Guide Guidefor to

First-Time Buyers in association with

Lending limits how much should I borrow?

Fixed vs tracker choosing a deal

A helping hand government schemes

What you do in your home is your business. Getting you in there is ours. Post Office® Mortgages We offer a range of fixed or variable rates to suit your deposit, as well as a dedicated Application Manager to help you through the mortgage process. Give us a call on:

0330 4006 248* Or visit postoffice.co.uk/mortgages for more information.

INTRO and contents

introduction contents G

etting on the property ladder is a big step, and taking on a mortgage is the biggest financial commitment most of us will ever make. So it makes sense to gather as much information as possible when embarking on the process. The good news is, there is plenty of help available, and a wide range of competitively-priced mortgages on offer. We at Your Mortgage have produced this guide in association with the Post Office*, to take you through the mortgage and homebuying process. We explain how lenders work out how much they will lend you, and take you through the different types of mortgages available. We look at how the government Help to Buy schemes work, and weigh up the pros and cons of the different ways of getting hold of a mortgage. The guide also offers handy hints and tips on finding the right property, the low down on surveys and valuations, and other fees and costs you should be prepared for. It also takes you through the buying process step by step. We hope you find the guide genuinely useful and informative. Paula John Editor

Post Office® Mortgages are provided by Bank of Ireland UK.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE *Calls to 0330 numbers will cost no more than calling a standard geographic number starting with 01 or 02 from your fixed line or mobile and may be included in your call package dependent on your service provider. Subject to status and lending criteria. Written illustrations are available on request. Borrowers must be 18 or over unless otherwise stated. Post Office Limited is an appointed representative of Bank of Ireland (UK) plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Bank of Ireland UK is a trading name of Bank of Ireland (UK) plc which is registered in England & Wales (No. 07022885). Registered Office: Bow Bells House, 1 Bread Street, London EC4M 9BE. Post Office Ltd is registered in England and Wales. Registered No. 2154540. The registered Office is 148 Old Street, London EC1V 9HQ. Post Office and the Post Office logo are registered trade marks of Post Office Ltd. 8565140725B

*Post Office® mortgages are provided by Bank of Ireland

© ae3 Media No part of this magazine may be reproduced without the prior permission of the publishers. While every care has been taken to ensure accuracy of editorial content, no responsibility can be taken for any errors and omissions. The views expressed in the magazine are not necessarily those of the publishers. Readers are strongly advised to check information published with individual institutions, and to take legal advice, where appropriate, before entering into transactions. All interest rates are correct at the time of going to press. Published by AE3 Media Ltd, Haymarket House, 28-29 Haymarket, London SW1Y 4RX. Tel: 020 7484 9700.

First-Time Buyer Guide

3 Introduction Welcome from the editor 4 Figures first How much can you borrow? 6 Mortgage choices Types of morgage deals explained 10 Help to Buy A look at the government schemes on offer 12 Case studies Two first-time buyers share their experiences 14 Choosing a channel Different ways of arranging your mortgage 16 What home? Finding your ideal property 18 Valuations and surveys Varying levels of survey explained 20 Buying process A step-by-step guide 22 Jargon buster Mortgage terms explained Visit our website: yourmortgage.co.uk Advertisements You will find advertisements throughout the magazine carrying a warning: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. Remember, if at any time you face difficulty in making your mortgage payments, you must contact your lender as soon as possible in order to sort out the problem.

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research how much can i borrow?

figures first

repayments at the end of that deal, and no-one knows what interest rates will be in five years’ time. A mortgage is a long-term commitment, and lenders want to ensure that as and when your payments do increase, you will still be able to afford your mortgage repayments.

How much can I borrow?

T

he key question the majority of first-time buyers ask up upfront is how much a mortgage lender will offer them. Obviously you need a ballpark figure before you begin househunting. UK property prices vary hugely across the country, but have been increasing in most regions in recent years and are generally not cheap. Determining how large a mortgage you can afford will dictate the area and type of property you could buy.

Income multiples You may have heard of the phrase ‘income multiples’. This was the old method by which some mortgage lenders calculated how much they could lend you. Traditionally, a lender would carry out a simple calculation based on your income, and would offer a borrower, say, 3.5 times your individual income, or three times joint income where a couple or two friends were buying together. There are plenty of mortgage calculators on the internet which offer to calculate how much you can borrow based on a simple declaration of your income. Bear in mind that these tend to be a rough and ready guide, but can give you an idea of the sort of figure you may be looking at.

Affordability These days, mortgage lenders are required to determine the affordability of a mortgage for each borrower – this is sometimes done using computer algorithms and sometimes individually, manually underwritten. Taking a holistic view of borrowers’ financial circumstances in order to work out how much to lend

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makes more sense than the rather blunt method of using income multiples. You might have two separate borrowers with identical incomes, but one might have minimal living expenses and no other financial commitments, while another may live a lavish lifestyle and have large debt obligations and/or school fees to pay, for example. The former borrower would be capable of paying for a substantially larger mortgage than the latter. The elements taken into consideration when making affordability calculations vary from lender to lender, but the principle remains the same. The aim is to work out the size of the loan you can comfortably service given your income and outgoings. In order to get an accurate picture of the size of homeloan you can afford to repay, the lender will ask in-depth questions about your financial circumstances and commitments, and ask for proof of income. It is essential that you give them as much information as possible. Don’t be tempted to exaggerate your incomings or underplay your outgoings, as it is not in your interests to overstretch your finances.

