10 Common Mistakes Homebuyers Make

  • Homebuyers frequently make costly mistakes when choosing and buying a home
  • The main problem is that people don’t do their homework before buying

Looking to buy a property…perhaps your first home? Are you worried about making mistakes in what may be your biggest purchase ever?

Consider the following 10 factors to minimise the risk of serious mistakes that can cause problems, heartache or financial loss:

1. Delaying your purchase   

2. Inadequate due diligence

3. Choosing a problematic property   

4. Inadequate calculations

5. Falling in love with the property

6. Getting the wrong mortgage

7. Buying a new property

8. Not enough reserves

9. Getting it wrong on surveys

10. Buying a short lease

1. Delaying your purchase   

One feature of property values is that they increase with time, with growth sometimes steep and fast.

It is therefore wise to purchase as soon as you can afford to do so.

If you delay, waiting to find the “perfect home”, prices may increase – sometimes going beyond your financial means.

That is exactly what happened to many buyers in places like London and the South East after the 2008 credit crunch. House prices fell steeply in 2008 and many buyers waited in the belief that they would fall much further in coming years.

In fact prices started to increase by 2010, and by 2018 the price of some properties had almost doubled from their 2008 low.

It is therefore not sensible to try and “time” the property market.

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2. Inadequate due diligence

Because buying a property may be the most expensive purchase you ever make, it is vital to carry out as much due diligence as reasonably possible before buying.

Spend sufficient time checking out:

– The price you can safely afford
– The best way to fund your purchase
– They type and size of property you should buy
– The best location for you, given your personal and family circumstances.

In relation to the professionals you are to retain to assist you with your purchase, ideally make your appointments in reliance on personal recommendations from people who have used the services of those professionals – and can vouch for the quality of their work.

If you are buying a new property, find out – off-line and online – as much as you can about the status, reputation and reliability of the developer.  That is particularly important for developers who are not household names.

Similarly if you are buying on a particular estate or in a particular block of flats, carry out as much research as possible and see if you can identify any particular issues – such as high crime levels or concerns about maintenance or maintenance charges.

Carry out at least two viewings of the property you opt to buy, taking as long as necessary to ensure that you have a good look at the property and raise all necessary questions with the seller or agent.

Your conveyancer will get a chance to put “pre-contract enquiries” to the seller’s solicitors.

Inform your conveyancer of any specific enquiries you wish to make about the property and any related matter such as: the neighbourhood, neighbours, rights of way or the lease (if any).

Be sure to have the property duly surveyed. The important matter of surveys is dealt with in greater detail at numbered paragraph 7 below. 

3. Choosing a problematic property   

If you select a problematic property you may find:

– It is hard or impossible to get a mortgage on it
– It does not hold its value
– It is hard to sell when you come to sell on.

There are many types of “problematic properties” including:

– Flats above commercial premises, where there may be issues with noise, smells and access

– High rise flats, where there may be issues with lifts, maintenance and council ownership

– New build properties, where there is a risk of down valuation or a reduced mortgage where the developer offers incentives or price discounts

– Buildings constructed from unusual materials or by unusual methods, where obtaining a mortgage may be difficult or expensive

– Homes too close to the sea, where coastal erosion may put the property at risk over time.

You can minimise the possibility of delays, setbacks and losses by giving problematic properties a miss.

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4. Inadequate calculations

A serious mistake is to under-estimate the costs or expenses involved when buying a property.

It is not only the purchase price, many other costs and expenses may apply, including:

– Stamp duty
– Legal fees and expenses
– Mortgage broker fees
– Mortgage fees
– Valuation fees
– Removal fees
– Furnishing costs.

It is desirable to have a few thousand pounds in reserve in case you get “gazumped” – when, in a strong market, the seller raises the price after previously agreeing a price with you.

If you are selling as well as buying, you need to take account of the amount outstanding on your existing mortgage (if any), including any “early repayment” charge or penalty.

A very high number of purchases are aborted – about one in three – and calculation mistakes are often a cause.   

5. Falling in love with the property

A common mistake is to fall in love with a property and, even worse than that, is to let the seller or agent know.

If a seller knows you are keen on a property that will make them less likely to lower the price. You are likely to end up paying above the odds –  especially if you end up being “desperate” to get the property.

Falling in love with a property can cloud your judgment.

That is particularly the case with new properties, where it is easy to be wowed by the designer excellence of a sparkling new show home and overlook negatives – such as the property being small or poor value. 

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6. Getting the wrong mortgage

A big mistake is getting the wrong mortgage – that is to say, not getting the best mortgage for your specific circumstances.

