10 things you absolutely must know when buying your first home. Ignore them at your peril!
Buying your first property can be daunting. There are so many steps and procedures, so many things to do. But what are the most important matters you need to know?
What are the main pitfalls to avoid? What is good to know?
Most importantly of all, what could put your very ownership of the property at risk?
1. Importance of a good credit score
In the run up to purchasing your first property, you need to ensure that you have and maintain a good credit score.
Late or missed loan or credit card payments can lower your credit score, minimising your chances of getting a mortgage or securing one of the best mortgage deals.
2. Interest only or repayment?
Should you go for an interest only mortgage or a repayment mortgage?
With interest only you repay just the interest on the amount you borrow. However, with a repayment mortgage you pay back interest plus a part of the capital, thereby reducing each month the balance owing, clearing the whole balance by the end of the mortgage term – leaving you mortgage free.
An interest only mortgage has the advantage of costing less each month. But as you are not reducing the capital you will still have the full borrowed amount to pay back at the end of the mortgage term.
ALWAYS SEEK THE ASSISTANCE OF AN INDEPENDENT FINANCIAL ADVISER BEFORE MAKING ANY MORTGAGE DECISION.
3. Freehold or leasehold?
The property you buy is likely to have either freehold title or leasehold title. Freehold title typically applies to houses; leasehold title typically applies to flats.
With a freehold title you and your successors are entitled to use and enjoy the property in perpetuity – for all time.
With a leasehold title you and your successors are entitled to use and enjoy the property for the length of the lease or its term. A new lease will normally be at least 99 years long and can be as long as 999 years, which is sometimes referred to as a “virtual freehold.”
BE VERY CAUTIOUS IF YOU ARE BEING SOLD A HOUSE ON A LEASEHOLD BASIS. FOR SOME YEARS NOW, DEVELOPERS HAVE BEEN GOING AGAINST TRADITION BY OFFERING HOUSES ON A LEASEHOLD BASIS.
Some of these houses have problematic leases, with high and/or escalating ground rents, and they may be unmarketable now or in the future.
The government is aware of the abuse which has taken place and plans are afoot to outlaw leasehold houses. If you are being sold a leasehold house, you should fully discuss the pros and cons with your solicitor at the outset.
4. Buying with someone else
The obvious advantage of buying jointly with someone else is that the costs of owning and running a property – the mortgage and bills – are shared.
However, what if the relationship between you and your co-owner breaks down?
You should pre-empt disputes and difficulties by asking your solicitors to advise you of the appropriateness of a “trust deed” setting out the rights and duties of the co-owners, as well as the procedures for selling the property in the event of disagreement.
5. Buying a new property
If you buy a new property, you will normally be asked to pay a reservation fee and to enter a binding contract within a month of reserving.
THE RESERVATION FEE IS TYPICALLY £500 OR MORE – AND IF IT IS NON-REFUNDABLE, YOU RUN THE RISK OF LOSING THAT MONEY IF YOU FAIL TO ENTER A BINDING CONTRACT ON TIME.
With this in mind, it is best practice to line up your mortgage and appoint your solicitor before paying a non-refundable reservation fee.
Further you should seek reassurance that the reservation fee will be suitably protected once you pay it over to the developer or the selling agent.
6. Stamp duty relief for first time buyers
Be aware of the stamp duty relief made available to first time buyers from November 2017.
If you are a first time buyer, you don’t pay any stamp duty on a property valued £300,000 or less. On a property £300,001 to £500,000 you achieve a saving of £5,000 on the usual stamp duty payable.
No relief applies to properties exceeding £500,000.
7. Help to Buy ISA for first time buyers
First time buyers opening a special Help to Buy ISA are given a £50 bonus by the government for every £200 they save for their home purchase.
A first time buyer can get a bonus of up to £3,000 if they save the maximum allowed – £12,000.
If two first time buyers are buying a property they can get a total bonus of £6,000.
8. Help to buy equity loan
In the case of properties not exceeding £600,000, buyers can obtain an equity loan from the government for up to 20% of the purchase price (40% for properties in Greater London).
Helpfully, repayment fees do not apply in the first 5 years of the loan.
On selling, the buyer benefits from any increase in the property value based on the deposit they put in and the mortgage they took out.
Various eligibility restrictions apply to the scheme but it allows some buyers to purchase properties which would otherwise be too expensive for them.
9. Shared ownership purchase
Home buyers should be aware of the possibility of buying a share of a property under the government’s shared ownership scheme.
With shared ownership you buy a share of the property (at least 25%) and pay rent on the part retained by the seller, usually a housing association or council.
You can buy your share for cash or with the aid of a mortgage and a deposit.
AT A LATER DATE YOU CAN NORMALLY PURCHASE A HIGHER SHARE UP TO THE FULL 100%.
Eligibility is limited to buyers meeting various criteria.
More information about the government’s schemes for helping buyers can be found on the website: helptobuy.gov.uk
10. Dealing with mortgage difficulties
If after purchasing your property you have difficulties in making mortgage payments, it is desirable to seek advice as soon as you fall into arrears.
FAILURE TO ADDRESS ARREARS WILL LEAD EVENTUALLY TO POSSESSION PROCEEDINGS AND YOUR HOME COULD BE REPOSSESSED, LEAVING YOU HOMELESS.
Speak to your lender in the first place, address the cause of the arrears and take steps to clear the arrears promptly, possibly under a payment plan agreed with your lender.
The following organisations may be able to assist you where you are having mortgage or money difficulties:
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Rebel Property Coach
My website is: www.rebelpropertycoach.com