Stress testing Once a mortgage lender has calculated how much you can reasonably afford to borrow at current interest rates, they will then run the figures again assuming a higher rate of interest in order to ensure that you could afford the deal if interest rates were to rise. All lenders will do this regardless of the type of deal you have in mind. Even if you are looking for a five-year fixed rate, for example, the lender wants to be satisfied that you could still afford your

First-Time Buyer Guide

Deposit As a rule of thumb, the bigger your deposit the lower the interest rates available to you. But saving up a deposit is no small challenge. According to the FirstTime Buyer Tracker report published by LSL Property Services in July this year, the average first-time buyer deposit fell by a fifth in the year to June, but at £24,530+ that is still a significant lump sum to find. Little wonder that many first-time buyers receive some degree of financial assistance with their deposit from their family. The LSL report also found that the average property purchased by a first-time buyer cost £144,273 in June 2014. The good news is that there are now a number of lenders, including the Post Office, which offer 90% loan-to-value (LTV) mortgages, so you only need a 10% deposit, and even 95% LTV deals via the government’s Help to Buy scheme (see page 10 for further details). ● +Source: LSL Property Services 25.07.14

CREDIT POINTS Most lenders will insist that borrowers have a clean credit record. A credit record is a history of your personal financial transactions, and most financially active adults in the UK have one. If you have missed a credit card payment or utility bill, for example, this can show up on your credit record and lead to a rejection of your mortgage application. Equally importantly, some first-time mortgage applicants do not have enough of a history. Not being on the electoral register is a common reason for the rejection of first-time mortgage applicants, so make sure your name is recorded where it should be. You can order a copy of your own credit report from Experian.co.uk, Equifax.co.uk or callcredit.co.uk.

First-Time Buyer Guide

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research TYPES MORTGAGE

MORTGAGE CHOICES

DISCOUNTS Some lenders offer discounts off their SVR or off a Base Rate Tracker – usually for a short period of time, say one to three years. As a general rule, the shorter the period of time, the bigger the discount. They can offer short-term good value to first-time buyers, and come in handy in keeping the cost of your repayments down in the early months when you have many set-up costs to swallow. However, look out for Early Repayment Charges (ERCs), which can apply for longer than the discounted period, and may tie you onto your lender’s SVR just as the cost of variable rates is starting to rise.

Types of mortgage deal

T

here are a number of types of mortgages available. Fixed rates and tracker deals are the most popular in the Uk, but there are other options out there, and it makes sense to understand the basics right from the start.

Fixed rates With a fixed rate mortgage, as the name suggests, the interest rate you pay is fixed for an agreed period of time. The most popular fixed rate mortgage timeframes in the UK are two-, three- and five-year fixed rates, although fixed terms are sometimes available from one to 25 years. The key benefit of a fixed rate is that it allows you to know exactly how much will be leaving your bank account to go to your mortgage lender every month, allowing for your wider budgeting. This can be a particular benefit for first-time buyers, many of whom may not be familiar with the cost of setting up and running a home. The guarantee that what is probably your largest monthly financial commitment will not change for a set period of time can be priceless. Of course you also benefit if you lock into a fixed rate and wider interest rates subsequently rise, making the variable rate mortgages on offer more expensive than the deal you have secured for an agreed period of time. The flipside is that you could lock into a fixed rate and find that wider interest rates subsequently fall, leaving you stuck on a rate higher than the variable deals on offer. However, with Bank Base Rate currently at a historic low of 0.5%, the accepted wisdom is that rates will rise in the future, and hence that locking into a

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REPAYMENT VS INTEREST-ONLY The vast majority of new mortgage borrowers these days opt for repayment-type mortgages, where your monthly mortgage payment consists of the interest you owe your lender that month, plus a little bit of the capital you have borrowed. Provided you keep your mortgage repayments up to date throughout the life of the loan, you are guaranteed to pay off all of your debt by the end of the mortgage term. In the past many chose interest-only loans, where your monthly mortgage repayment consists solely of the interest you owe your lender for that month. You do not pay off any of the capital you owe, and have to find some means of repaying it at the end of the mortgage term. In recent years most lenders have shied away from offering interest-only deals, as they are deemed to be higher-risk than repayment type arrangements. Some lenders will still offer interestonly mortgages, but they will often demand a hefty deposit, often in the region of 50%, making them impractical for most first-time buyers.

