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Buying a House

Buying a house can seem daunting if you're a first time buyer but if you have your mortgage sorted before you start looking, you can put yourself in a strong position.

Mortgage-in-Principle

Many lenders can agree a mortgage even before you find the right property through a mortgage-in-principle certificate.
You are not obliged to take up the offer with the lender and it doesn't guarantee that you get the loan, but it can bring credibility with the sellers and give you extra confidence for bargaining. It may also speed up your eventual mortgage application, as most of the checks will have been already carried out.
A pre-arranged loan can also help you discover how much you can actually borrow, and alert you to any problems with your credit rating - these can be sorted before you find your property.

How to arrange a mortgage

You will need bank statements and payslips for the past 3 months and your last P60, unless you are applying for a Self Certification (self-cert) Mortgage.
It usually takes about three weeks from the application to the formal offer being made by the mortgage lender. This can vary depending on personal circumstances.
As a general rule, mortgage repayments shouldn't exceed a third of your disposable income.

100 per cent loans are available but there is the potential for negative equity, and they tend to attract higher rates. A better option can be a loan that offers 90 per cent with the possibility of further unsecured advances.
Some lenders allow you to split your loan and have half on a variable rate and the other half on a fixed rate.
Mortgages offering additional benefits, such as free legal work or conveyancing are a bonus.

Watch out for early redemption fees - check what fees are payable if you decide to repay the mortage early.

Mortgage Glossary

Mortgage Rates

SVR - Standard Variable Rate - the normal rate when no special discounts apply, changes according to market conditions.

Fixed - the rate is fixed for a defined period of time. A fixed-rate mortgage is less attractive if you expect interest rates to fall as you could be stuck with an uncompetitive rate.

Discount - the rate fluctuates with the base interest rate, but at a lower discounted level for a set period. Make sure you also budget for the possibility of a rise in rates.

Capped - the rate may fall, but can only rise to a fixed limit.

Tracker - the rate reflects the changes made by the Bank of England. It can be for only a few years or for the duration of the mortgage.

Mortgage Plans

Repayment Mortgage

(also called Capital and Interest Mortgage) - you repay the interest on the loan and a proportion of the capital (the original amount you borrowed) monthly. This ensures that whatever term you decided on, you are guaranteed to have repaid the entire loan by that date, provided the repayments are made in full and on time. Initially most of your payments will be interest, but towards the end of the mortgage term most of your repayments will be capital.

Endowment Mortgage - this plan combines investment and life insurance and are designed to pay off your mortgage at the end of the term, or in the event of your death. These mortgages are not as popular as they used to be because investment returns have fallen in recent years, and some people have been left with not enough to pay off the mortgage debt.

Interest only Mortgage - you only pay the interest on the mortgage loan and have to pay the original amount borrowed at the end of the term. These mortgages usually run alongside an investment plan, like an ISA or endowment policy. With endowment and ISA investment there is no guarantee that they will repay your loan in full at the end of term.

Flexible Mortgage - enables you to pay off the loan more quickly without penalties, and you can use your mortgage as a reserve if needed.

If you are self-employed, a seasonal worker or have credit problems then there are other mortgage choices that may suit your circumstances:

Self-certification Mortgage - you do not have to prove your income or supply documentation, such as wage slips. Business accounts which reflect the lowest income possible in order to minimise tax can unfortunately affect the need of the borrower to raise cash based on what they actually earn. A self cert mortgage allows you to borrow on your self declared earnings.

Non-status Mortgage - helpful if you have had credit problems, no credit status or have suffered Bankruptcy.

Expenses to consider when buying a property

Stamp duty - payable on properties costing more than £125,000
Valuation fees
Survey fees
Land registry fee - a search that ensures the sellers own the property and there are no debts registered against it
Local authority search - releases information about planning applications near the property, such as new roads
Solicitor’s costs
VAT
Property insurance (if not included in mortgage)
Removal expenses
Final bills, such as gas and electricity

Stamp Duty
Up to £125,000	nil
£125,001 - £250,000	1 per cent
£250,001 - £500,000	3 per cent
£500,000+4 per cent

Survey and Valuation reports

These reports are carried out by a chartered surveyor to evaluate the property before purchase.

Valuation report - this ensures that the house value is enough so that if the mortgage is unpaid, then the outstanding amount of the loan will be covered. It is commissioned by the lender and the cost is usually passed to the borrower, but some lenders will not charge for the valuation.
It is advisable to have your own survey carried out on your prospective property, as a detailed report will reveal any potential problems - perhaps allowing you to renegotiate the price before you commit.

Homebuyers Survey & Valuation - includes significant matters such as subsidence or settlement and urgent repairs for which the client should obtain quotations prior to exchange of contracts.

Building Survey - this comprehensive structural survey is very detailed and is recommended for older buildings built before 1960, and should reveal most defects. Each visible element of the property is inspected and any necessary repairs will be identified

Stamp Duty - this property tax imposes a percentage charge on the full price of a property, once the threshold is breached.
Mortgage lenders say stamp duty now affects 75% of first-time buyers, compared with around 25% in 1997.

Insurance

Buildings Insurance - covers the cost of rebuilding or repairing the property if it is damaged by fire, subsidence, flood, etc. Surveyors include an estimate of the actual cost of rebuilding in the valuation or survey of the property.
If your policy includes the clause 'seek and find' the insurer pays the cost of finding the cause of a problem, such as ripping out your kitchen units to find a leak.
As well as building insurance you should obtain contents insurance - it is not compulsory, but is recommended - a policy with a 'new for old' clause ensures you get enough money to replace your possessions with new ones when you claim. The premium is often lower if you take out buildings and contents with the same insurance company. Some companies will reduce the rates if the security of the property is improved by fitting approved window locks or a burglar alarm.

Mortgage Insurance - taking out a Life Insurance policy will ensure that in the event of your death your mortgage is paid off - an endowment policy already includes this in the mortgage plan.
An Accident, Sickness and Unemployment Insurance will protect your mortgage payments if you are unable to work or are made redundant. The payments period is usually limited to 12-24 months, depending on your policy.

Completion

Once your solicitor is happy with all the searches, etc you will be asked to sign the contract and pay the deposit on your new property.
As soon as contracts have been exchanged then the sale is binding. Generally, on average it takes between 2-4 weeks between exchange of contracts to completion.

If you time your move to be on the last Friday of the month the first mortgage payment is kept low, because interest is charged from the completion date and the first payment is not taken until the month following completion.

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