JPAC (FHTB) through your parent unit. If you do let, interest will be charged at the HMRC official rate.

How buy-to-let mortgages work

Buy-to-let mortgages are in many ways just like ordinary mortgages, but with three key differences:

interest rates on buy-to-let mortgages tend to be higher 8 the minimum deposit for a buy-to-let mortgage is usually a quarter (25%) of the property’s value (some lenders offer deals with a 20% deposit, others want a 40% deposit)
the fees tend to be much higher

Most buy-to-let mortgages are interest-only which means you don’t pay anything off the lump sum borrowed each month but, of course, at the end of the mortgage term you have to repay the capital in full.

Unlike obtaining a mortgage on a property you wish to live in, buy-to-let mortgage lending is not regulated by the Financial Conduct Authority (FCA) unless you wish to let the property to a close family member (eg spouse, civil partner, child, grandparent, parent or sibling). This means that most BTL mortgages are unregulated.

However, if the lender is FCA authorised, it will be expected it to treat you fairly. If you are unhappy with any issues dealing with such a lender, you can make a complaint to the Financial Ombudsman Service.

How much can you borrow for buy-to-let mortgages?

The maximum you can borrow is linked to the amount of rental income you might expect to receive. Lenders typically need the rental income to be about 145% of the monthly mortgage payment.

To find out what your estimated rent might be, talk to local letting agents or check the local press to find out rent charged for similar properties.

Check how much property is selling for in a particular area on a property finding website.

Don’t forget to budget for all of the costs associated with taking out a mortgage. For a reminder of these see estimate your buying and moving costs.

Plan for times when there’s no rent coming in

Don’t assume that your property will always have tenants. There will almost certainly be ‘voids’ when the property is unoccupied, or rent isn’t paid and you’ll need to have a financial ‘cushion’ to draw on to meet your mortgage payments. When you do have rent coming in, use some of it to top up your savings account. You may also need savings for major repair bills, for example the boiler might break down or there may be a blocked drain.

Don’t rely on selling the property to repay the mortgage

Don’t fall into the trap of assuming you’ll be able to sell the property to repay the mortgage. If house prices fall, you might not be able to sell for as much as you had hoped. If this happens, you’ll be left to make up the difference on the mortgage.

Buy-to-let and tax

If you sell your buy-to-let property for profit, you will have to pay Capital Gains Tax if your gain exceeds the annual Capital Gains Tax threshold. Also rental income that exceeds your mortgage interest payments and certain other allowable expenses is liable to Income Tax.

Find out about Capital Gains Tax rates an annual tax-free allowances on the HMRC website.

Further Information:

Question 4

How to buy a property at auction

Accepted Answer

Property Auctions can be a great place to pick up a ‘bargain’, whether you are looking for a home or an investment. However, buying from an auction is a lot more involved than simply turning up and placing the highest bid. Here are a few ideas that you might want to consider.

Essentially, there are three steps to successfully buying property at auction, which we will look at one at a time. They are:

Preparation: The research you should do, and arrangements you need to make before you go
Know-how: Making sure you understand how auctions work
Auction day: What to do when you get there

Preparation

It is vital that you do your homework before trying to buy a property at auction, and you need to put a number of important things in place before you go:

1. Get your finances straight

It is important to realise that, if you do buy a property at auction, your winning bid will constitute an immediate and legally binding contract. You will be required to pay a deposit of around 10% there and then, whilst the remaining balance will be due quickly, usually within 28 days. For this reason, you cannot just turn up and see what happens, you must have finance arrangements in place first.

Before you go to auction, find out what the payment terms will be, should you be successful in bidding for a property. If you only have enough ready cash available to cover a deposit, get an ‘in principle’ agreement with a mortgage lender before you bid at an auction. Apart from ensuring you will be able to abide by the financial terms of the auction. This will also help you to stick to a budget when bidding.

If you already have funds available to pay for your purchase, make sure you can access them quickly enough to meet your commitment.

Although it’s never a good idea to overspend, make sure you’re aware of alternative finance options in case you need to break your budget slightly to secure the deal.

2. Shop around

It is likely that there will be more than one property auctioneer in your region, so do your homework before you get involved. For instance, different auctioneers may well specialise in different types of properties, or properties in certain price bands, if you don’t do your research to find out which is most appropriate for your needs, you could end up making a wasted trip.

Check your local paper. Most will have listings for local auctioneers, as well as a selection of properties coming up for auction at each. This will give you a feel for the types of properties on offer as well as likely sale prices.

Select the auctioneer or auctioneers that seem right for you, then contact them to request catalogues for up and coming auctions. Catalogues are usually printed several weeks in advance of an auction, you can usually also subscribe to a catalogue mailing list.

Read properties’ details carefully and put together a shortlist of properties you are interested in.

3. View before you bid

As with any property purchase, you should arrange viewings before you bid and take steps to eliminate any nasty surprises:

Viewing arrangements will be listed in the auctioneer’s catalogue
treat the viewing in the same way as you would if you were buying from an estate agent, don’t forget to protect yourself just because you are likely to get a bit of a bargain. Make sure the property is ‘as described’ in the catalogue, then ask local estate agents and residents for their opinions.
Carry out the usual property and land searches to make sure there are no problems lurking beneath the surface. This will involve a cost but it’s an important and necessary step to protecting your potential investment. If you are unsure here, consult a property solicitor or a chartered surveyor.
Based on the results of viewings and searches, select one or two properties you are interested in bidding for

Once you have been through this process, you are almost ready to head to the auction. However, before you do, it is important that you familiarise yourself with the auction process, so you don’t make any expensive mistakes.