First-Time Buyer Guide

Pros of a discount rate mortgage: ● Offer reduced payments in the early years when the cost of setting up home may be pressuring first-time buyer finances

fixed rate now makes sense. And, whether that happens or not, these deals can make perfect sense for first-time buyers in particular, because of the certainty and peace of mind they offer. Pros of a fixed rate mortgage: ●P  eace of mind of knowing exactly what your repayments will be ● Wide choice of fixed rate terms available Cons of a fixed rate mortgage: ● Worry that you may end up paying over the odds ● Early Repayment Charges apply

Standard Variable Rate Most mortgage lenders have a Standard Variable Rate (SVR), which tends to go up and down loosely in line with the Bank Base Rate set each month by the Bank of England. For the last five years, the Base Rate has been held at an historic low of 0.5%, in

First-Time Buyer Guide

Cons of a discount rate mortgage: ● Your repayments are variable and can go up and down in line with Bank Base Rate movements ● Interest rates are only likely to go up in the future ● You could be tied in with Early Repayment Charges for longer than the discounted period order to boost the UK economy by restraining the cost of borrowing for households and businesses. So the SVR provided by many mortgage lenders is lower than 4% (and in a few cases, under 3%). However, some SVRs are higher than 5%†, so be aware. Traditionally, very few mortgage applicants chose to pay a lender’s SVR as it was never the lowest rate on offer – it was simply the basic rate to which borrowers reverted once they had come to the end of one special deal (such as a fixed rate), and before they arranged their next deal. Source: Moneysupermarket 30.07.2014

†

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research TYPES MORTGAGE linked to Bank Base Rate and is set periodically by the lender) can change the rate at any time, regardless of Bank of England movements  

Base Rate Tracker

However, these days they can offer decent value, and plenty of existing mortgage borrowers are sitting quite happily on their lenders’ SVRs for the moment, having come to the end of a special deal. But as interest rates can only go one way in the near future – up – the cost of SVR mortgages will definitely increase further down the line – the only question is when. One benefit of opting for a lender’s SVR is that you can switch to a new deal with the same lender without paying an Early Repayment Charge whenever you like, so when rates do rise, you can move quickly to lock into a fixed rate or choose another deal. Pros of a Standard Variable Rate mortgage: ●O  ffer decent value in the current market (if available for new borrowers – some existing borrowers are on very low existing historic SVRs, but their lenders have introduced higher SVRs for new borrowers) ●N  o penalty for switching to another deal Cons of a Standard Variable Rate mortgage: ● Your repayments are variable and can go up and down in line with Bank Base Rate movements ● Interest rates are only likely to go up in the future ● L enders with a managed rate (one that is not directly

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While SVRs are usually set vaguely in line with the Bank Base Rate, lenders have the right to change them at will, and some have increased their SVRs substantially in recent years. Base Rate trackers on the other hand are pegged to the Bank Base Rate set by the Bank of England. With a Base Rate tracker you pay a pre-determined margin above the Bank Base Rate for an agreed period of time. So, for example, you might pay Bank Base Rate plus 2% for one year, or Bank Base Rate plus 3% for two years. Some lenders offer lifetime trackers, where the rate you pay tracks the Bank Base Rate for the life of the loan. Given how low the Bank Base Rate has been for the last four years, trackers have been popular, being relatively cheap and transparent. Many lenders including the *Post Office offer Base Rate Trackers up to 85% loan to value and some even go to 90% making them much easier for first-time buyers to get hold of. Pros of a Base Rate tracker mortgage: ● Your rate is transparent and moves in line with wider economy and not at the whim of a mortgage lender ● Can offer very good value in the current market where Bank Base Rate is at an historic low CONs of a Base Rate tracker mortgage: ● Your repayments are variable and go up and down in line with Bank Base Rate movements ● The only way for Bank Base Rate to go is up. ● *Post Office® mortgages are provided by Bank of Ireland

