Budget and save for a deposit
The first step to buying your new home is a big one – stumping up enough money to get the ball rolling.
Even seasoned moving professionals will need to look at their finances before buying their next property. You’ll need two pots of money: one for your deposit, and one for all the associated costs that come with moving home. You’ll also need to get your finances in shape to prove that you can repay a mortgage (unless you’re a cash buyer – lucky you!)
The biggest amount of money you can borrow for your mortgage is 95% of the value of your new home. This is a generous amount, though, and it’s more normal to get a mortgage that covers about 85% – which means you’re looking at stumping up the other 15% as a deposit.
So let’s say that you find your dream home, and it’s on the market for £100,000. If the seller accepted your offer at that price, and your mortgage lender agreed to lend you 85% of the money (£85,000), you would need to put the other £15,000 down as a deposit.
But here’s the important thing – if you can afford to put down an even bigger deposit, you should really consider doing it. That’s because you’ll be able to take out a smaller loan from your mortgage lender, and they might even offer you lower interest rates. (If that sounds too good to be true, remember that it’s good for the bank as well, because a bigger deposit makes you a less risky proposition.) In short? By putting down a bigger deposit you could pay your mortgage off quicker and save money in the long run, too.
Help to Buy
If a 5% deposit is all you can afford, there are other options. A Help to Buy equity loan from the government lets you ‘buy’ a percentage of your new home and pay rent on the rest, with the option of buying the whole home later.
The same deposit rules apply for people who aren’t first time buyers, with the added complication that your deposit money might be coming from the sale of your existing home. The sale of your current home needs to be completed (i.e. you have the money in your pocket) so you can use the cash on your new home. You also have the options of remortgaging or porting your mortgage, but this can be complex, so it’s best to speak to a broker about your options. Of course, if you’ve paid your entire mortgage off and you’re downsizing, you might have enough funds to avoid a mortgage altogether. Nice work!
Value vs. purchase price
There’s a different between a home’s value and a purchase price. Its value is how much a mortgage company thinks the home’s really worth (based on things like its features, condition, size, and the local area). It’s purchase price is what you’re paying for it. So, for example, if a property is deemed to be ‘worth’ £100,000 by your mortgage lender, but you’ve put in an offer of £110,000 because you really like it, you’re paying more than its market value. The market value will be determined by your lender, either because they’ve lent in your area before or after sending someone to survey the property.
Your mortgage lender will probably lend you the money based on your new home’s value, not its purchase price. In this case the difference is £10,000. If you can’t pay that yourself your mortgage might be scuppered, so always bear in mind how much your home is worth.
How to save for your deposit
Even if you’re not thinking of buying for a few years, or you have a cash gift to help with your deposit, it’s important to start saving (or saving extra) as soon as possible. Every extra penny equals a bigger deposit, and as we’ve learned, the bigger your deposit the better.
Savvy buyers will consider putting money into a Lifetime ISA, which is a way of saving for both your first home and your retirement. It means you slowly pay money in, and when you buy your first home (or take it out for retirement – the only times you’re supposed to withdraw money from your account), the government will give you a 25% bonus. So let’s say you save £4,000 in your Lifetime ISA. When you use it for your home deposit, the government will top it up to £5,000. That’s a lot of free money!
An easy way to save regular chunks of money is to ‘pay yourself’ every month. To do this, open a new, separate bank account to the one you use for your daily expenditure. Each payday, move a chunk from your ‘normal’ account to your new one, or even better, make it automatic with a direct debit. If you do this as soon as you have the money, rather than waiting to see what’s left over at the end of the month, you’re far more likely to build up a tidy sum.
Other home moving costs
So you’ve sorted your deposit out – that’s the biggest job out of the way. But before you go running into the sunset, remember that there are some smaller fees to pay, and they all add up.
All home buyers will need to budget for:
- Mortgage broker fees (Scout charges a fixed fee for lifetime advice)
- Solicitors’ fees (using a service like Optimus can help you stay in control of the price)
- Mortgage lender fees (such as arrangement fees and valuation surveys, which your
lender and/or broker will explain to you clearly)
- Home survey fees (optional, but recommended)
- Stamp duty (take a look at the current rates here).
If you have a house to sell remember that you’ll also have estate agency fees to pay, as well as things like removals. It’s amazing how hard it is to shift a sofa without professional help!
Getting your finances in shape
Great – you know what you’ll need to pay for, and you’re on your way to saving a good deposit. But the hard work doesn’t stop there, because as well as having a bit of cash to put down, you’ll also need to prove to your mortgage lender that you’re responsible with your finances.