Should you take out an interest only mortgage, a repayment mortgage or an offset mortgage? 

Be familiar with mortgage FAQs.

What length of mortgage should you settle for? Which is the most cost effective mortgage available to you?

To avoid mistakes in this area, best practice is to retain an independent mortgage adviser with access to “the whole” of the mortgage market.

7. Buying a new property

Buying a new property may be a bad buy. 

New properties typically include the “developer’s profit” and so are often at least 15% more expensive than an equivalent second hand property.

By paying more for a new property than a neighbouring second hand property, you will see less uplift as property values increase over time.

If your new property is genuinely discounted to the same price level of neighbouring second hand properties, you will not be starting off at a disadvantage when prices rise.

However, you need to be sure that any price discount is genuine and not just a clever device to get you to buy.

In any event, you should be aware that as a rule new properties do not retain their value as well as second hand properties – especially period properties.

A new property may meet your “lifestyle expectations” or goals, but typically it will not be the most cost-effective purchase available to you.

8. Not enough reserves

Another bad mistake is to leave yourself with nothing or next to nothing after your purchase.

It is often tempting to stretch your finances to the limit by buying the biggest and best property you can afford.

If however that leaves you with inadequate reserves, you will be at risk of mortgage arrears and possession proceedings if for instance you:

– Become ill
– Suffer a significant fall of income or
– Lose your job.

You should therefore look to buy at a price level which does not leave you financially exposed.

Make sure you are aware of the various ways to keep a roof over your head in the event of financial turbulence.

9. Getting it wrong on surveys

As the legal rule is “let the buyer beware”, the burden is on you to know the state, repair or condition of the property you are to buy before you enter a binding contract with your seller.

You do that by obtaining a survey report – including a valuation of the property. A valuation and survey are not one and the same. A valuation is concerned with the value of a property, a survey with its state or condition.

If you are a cash buyer, you may be tempted to do away with the expense of a survey – but that would be a high risk strategy.

It is inviting trouble to buy a property without a survey, even a new property.

Take care to select the most appropriate survey for the type of property you are buying.

RICS provides 3 reports:

– RICS Condition Report, if your property is fairly new and straightforward
– RICS Homebuyer Report, if your property is older and potentially in need of attention
– RICS Building Survey, if your property is big, old, complicated, listed or in need of renovation.

Further information about RICS surveys can be found on the website of Home Owners Alliance.

Failing to do a survey could mean you miss defects in the property – such as the need for rewiring or major repairs – ending up paying more than the property is really worth.

10. Buying a short lease

When you buy a house or flat, you may find that the title you receive is leasehold, meaning that the property is subject to a lease setting out your rights and obligations.

The length of a lease, which is typically 99 years or 125 years, and can be up to 999 years, will decline with the passage of time.

All things being equal, the value of a lease decreases with time, with the leaseholder or their successors having to move out when the lease term comes to an end.

As the lease term declines, it is possible for the leaseholder (“the lessee”) to negotiate an extension of the term with the lessor (the person granting the lease, or their successor). The lessee also has a statutory right to an extension.

However, once the lease falls below 80 years, it becomes significantly more expensive for the lessee to extend the term – due to the way in which the premium for the extension has to be calculated under the relevant regulations. 

If you are buying a lease with less than 80 years to run or will be in that position after a few years of ownership, you should take that into consideration when agreeing the price.

If you don’t do so you may end up paying more than the property is worth.

Speak to a surveyor or other expert before making an offer in such cases.

Difficulty in getting a mortgage is another problem with short leases. Many lenders will not lend on leases below 70 years, meaning that you may be restricted mainly to cash buyers if you want to sell without extending your lease.

The relative lack of buyers in that situation is likely to depress the price you achieve. 

Conclusion

Buying a property without messing up is all about knowing what to watch out for and how to respond. 

Always look out for the issues, pitfalls and risks identified in this blog – and address them decisively when they occur.

Never let your heart rule your head when making decisions as to how to proceed.

Read these blogs to find out more about buying a great home, and keeping it:

3 biggest mistakes of UK homeowners (errors which will cost you dearly if made)
4 property errors never to make (mistakes easy to make – terrible consequences)
20 bad property mistakes (easily avoidable errors that can cost you big bucks)
How to deal with mortgage debt (practical systematic ways to prevent eviction)
Keeping the roof over your head (12 ways to deal with mortgage arrears)
The importance of savings (the reasons for always having money in reserve)

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Have you ever bought a property and later found you made mistakes? What mistakes did you make and how did you overcome them?  Please leave your questions, observations or comments below.

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Dalton Barrett
Rebel Property Coach

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My website is: www.rebelpropertycoach.com


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