First-Time Buyer Guide

COUNTING THE COST Taking out a mortgage inevitably involves paying fees and charges, which can run to thousands of pounds. If a lender offers the option to add any of the costs to the mortgage loan, it usually makes sense to take this option, as if the mortgage then falls through for any reason you do not lose anything. Some lenders offer ‘fee-free’ deals, but these will tend to come with higher interest rates than their counterparts with fees attached. Fee-free deals can make sense on smaller loans, while the rate charged gets more significant the larger your mortgage. You have to do your homework and calculate which is best for your circumstances. Arrangement or application fee This covers the cost of processing your mortgage application. Sometimes referred to as a product fee, this is sometimes non-refundable, even if you do not proceed with the mortgage. Booking fee Special deals such as a fixed rates usually carry a booking fee, which can run to hundreds of pounds. In recent years, more and more lenders have started to charge non-refundable booking fees to cover administration and underwriting costs if you do not proceed with the mortgage. So if the mortgage does not go ahead for some reason, because the property falls through, your circumstances change or the process takes a long time and you have to apply for a new deal, for example, you still lose the booking fee. Post Office mortgages provided by Bank of Ireland UK do not charge any nonrefundable booking fees. Its standard arrangement fee is only paid on completion (deducted from the loan advance or can be added to the loan), once the deal is done. Early Repayment Charge (ERC) This is a penalty charged if you pay off or switch your mortgage before the end of the agreed term. It applies to special deals such as fixed rates, capped rates, discounted deals and trackers, which run for a finite period. If you want to move or redeem your mortgage before the end of the arrangement you could be charged a percentage of the mortgage outstanding, or a sum equivalent to a set number of weeks’ or months’ repayments. Exit fee Not an immediate concern for first-time buyers, but you should be aware of exit fees none the less. An exit fee is charged when you pay off your mortgage or switch it to another loan or lender. It’s supposedly to cover staff, legal and admin costs such as changing the registration of the property at the Land Registry. Exit fees are known by a number of other names including ‘deed release fees’, ‘sealing fees’, ‘final administration fees’, ‘discharge fees’ and ‘final redemption fees’. They tend to range from around £75 to £300, although some lenders do not charge them at all. First payment Your first monthly mortgage payment may well be larger than your subsequent payments, and it is important that you are prepared for this. When you make your first monthly repayment, you must also pay any interest owed for the period between the advance date and the end of the month prior to the month of your first payment. For example, if you move in on 20th of September, and your repayments are set up to be paid on 28th of the month, your first monthly repayment will be payable on 28th October and will include 41 days’ interest. This is called the ‘initial interest’ and will be paid by Direct Debit with your first payment on your first payment day.

First-Time Buyer Guide

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research help to buy

help to buy

help to buy 1 – Easy guide

Government schemes explained

● Help to Buy will make the aspiration of homeownership a reality for more people across the country. ● The government will support people who have at least a 5% deposit to buy a home through a two-part scheme aimed at increasing the supply of low-deposit mortgages and new housing.

H

elp to Buy is a government scheme aimed at kickstarting the housing market by helping first-time buyers and other buyers onto the property ladder. It is split into two parts: Help to Buy 1, the equity loan scheme, and Help to Buy 2, the mortgage indemnity guarantee scheme.

Help to Buy 1 The first part of Help to Buy, launched in April 2013, provides homebuyers with an equity loan from the government of up to 20% of the property’s asking price – provided they are buying a new-build home on a development earmarked for Help to Buy by a participating building firm. The buyer puts down a 5% deposit of their own along with the 20% equity loan. They then take out a regular 75% loan-to-value (LTV) mortgage from the lender of their choice. The equity loan is fee-free for the first five years – after that the homebuyer pays the government 1.75% interest on the loan, rising every year by a rate linked to Retail Price Inflation plus 1%. The maximum purchase price for a Help to Buy property is £600,000, so the maximum mortgage loan available is £480,000. The mortgage lender will carry out the usual checks to ensure that you are a good credit risk and that you can afford the mortgage.

Government stake As the government owns a stake in the equity of the homebuyer’s property, it shares in any increase in the value of that home – or decrease. If, for example, you have bought a property for £200,000 using a £40,000 equity loan, the government owns a 20%

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● Each part of the scheme will help you to purchase a home with a maximum value of £600,000.

stake in your home. If, say, you sell for £250,000 five years later, the government gets back 20% of the sale price = £50,000. If you sell your home, and you haven’t paid off the loan, you have to pay the government back its percentage stake. So if your property has fallen in value, you have to repay the same proportion of the reduced value. Using the example above, if you bought for £200,000 with a £40,000 equity loan (20%) and sold for, say, five years later for £150,000, you will owe the government 20% of £150,000 = £30,000. That is £10,000 less than you were loaned in the first place, and the government takes the hit.

Help to Buy 2 The Mortgage Guarantee Scheme, launched in October 2013, enables lenders to offer mortgages up to 95% loan-tovalue, sometimes at lower interest rates than mainstream deals. Help to Buy 2 is an insurance or ‘indemnity’ scheme for participating mortgage lenders. The lender pays the government a small fee, and in exchange the government promises to compensate the lender should Help to Buy: Mortgage Guarantee Scheme borrowers default on their mortgage repayments. It is important for mortgage borrowers to note that it is the lender who is insured against loss – not the mortgage borrower. The advantage to the borrower is that they get access to a well-priced mortgage with a relatively small deposit in the first place. ●

First-Time Buyer Guide

Help to Buy: mortgage guarantee ● New-build and existing homes ● You’ll need a deposit of as little as 5% for this scheme ● Available to existing homeowners as well as first-time buyers ● You’ll need to secure a mortgage for your purchase. The government guarantee will encourage lenders to offer better access to low-deposit mortgages ● Maximum home purchase of £600,000

Why is this best for me?

Buyer’s 5% deposit

£10k

£190k Lender covered on next £30k by Government guarantee

95% LTV mortgage from commercial lender

I only have a small deposit, but I can afford repayments on a 95% LTV mortgage and I want a new build or older home, or I want to remortgage with a new lender to get a better deal Example house value

£200k

Source: HM TREASURY

First-Time Buyer Guide

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research case studies

case studies EXAMPLE one

EXAMPLE TWO

David Read , 24 and Emma Cossey, 23 bought their first house

Ben and Samantha Rosamond, 36 and 28, have

together in 2014.

just bought their first home, a three-bed semidetached property in East Herrington, Sunderland.