Before they offer you a mortgage, your mortgage lender will check your ‘credit score’. This is an automatically generated rating based on your track record of paying things like credit card bills. If you can show that you have a record of paying up on time and you don’t have any problems with debt, the lender will trust that you can continue to pay back your mortgage in the future.
Before making any mortgage applications, check (and if necessary, improve) your credit score. Reputable online services like Experian can tell you where you currently stand. It may sound counterintuitive, but using and regularly paying back a credit card will improve your credit score, as it shows that you can responsibly handle your finances.
Check your debt-to-income ratio too, as this is something your mortgage provider will check out. Your ‘income’ in this instance is the money that regularly comes into your account (i.e. your monthly paycheck), and your ‘debt’ is how much of this money you spend each month on things like bills and other outgoings. The higher the ratio (i.e. the more you spend), the less they are likely to lend you. You can help improve this by paying off outstanding loans if you can, and cutting down unnecessary spending in general.
Working out your budget
It’s time to take a deep breath, open a notebook, and be honest about your finances.
When you have all of the above information – the amount of deposit you can put down, how much cash you need to keep aside for other mortgage fees, and your average monthly expenditure – write it all down in black and white.
The numbers may look big, but it’s better to face them head on and understand where your cash is going. Once you’ve added everything up, you should have a good idea of how much a month you could afford to spend on your mortgage payments. Of course, your mortgage lender will also determine this for yourself, but it’s helpful to have an idea of what to expect.
Sorted? Now it’s time to talk to your mortgage broker and sort out your Agreement in Principle.
Get an Agreement in Principle
Getting an Agreement in Principle (let’s call it an AIP), sometimes known as a Mortgage in Principle, is fairly straightforward. Once you’ve chosen a lender with the help of your mortgage broker, the lender will issue your AIP as a way of indicating what they will be willing to lend to you. You can get an AIP just for yourself if you’re buying alone, or an AIP that covers both of you if you’re buying with someone else.
How to get an Agreement in Principle
When you’ve been through all the mortgage options with your broker, and you’ve chosen a lender together, your broker will help you get your Agreement in Principle. This can almost always be done online or by calling the lender.
You won’t pay anything for your AIP, and once you’ve handed over all the information they need, it may take as little as a few minutes for your agreement to be issued. There’s often a time limit on the AIP – between one and three months – but many lenders will happily renew it for you
So what does the lender need to see at this point?
- Basic details like your name and date of birth
- Details of your current and previous addresses (usually for the last three years)
- Income and expenditure information.
You usually won’t have to show any paperwork at this stage; that’s why it’s ‘in principle’. The lender is trusting that all your details are correct. Of course, before they actually give you the mortgage, you’ll have to show proof of all the above.
Why should you get an Agreement in Principle?
Firstly, an AIP is useful because it shows you how much you’ll probably be able to borrow. That’s handy information when you’re looking for home, as you can choose to view properties that are within your likely budget.
Secondly – and perhaps most importantly – an AIP shows home sellers and estate agents that you’re serious about buying a house. Without an AIP, your offer will look less attractive. We recommend that everyone, no matter what kind of property they’re after, gets an AIP.
Is the Agreement in Principle the same as a mortgage offer?
In short, no – as noted above, it’s an estimate of what the lender is willing to give you based on what you’ve told them. If any of your information is incorrect, or your circumstances change, the actual mortgage offer may be quite different. However, AIPs are reliable enough that they indicate to sellers whether your offer is serious and worth it, so they still have value!
Help! What about my credit rating?
Good question! You want your credit rating to stay as high as possible, and too many checks can negatively affect it.
When you ask for an AIP, the lender will ask you to run a credit check; they need to do this before issuing the AIP. Importantly, there are two different types of credit check they could run, and each are slightly different.
A ‘soft’ credit check doesn’t leave a ‘footprint’ on your credit file. Basically, nobody else (including other lenders) will know that you have had a soft credit check, and it won’t affect your score.
A ‘hard’ credit check, on the other hand, does leave a ‘footprint’. This means that other lenders, if they also do a credit check, will know that the first lender has already performed one. Too many recent credit checks might put them off, as it suggests that other lenders have already said ‘no’, hence why you’re turning to them. Too many hard credit checks can also have a negative impact on your credit score.
Hard credit checks sound scary, but they’re often necessary in order for a lender to give you an AIP. If you’ve given them all the right information, and you know your credit score is decent, nothing in the credit check should surprise them and they’ll be able to make good on their offer of an AIP. Just avoid asking for an AIP from lots of different lenders, as it could look suspicious.
If that all sounds like too much information, don’t worry – your mortgage broker can explain everything to you and make sure you’re comfortable before anything happens.
Next stop: finding a conveyancer.