Know-how

Auctions can be quite intimidating if you have never attended one before, so it is a very good idea to familiarise yourself with the setting, the auction process and the role of the auctioneer before you go.

If at all possible, attend some auctions as an observer before you reach the point where you want to bid on a property. Sit at the back, watch, listen and learn, paying particular attention to the signal’s bidders use to place their bids. This should help to dispel any fears you may have about placing ‘accidental bids’. In the meantime, here are some brief pointers:

the auctioneer’s role is to act as an agent for each seller. He or she will have prepared any brochures or catalogues using information provided by the seller
properties are sold one at a time, usually in an order set out in the catalogue. Remember though that the order of lots (properties in this case) can change, lots can withdraw, and auctions can be cancelled at late notice - the auctioneer’s decision is final
the auctioneer will scan the room looming for bids on each lot, with the property being sold to the highest bidder only when no further bids are forthcoming
when the auctioneer’s gavel (hammer) falls the successful bidder is immediately under a binding, legal contract to complete the purchase in line with the auction house’s terms and conditions
the auctioneer can refuse any bid without explanation
the auctioneer will settle any disputes over bids and their decision is final
if the reserve price (the minimum bid acceptable to the seller) is not met, the auctioneer will usually withdraw the property from auction. You may well be able to bid for unsold properties after the auction is finished, whether or not your bid is accepted will be up to the seller
remember that the ‘guide price’ quoted in the catalogue may be quite low. Depending on how much interest there is in the property, it may sell for considerably more, don’t allow yourself to get carried away and stick to your budget.

Question 5

Auction Day

Accepted Answer

By now, you should have done your homework and have a good idea of how auctions work. If you are certain you have found the right property, have the appropriate funds in place and are comfortable with the auction format, it’s time to take the plunge.

In the run-up to the auction, keep an eye on the ‘guide price’ (this is the price listed in the catalogue). If there is lots of interest, this may rise as the auction approaches.

Set a budget. Make sure you have made a decision on what your maximum bid will be. This will be based on your view of the property’s value (having carried out viewings and local searches) rather than the guide price, and on the money you have available.

Be prepared

take at least 2 forms of identification, a cheque book and your bank details with you
on arrival, you will almost certainly need to register with the auction house, otherwise you may not be allowed to bid
make sure you get a copy of an ‘addendum sheet’ when you arrive. The addendum sheet will detail any extra information or alterations to the catalogue
if possible, arrive early. This will allow you to familiarise yourself with the surroundings and find a seat where the auctioneer will have a clear view of you.

When making a bid, be sure to make clear and obvious movements that will catch the eye of the auctioneer. Subtle winks and twitches are for the movies and will not be picked up by the auctioneer.

Remember, if you are successful, the property will become your insurable risk as soon as the hammer falls. The auctioneer assumes you are a ‘responsible bidder’ and have taken out buildings insurance to cover the property before placing any bid. If you do not take out insurance and the worst happens, you will have no protection from the auction house or the seller. Talk to your property solicitor to make sure you are protected before you bid.

This information is sourced from money.co.uk.

Question 6

Finding a solicitor

Accepted Answer

Once you’ve found the right home and started making plans for a mortgage, you still have a lot of legal requirements to meet. Choosing a good property solicitor will give you peace of mind that everything is being done correctly.

Solicitors are also known as a conveyancer, they’ll sort out a range of things, such as dealings with Land Registry and transferring the cash to buy your home.

This page tells you exactly what you’ll get from a property solicitor and how to get a good one.

Property solicitor: what they offer

Every house purchase and sale are different but in general a conveyancer will manage things like:

Dealing with the Land Registry
Stamp duty charges and payments
Collecting and transferring money during a house sale
Providing legal advice and recommendations
Drawing up and assessing contracts

Property solicitor: how to choose one

As soon as you’ve placed an offer on a property the estate agent will want to know your property solicitor’s details, so approach a solicitor early on to avoid having to pick one in a rush.

Your conveyancing hub lists over 200 solicitor or conveyancers, who all come trusted and recommended, but you may be recommended one by friends or family, or you may have used one before that you trust.

Making sure legal processes are followed properly during a property sale is vital, otherwise the whole thing could fall through. So, you need to find a solicitor you are confident will do a good job. All solicitors are qualified to do conveyancing, but not all will have experience in this area so use a legal firm that specialises in property transactions.

Choosing a property solicitor: the top tips

If possible, tell them your preferred exchange and completion dates and ask if they can meet these
Check up on their experience of buying/selling
Consider using a local solicitor – they’ll have a good knowledge of any laws or issues particular to the area. Although most of the process will be handled via phone or email, being able to drop into an office to hand over paperwork or check on things can speed things up. *Estate agents may recommend one but shop around for yourself to see if you can find a better deal on price or service elsewhere.

Property solicitor: how much they cost

The cost of using a property solicitor will depend on how complex the property transaction is.

For example, if the property is leasehold there is more legal work to do. You can expect to pay somewhere between £500 for a straightforward house purchase through to £1,500 for a more complicated case.

Some solicitors will charge a flat fee, while others will charge a percentage of the property’s value. Always check exactly what their fee covers, some will charge extra if any unforeseen issues arise. Get a few different quotes before choosing who to use.

This information is sourced from Which? 2014.

Joint Service Housing Advice Office Civ: 01252 787574 Mil: 94222 7574 RC-PERS-JSHAO-0Mailbox@mod.gov.uk

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