The couple had spent three years living with Emma’s parents, and for two years they had concentrated on working, budgeting and the substantial

The couple had been renting a flat in a grade II

challenge of saving up the deposit required to get on the property ladder.

listed building for more than five years, but after

This year, having managed to squirrel away £13,000 for a deposit, they finally

getting married last year they felt it important to buy

narrowed down their search areas and went property hunting.

their own home.

Happily they found a two-bedroom mid-terraced house in Wymondham,

“As much as we loved where we were, we were

outside Norwich, which matched their budget. They bought the house for

starting to get frustrated about not being able to put

£129,950. “We were delighted that this particular house ticked our main three

our own stamp on things, and ultimately, we didn’t

boxes,” explains David. “It is close enough to where we both work, well within

want to keep paying off someone else’s mortgage,”

budget so we don’t have to stretch our finances every month, and it has

explains Ben.

character, which is important to both of us.”

The couple decided to get their mortgage

When it came to gathering information about mortgages, David and Emma

arranged before they started househunting, so that

first approached their bank, to see what it had to offer, but deciding that they

they would be able to move quickly once they had found their dream home. They did a lot of research before deciding what type

should expand their research, the couple then spoke to a family friend who is a

of mortgage to opt for.

financial adviser.

“I was reading the money section in the Guardian, speaking to friends who’d bought property, and we even met with an

“Our friend talked us through the different types of deal available and the

independent financial adviser,” says Ben. “Ideally we wanted the security of a fixed rate mortgage, as although the rates for

kind of interest rates on the market,” Emma explains. David and Emma decided

tracker mortgages were appealing, we really wanted the security of a fixed rate mortgage.”

that they wanted a fixed rate mortgage. 

In the end, they opted for a fixed rate from the Post Office, putting down a deposit of 15% on their £160,000 home.

“As first time buyers we wanted to know exactly how much was coming out of our accounts every month,” says David. “This led to the fixed rate. We felt it was the best option for budgeting for the first time, as we could keep track of our outgoings more easily by making sure the biggest payment was the same each month.”

“It was a really good service, brilliantly simple and they were really quick to let us know when they’d made decisions or we’d

Their financial adviser friend highlighted the Post Office as a leading competitor for a fixed rate mortgage. “We then visited the Post Office website and read reviews. We were impressed with the mortgage rates, and arranged to visit a branch to sort out a deal,” David continues.

hit key milestones. They also let us know in ways that were more convenient for us, by text or by email. In fact we were taking a walk on the beach when we received a text message to confirm our mortgage offer had been approved.” When they found their ideal property, with two reception rooms, a sunny kitchen, garage and good-sized bedrooms, they

David and Emma were very pleased with their experience of the Post Office – they felt they received a very helpful, personal service, with one point of contact taking them through the whole process and explaining all of the ins and outs.  “We even received a house warming card through the post, which was a lovely touch,” adds Emma. “We would definitely recommend the Post Office to other first-time buyers.”

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“We went with the Post Office as they could offer us a great fixed rate and loan-to-value percentage, and we arranged most of it online,” says Ben.

were quick off the mark. “We both saw it on Saturday, I went back on Tuesday, and our offer had been accepted by Wednesday evening,” says Ben. “We are really  pleased with the mortgage that we’ve chosen, the rate is really affordable, the communication has been really timely and concise, and we’re pleased we’ve chosen a product from a reputable provider,” he concludes.

First-Time Buyer Guide

First-Time Buyer Guide

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choosing a channel Where to go for a mortgage

I

n the past, more people traditionally went to ‘their’ bank or building society as the first port of call, on the grounds that they already held financial information about you which could – in theory – hurry the application process along. These days, with more product information available online making comparisons easier, borrowers are less likely to simply visit their existing financial services provider and are more likely to shop around for the most suitable deal. Mortgages are available via a number of channels: In bank, building society and selected Post Office branches through ‘tied’ mortgage advisers, direct over the phone, online and via independent mortgage advisers with access to the whole market. Both independent and tied advisers must sit exams and be qualified and they are closely regulated. In fact, legislation which came into effect in April this year means that they are duty bound to be extremely thorough in assessing every case, hence the advisory process tends to take well over an hour these days. Sometimes lenders offer slightly different deals through different channels, so it is important to establish which channel suits you best.

process and fill in the paperwork for you. The downside is that they are so-called ‘tied’ advisers, and can only tell you about their own mortgages, and not those available on the wider market. And of course you are bound by the provider’s opening hours, and have the hassle of getting yourself to the high street in the first place.

Using the telephone Most mortgage providers have well-trained, fully qualified telephony staff operating lines which are open outside branch opening times. They can help you through the process from start to finish, fill in forms for you and email you the required documentation. The downside is that the mortgage advice process can take well over an hour, which some people find too long for a phone conversation. And, as with the branch option, the telephony staff can only talk to you about their own mortgage deals and not the wider market.