Get a conveyancer
In England and Wales you’ll need a conveyancer or a solicitor to help with the legal side of your home purchase and, if relevant, your sale. Finding a conveyancer early will make your move a lot easier and, since you’ll have someone lined up, could save you time when you find the home you want to buy.
Your estate agent might be able to recommend a local conveyancer, or one who suits your particular needs. Another good option is to use a company who can take a look at your situation and match you to the best conveyancer on their panel.
But what is a conveyancer?
‘Conveyancing’ is the legal process of transferring property ownership from one person to another. The ‘conveyancer’ is the person who makes this all happen. They’ll deal with the tricky paperwork, the transfer of money, and more.
Should I choose a solicitor or a conveyancer?
Both conveyancers and solicitors can help you move home, but there is a difference between them.
While solicitors practise in many areas of law, conveyancers are legal specialists who only deal with property. Both are qualified to deal with your paperwork, but conveyancers may have more expertise in specialist property-related queries, and because they only deal with property transactions, your paperwork is less likely to be marked as ‘low priority’ than with a solicitor who has, say, custody cases coming up.
On the other hand, if your purchase or sale involves other complicated legal factors that aren’t strictly related to property – like if it’s part of a divorce settlement – a solicitor who deals with divorce might be your best bet, especially if you’re already using their services.
What will they do?
Your conveyancer (or solicitor) will handle the paperwork and let you know what to do at each stage of your sale or purchase. When you’re buying a home, their job includes:
- Carrying out ‘searches’ for the home you’re buying. That means checking things like planned buildings works nearby, sussing out flood risks, making sure the seller really owns the house… basically, anything you need to know about.
- Requesting draft contracts and other documents from the sellers’ conveyancer
- Letting the Land Registry know about the transaction
- Handles your deposit money and gives it to the seller’s conveyancer
- Arranges your Stamp Duty payment
When you’re selling, their job includes:
- Checking your title deeds and giving you the right forms
- Send contracts and other documents to the buyer’s conveyancer
Do I really need a conveyancer?
The short answer is ‘yes’. Unless you’re a legal specialist, you will definitely need a conveyancer for your move, even if you’re only buying and not selling. Many sellers’ conveyancers won’t even deal with a buyer if they don’t have their own legal representation, and for good reason: the process is a lot trickier than it looks from the outside.
How long does conveyancing take?
The average time for conveyancing to take place, from finding your home to exchanging, is around twelve to fifteen weeks. Bear in mind that it really depends on the complexity of your purchase or sale, how many people are in the chain, factors like the coronavirus pandemic, and even how busy the conveyancer is… basically, how long is a piece of string?
That’s why it pays to find your conveyancer as early as possible, so you have all possible paperwork lined up and ready when you offer on your new home. Remember, as with everything in a property transaction, patience is key.
The next step is the most exciting one – finding a home!
Find your home
Finding your new home is the most exciting part of the whole journey, but it can also be nerve-wracking. After all, you’re about to make one of the biggest financial commitments of your life.
Most house-hunters will view dozens or properties, some of them multiple times, before they decide to make an offer. This is where you actually commit to spending your hard-earned money. So what happens when you’ve found the property you love?
- Decide how much you’ll offer. Before you make an offer, make sure you’ve done your research and know how much similar properties in the area cost. If your offer is too high, you risk wasting your money; too low, and you might lose out to someone else. You might decide to make your first offer your best one, if you really want to outdo the competition, or you could offer slightly lower than you’re willing to go and see if you can drive a bargain.
- Make sure you have your Agreement in Principle prepared, as this means that both you and the seller know what you can afford. It also shows everyone involved that you’re a serious buyer who can go along with a mortgage application should your offer be accepted. If you don’t have an AIP yet, get one as soon as possible.
- Check that you have your deposit lined up and easily accessible too. This includes any cash you’ve saved as well as funds such as your Help to Buy ISA, if you have one.
- Line up your paperwork. When you make an offer, the seller’s estate agent will need to see things like your ID to make sure you are who you claim.
- Make your offer. Speak to the seller’s estate agent to do this. You might do this by phone or in person if they have an office, but it’s wise to put your offer in writing as well (for example, by email) to make sure there aren’t any mistakes.
- Answer any questions. The estate agent might have queries or want to check some of your paperwork. That’s completely normal, and it’s why you’ve (hopefully) lined everything up already.
- Haggle. The seller may come back to you (via their estate agent) with a different offer; the estate agent may tell you that someone had offered a high price; your offer may be turned down outright; or, if you’re lucky, your offer will be accepted!
You might have to go through this process a few times before you find a property that you love and have your offer accepted, but it will all be worth it in the end. (A quick note – if you haven’t done it already, now is definitely the time to find a conveyancer.)