Going to a branch Some people like the reassurance of going into a physical branch of a mortgage provider and arranging a deal face to face with an in-branch adviser. The upside is that you can speak to a professional who understands their products , can hold your hand through the

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First-Time Buyer Guide

Online The ‘Martini’ option – you can arrange your mortgage any time, any place, anywhere. All mortgage lenders offer details of their mortgages online, but there are huge variations in how far you can progress a mortgage application electronically. Some simply explain the basics of their deals but direct you to a phone number or advise that you visit a branch to take your mortgage

further. Some allow you to fill in an initial application form and then click for a call back from telephony staff. Others allow you to complete the process online. Users can generate illustrations, complete an ‘Approval in Principal’, and complete their mortgage application online, but are also given the option to speak to an experienced mortgage consultant at any point. You must note that if you take the online route you are opting for an ‘execution-only’ mortgage. This means you have chosen not to take any advice. This is fine if you know exactly what you are doing and you are confident that the deal you have chosen is the best one for you, but if in doubt it makes sense to take advice from a professional. The upside of execution only online mortgages is that they

First-Time Buyer Guide

are much quicker to arrange than advised deals. However, they are not for everyone and may be particularly inappropriate for first-time buyers who have never been through the process before. On the other hand, first-time buyers tend to be at the younger end of the scale and may be more comfortable transacting online than their older counterparts.

Using an independent adviser More and more consumers are choosing to use mortgage advisers, also known as adviser or broker. While ‘tied agents’ can only advise on their own provider’s mortgages, some mortgage advisers have access to a restricted yet broad panel of lenders and truly independent advisers have access to all of the deals on the market, so they can scour the thousands of products out there to find the best one to suit your circumstances. The benefit of using an adviser is that you get access to all of the deals on the market. Many advisers will come to your home or place of work when it suits you. Some of them charge an upfront fee, while others charge the lender. They have to tell you upfront how their remuneration works and what, if anything the advice will cost you. ●

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what home? How to find your dream property

T

he first step in identifying your dream home is to decide what type of property you want – or need. Do you prefer modern or period homes? The latter may have more character but require more maintenance. Do you want a flat or a house? A flat may be cheaper, but not practical if you have young children or pets, for example. With your property type and maximum spend firmly established, it’s time to hit the internet.

Get on the web Property websites make searching for a home far easier than it was in the past. You can narrow your search according to specific criteria, such as property within half a mile of a railway station or motorway. Some websites will show all the schools close to the property, and even allow you to click through to their Ofsted reports. However, there is only so far you can go online. It is essential that you visit an area to get a feel for the place. And it makes sense to visit as

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First-Time Buyer Guide

many properties as possible that tick as many of your boxes as possible. Bear in mind that the ideal home is rarely out there, and most buyers end up compromising on some elements. That said, when you sign up with local estate agents in your preferred area or areas, be as specific as possible about your requirements. While househunting can be very exciting, it’s also rather time-consuming and there is no point wasting time viewing places which are clearly not suitable for your requirements.

Take a view Prioritising proximity to the facilities on our checklist will help you decide on an area or areas to focus your search. Take your time over this process, and try to think ahead. Weigh up what is most important. If you have children of school age proximity to a good school is likely to be your primary concern. If you are a couple and you both work, then proximity to your workplace or to transport links is likely to be a big consideration. If you like to socialize a lot then bars and restaurants may be higher up on your list of priorities. Try to spend some time in the area to get a feel for it, preferably at different times of day. Bear in mind that a street which seems tranquil at 3pm on a Saturday afternoon may be used as a rat run by commuters from Monday to Friday. Can you visualize yourself living there? Don’t be pressured by estate agents. And try to avoid falling for a property in a location that makes no sense for you.

Eyes wide open Once you have narrowed your search area and identified potential properties, go into each viewing with your eyes wide open – and again, take your time. Look out for obvious defects in older properties such as bulging walls, worrying cracks, rotten woodwork and damp, and

First-Time Buyer Guide

ask the vendor about them. Check when the roof was last looked at and whether there are any problems with it. Find out whether the heating system is up to date and reliable. These are potentially expensive problems to have to fix in the future. Is the property freshly painted? Quiz the seller about this. Redecorating to make the best of a property on the market is one thing – covering up problem walls with fresh paint or wallpaper is another. ●

property checklist Location Town Country Maximum price: Type Flat Terraced house Semi-detached Detached Ex-council Specification Old New Minimum no. of beds Garden Garage Proximity to Schools Work Family/friends Public transport Motorway Airport Shops Bars and restaurants

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research VALUATIONS

valuations and surveys The different levels of property inspection

A

mortgage lender will always order a valuation of a property, to be carried out by one of their own appointed surveyors, to confirm that the property is worth the agreed sale price, before agreeing to lend you the mortgage. It can often be worth you ordering your own more in-depth survey at the same time. You should also be aware of the insurances you will need, plus other property-buying costs such as Stamp Duty.  

The valuation

The valuation is a perfunctory survey of the property, which simply aims to confirm that the property is worth the money you are proposing to pay for it. As in theory any property is only worth what someone is willing to pay for it, valuation surveys rarely fail. Only if a borrower is proposing to pay way over the market rate would a valuer have a problem. A valuation usually costs between £100 and £500, depending on the size and location of the property, and you usually pay the fee, even though the lender commissions the valuation.

Property surveys You may choose to commission your own, more in-depth private survey, depending on the age and condition of the property in question. There are three types: A Condition Report This is the most basic and consequently the cheapest

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of the private surveys you can instruct and provides an objective overview of a property’s condition, highlighting any areas of major concern but without extensive detail. A HomeBuyer Report This covers the inside and outside of the building, the services and the site. Defects that the surveyor considers will not affect the value of the property are not reported on and condition ratings are used to describe the various elements of the property. Typical cost £250 to £500. A Building Survey Sometimes incorrectly referred to as a Structural Survey, this is appropriate for just about any property type including those that are listed, unusual or requiring renovation and will provide comments not only on defects found but also the cause, together with advice on the remedial measures required. These surveys provide a comprehensive report about the current condition of the property. If a Building Survey reveals defects which would be expensive to correct, the buyer will often go back to the vendor and renegotiate the sale price. A Building Survey costs in the region of £1,000.  

Other costs

HOME INSURANCE As a homeowner you are legally required to take out buildings insurance on your property, which covers you if the place should burn down or subside. Your mortgage lender may offer you buildings insurance, but you are not obliged to take out their cover and are free to shop around. Contents insurance is not legally required, but is recommended.

First-Time Buyer Guide

Insurance It makes sense to take out life insurance with your mortgage, as it will pay off your debt if you should come to an untimely end. It can cost less than £30 a month for a couple. You also need to have buildings insurance in place before you move. The cost will vary depending on the type, location structure and age of the property.

First-Time Buyer Guide

Some providers also sell specialist and bespoke insurance products which are often competitive in their own right. Removal company fees Trying to move yourself can be a false economy and very hard work! It usually makes sense to enlist the help of professionals. The amount removal firms charge will vary widely depending on the size of property you are buying and the amount of furniture you have, how far you are moving and how much work you want the removal company to do (all the packing? Some of the dismantling?). Avoid moving on a Friday if you can – it will usually save you money. Solicitor’s fees/conveyancer costs This is the fee you will pay for the legal work to be carried out. Sometimes lenders will offer to pay for this, but only if you use their appointed solicitor. You are under no obligation to use a solicitor recommended by the lender, but note that if you appoint your own solicitor or conveyancer you may be liable for two sets of fees (your solicitor/conveyancer’s and their solicitor’s). A conveyancer is a qualified professional who only deals in legal property work. They can help property transactions go through more quickly than solicitors, as conveyancing is all they do. Solicitors on the other hand, have other, usually more lucrative legal work to content with, and conveyancing can slip to the bottom of their workstack. Stamp Duty Stamp Duty has to be paid direct to HM Revenue and Customs when a qualifying property is purchased. Stamp Duty is not payable on properties costing less than £125,000. It is charged at 1% of the property’s value on homes costing £125,001 to £250,000. On properties costing £250,001 to £500,000 Stamp Duty is levied at 3%, on properties worth £500,001 or more the charge is 4%, and homes which cost over £1 million incur a levy of 5%. ●

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research buying process

the buying process A step by step guide from offer to completion

Move in

10 01

Get your offer accepted

09 Completion day

08 Legally committed

the buying process

Sign the contract

07

02

Get a Homebuyer’s report

03

Instruct a solicitor Valuation report

Have searches done

Lender agrees mortgage

04

02

Get a Homebuyer’s report

03 04

First-Time Buyer Guide

Valuation report

First-Time Buyer Guide

Instruct a solicitor

Lender commissions valuation report

b.If work is needed get the seller to pay for the work, or discuss asking price

Assuming all is in order, lender agrees the mortgage

Get your offer accepted

If you are buying an older property, commission your own Homebuyer’s report

Choose and instruct a solicitor or licensed conveyancer to do the legal work

a.Lender agrees mortgage subject to conditions

05

06 05

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01

Once your offer has been accepted by the seller, fill in the mortgage application form

c.The surveyor will re-inspect the property

06

Solicitor carries out searches and investigates title and other issues. If all is in order they send you the legal paperwork

07

Sign a contract

08

You are now legally committed and will move in on completion day

09 10

Completion

Pick up the keys and move in

Have searches done

Sign and return the contract, pay deposit. Arrange buildings insurance cover, if buying a freehold property

Legally committed On completion day, pick up keys from estate agent. Arrange contents insurance