Now your offer has been accepted and you’ve agreed on a price, it’s time to get your mortgage. We’ll take a brief look in the next step.
Get your mortgage
When you’ve had an offer accepted on your new property, it’s time to get the mortgage sorted. Luckily you’ll have done a lot of the hard work already, and your Agreement in Principle is already in your hand.
If you’re interested in the nitty gritty of applying for and getting your mortgage, check out our How to get a mortgage guide. For now, though, the process will look something like this:
- Submit the mortgage application. This is something your broker can help you with. In your mortgage application, you’ll be asked to name your conveyancer or solicitor.
- Wait for the documents to be checked. Your lender will want to confirm all your details and look at your documents in detail, checking things like your income. They will provide a list of all the documents you need.
- Wait for the lender’s valuation survey. The lender will send a qualified surveyor out to check your new home. This is just to make sure your new property is worth what you’ve offered. (More on that in step one of the guide.) If the lender’s valuation comes back far lower, it might be time to renegotiate the price with the seller. After all, if you can’t get a mortgage for that amount, it’s unlikely anyone else will either.
- Carry out your own surveys. Your lender’s survey will state the value of your new property, but you should get your own surveys at this point too. A Homebuyer Report is the most popular kind, and it will advise on repairs and maintenance issues that you need to know about before you exchange contracts. If any expensive repairs come up, this is the time to ask for a reduction on the property price or make sure it’s fixed before you complete.
- Sign the mortgage contracts. Your lender will send these over once they’re satisfied that your documents are fine and your property is worth the money.
The next step is to swap contracts with the seller (via your conveyancer) in a process known as exchange and completion.
Exchange and complete
You’ve made it! This is the last part of your home buying journey (except for moving in, of course). Things can still fall through at this point, so make sure you know what’s happening and stay in contact with your estate agent and your conveyancer at all times.
The difference between exchange and completion
Exchanging contracts and completing the sale are two different things. ‘Exchange’ literally means the point at which you swap contracts via your conveyancers. Remember, a completion date has to be agreed by everyone for the exchange to occur. As soon as you’ve done this, the transaction is legally binding and nobody can pull out.
‘Completion’ is the day the property is legally transferred, and the money is moved from the buyer’s conveyancer to the seller’s conveyancer. and the seller gets their money, and it’s the latest date that the seller can stay in their home before it becomes yours. This date might have been set two weeks or more after the exchange of contracts.
Paying the deposit
You’ll have to make sure that your conveyancer has your deposit before contracts can be exchanged – this is held ‘in trust’ and will be transferred to the seller’s conveyancer on completion.
Once your conveyancer has your deposit, a completion date has been agreed, and both conveyancers agree that everything is in order, the contracts can be exchanged.
How are contracts exchanged?
Both you and the seller will have the exact same documents agreeing on the terms of the property sale and purchase, and you will both have to sign them. Your conveyancers will then swap these with each other at the same time. Often the contract is read and agreed over the phone before the conveyancers send their copies to each other. On the day of exchange each conveyancer must receive verbal authorisation from their client that they are happy to go ahead – an important last check, because it is about to become legally binding!
If you’re in a property chain (which isn’t unusual), exchanging contracts can’t take place until everyone is ready to do so, all buyers and sellers have given verbal authorisation on that day, and each conveyancer has had their call with the conveyancer on the other end of the transaction. The more people in a chain, the more likely there are to be delays as so many people have to do this on the same day and calls can be missed! Unfortunately this is just a normal part of the purchasing process. But it truly is the last hurdle before the house is yours!
When can you move?
When your conveyancers swap the contracts they’ll also have to agree a completion date. This is the day the property officially becomes yours. They’ll already have been in conversation with you about this, and both you and the seller have to agree on the same day. It’s helpful if you can both compromise a little here, as you don’t want to introduce time-wasting conflict at this stage.
If you can possibly move into your new home a couple of days after completion (for example, if you’re currently renting and there will be an overlap of a few days), try and do this. Completing and physically moving on the same day can be very stressful. Especially if it completes late afternoon!
What actually happens on completion day?
Completion day is actually very simple. All you have to do is sit tight and wait for your conveyancer to call with the news that the seller’s conveyancer has received their money. When this happens you can collect your keys and the property is yours! Keys are usually handed over by the seller’s estate agent, or by the seller if they are meeting you at the property.
Just remember that the call from your conveyancer might not come first thing in the morning, especially if there’s a chain of bank transactions happening. Just try to relax and remember that your conveyancer has everything in hand.
Take a deep breath. You’re done. Now you can get on with the important stuff – making your new property into a home.
Needs a bird’s eye view of the home buying process? This home buying timeline might help.