Move in

Lender agrees mortgage 21

research jargon

jargon buster Mortgage terms explained Advance The money you borrow to buy your property. Agreement In Principle This means you have been accepted for a mortgage or other financial product, but it will depend on issues such as a valuation report and confirmation of employment. APR Annual Percentage Rate The APR takes account of the interest rate you’ll pay, how you’ll repay the mortgage, the mortgage term and any other charges. You can use this information to compare different mortgages. Arrangement fees The same as reservation, booking and product fees. A fee charged by a lender for setting up the loan. Normally payable upon completion but may sometimes be added to the loan. Building survey The survey a qualified surveyor carries out to spot faults and potential problems in the property you’re buying. Particularly appropriate for older properties. Completion The moment at which all the legal formalities of the purchase or mortgage are finalised and the funds are drawn down from the lender, usually into the solicitor’s account. Credit check A search of your borrowing record – often called your credit history. A lender will check your credit history before deciding whether to lend you money. Early Repayment Charge A fee levied if you pay your mortgage or move to another lender before the end of the agreed mortgage term. Equity The total value of your property minus the

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amount of the mortgage. So if your house is worth £120,000 and you have a mortgage of £100,000 you have equity of £20,000. Exchange of contracts This is when contracts are exchanged with the person selling the property and you’re committed to buying the property. Financial Services Compensation Scheme (FSCS) The FSCS can pay compensation to customers if a company cannot pay a claim against it.

First-Time Buyer Guide

Financial Ombudsman Service The official complaints scheme which works to sort out complaints between consumers and businesses which provide financial services. Financial Conduct Authority (FCA) The FCA looks after financial services and protects your rights. Anyone who lends you money needs FCA authorisation and must follow the rules when dealing with you. First-time buyer A person that is purchasing a property for the first time. Some lenders offer preferential lending terms to first time buyers. A borrower who has owned a property before but has sold this prior to buying again may be offered first time buyer terms by some lenders but this is dependent on the lender. Freehold When you own a property and the land it stands on. Gazumping Where the seller accepts a higher bid after accepting your offer. Interest The money you’re charged for borrowing. Interest can be variable (go up or down) or can be fixed. Key Facts Illustration (KFI) Important information for you, set out in a standard way, so you can compare a financial service, product and costs from different providers. Make sure you get them and read them. Land Registry A record of property, ownership and the mortgage is registered in a central register at HM land registry. Land Registry fee A fee you pay to the Land Registry to register your ownership of the property. Lease The lease is the legal contract that makes a person who buys a leasehold property the legal owner for a certain amount of time. A leaseholder owns the

property for that time, but they don’t own the land it stands on. Loan To Value (LTV) The ratio of the loan amount to the property valuation expressed as a percentage. So if a borrower is seeking a loan of £100,000 to buy a property for £200,000 it has a 50% loan to value rate. Local Authority search A search of local authority records to confirm the status of the property. Local authority searches should reveal any proposed changes in the area, the details of the planning permission for the subject property and whether any enforcement notices have been served by the local authority. Legal fees Fees you pay to a solicitor for their services. You’ll need a solicitor to help you buy and sell a property. Mortgage deed The legal agreement that gives the lender rights to your property. New Build Refers to newly built properties. Can refer to a single property or whole estates. Redemption Paying off your mortgage in full. Security When you take out a mortgage, the security is the property. If you don’t pay your mortgage payments when you should, the lender has the right to repossess the property and sell it to recover the debt. Shared Ownership A method of property purchase in partnership with a housing association. The borrower purchases part of the property and rents the remainder from the housing association. Stamp Duty A tax payable on property purchase, charged at 1% on properties costing £125,001 to £250,000; 3% on properties from £250,001 to £500,000, 4% on properties over a £500,001 to £1,000,000, 5% on properties costing £1,000,001 to £2,000,000 and 7% on properties costing more than £2,000,001. Title deeds The legal documents that explain who owns the property. Valuation The check of your property to confirm the value and suitability as security for the mortgage. ●

First-Time Buyer Guide

Code: 8567140731

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What you do in your home is your business. Getting you in there is ours. At the Post Office, we offer a range of fixed or variable mortgage rates to suit your deposit, as well as a dedicated Application Manager to help you through the process. Give us a call on: *

0330 4006 249 Or visit postoffice.co.uk/mortgages

Post Office® Mortgages are provided by Bank of Ireland UK.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE *Calls to 0330 numbers will cost no more than calling a standard geographic number starting with 01 or 02 from your fixed line or mobile and may be included in your call package dependent on your service provider. Subject to status and lending criteria. Written illustrations are available on request. Borrowers must be 18 or over unless otherwise stated. Post Office Limited is an appointed representative of Bank of Ireland (UK) plc which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Bank of Ireland UK is a trading name of Bank of Ireland (UK) plc which is registered in England & Wales (No. 07022885). Registered Office: Bow Bells House, 1 Bread Street, London EC4M 9BE. Post Office Ltd is registered in England and Wales. Registered No. 2154540. The registered Office is 148 Old Street, London EC1V 9HQ. Post Office and the Post Office logo are registered trade marks of Post Office Ltd. 8566140725B