First Time Buyer’s Road Map
Part 1: Show me the money!
Keen to get out there and locate your location, location, location? Your enthusiasm is admirable but before you don your virgin viewer’s L plates and hit the road, you’ll have to pass your theory test. Comprising only one, 3 part question, the test is simple – but not easy. You don’t even have to second guess the examiner as to what will come up – because I’ll tell you the question right now. Here it is:-
Q: Where is the money coming from?
How much of a mortgage are you able to obtain?
Are you able to come up with the required deposit?
Will you be able to make the payments on this mortgage and have enough income left over to live on?
Don’t know where to start? Well, you could spend hours on the internet looking at lenders’ interest rates and deals and qualifying criteria. You could then fill out a form online and submit it to your chosen lender. In response, you may well receive sufficient information to enable you to figure out the answer to the question.
But that’s certainly not the approach I’d recommend. Particularly since you’re new to all of this, I’d suggest that it’s always best to deal face-to-face with a mortgage adviser. That can be either a lender’s own in-house mortgage specialist or an independent financial adviser (IFA). And, fortunately, both are available to you here in Strathaven – and more than happy to help you through the mortgage maze.
Bank of Scotland (offering Halifax mortgages) are one of the country’s biggest mortgage lenders. They offer an online facility for you to find out how much of a mortgage may be available to you, in principle, and at what cost. However, they have a branch here in Strathaven and have indicated to me that they’d be more than happy to complete the “mortgage in principle” application process with you, at a meeting in the branch. So much better than trying to second guess a form on a computer screen I’d have thought!
The disadvantage of going straight to a mortgage lender, however, is that they can only advise you on their own products. If you want to be sure that one of their competitors don’t have something that would suit your requirements better, you have two options. The first is to do the market research yourself. And that, I can tell you right now, will burst your head.
Your second option is to engage an IFA – an professional, independent mortgage adviser who will do all the hard work for you. And for Strathaven’s newbie mortgage hunters like yourself, that life saver could well be Linda Paterson of Murray Paterson Limited, IFAs in Green Street. A dedicated, highly experienced mortgage specialist, Linda knows her stuff – and, a Stravonian born and bred, she also knows our local housing market.
To arrange an initial, no obligation, meeting with Linda, you can call her on 01357 521281 or email linda@murraypaterson.co.uk
Part 2: Let the Quest Commence
You’ve met with your mortgage advisor, crunched the numbers, looked at mortgage options, incentives, deals, criteria and charges, crunched the numbers again, chosen a mortgage lender and secured your “Mortgage in Principle”. You know how much you could borrow – and, just as importantly, how much you’d be comfortable about borrowing.
There’s still the minor detail of your deposit of course. You await the result of your application to the Bank of Mum & Dad for an interest-free, capital repayment-free loan (or “GIFT” for short). But it’s in the bag. Your “I can’t afford to leave home otherwise” ploy was a stroke of genius.
Free Money! Aye Right
And you will be able to contribute a deposit on your deposit. You’ve opened a Lifetime ISA and are saving into it each month. When you’re ready to buy you’ll close the account, use the proceeds towards your price and the taxman will add 25%.
For more info go to: www.Helptobuy.gov.uk
Maybe the only example of free money you’ll ever encounter! (yes, the GIFT is, technically, free money too – but having to be nice to your parents for the rest of your life is a price of sorts, I guess).
Getting Lawyered Up – Never too early!
So NOW can you look at some properties? Yes, of course – well, actually, No. Better appoint a Solicitor first. Is that not a bit previous? I don’t think so – and I’ll tell you for why. What if you fall in love with the first property you view but find there’s already other interest – and in fact offers have to be submitted by 12 noon tomorrow? You’ve missed the boat haven’t you? Yes, almost certainly if you haven’t yet appointed a Solicitor. No, almost certainly not if you already have your Solicitor in place.
In choosing a Solicitor, I think personal recommendation is always best. A Solicitor your family or friends know and trust would be my suggestion. Arrange a meeting. Put a face to the name. Get an estimate of legal fees and outlays. Provide your photo and address ID (which your Solicitor will need before he or she can act for you). Ask about anything you’re unsure of in the purchasing process. And having invested the time and effort to do this groundwork, when you do find a property you’d like to offer for, a phone call instructing your Solicitor is all that should be required. Getting your offer in by 12 noon tomorrow will be a piece of cake!
Congratulations, you’ve passed your Theory Test. Now it’s time to venture out onto the road for your first lesson in house hunting for real! But do you have a picture in your mind of exactly what property you’re looking for – or will you only know it when you find it? Probably somewhere in between these extremes. Anyway, if there’s a particular location you want to be in, go and visit the Estate Agents there. Describe what you’re after and indicate your budget. Get particulars of properties already for sale through these agents which may be of interest. But also leave your details so the agents can give you an early heads up if a property meeting your criteria is subsequently listed with them. A word of warning though: estate agents will do their best to cross-sell you to death. By that I mean that they’ll try to sell you a mortgage, insurance, the services of their preferred Solicitors…. It’s entirely up to you of course, but my suggestion is a polite “Thanks but no thanks.” And if you’ve followed my Road Map so far, you’ll already have made your own arrangements anyway.
For an overview of what’s for sale you should look online. Each Estate Agency will have its own website but there’s no need to trawl through these. Instead, I suggest you go to:-
www.rightmove.co.uk Where practically all Estate Agents list their properties, and
www.espc.co.uk Where you’ll find properties being marketed by Solicitors’ firms throughout Scotland.
Both these sites have search facilities and you can set up alerts to notify you of new listings matching your chosen criteria.
Now for the fun bit (or maybe not). I’d urge you to go and view as many properties as you have the time and the energy to cope with!
Part 3: Moving from Theory to Practice
You’ve scoured www.rightmove.co.uk and www.espc.co.uk and have found several properties which look interesting. You particularly like the 5 bedroom Townhouse in Glasgow’s West End (Offers over £1.3 million)
and the 16 bedroom baronial mansion in Dumbarton (Offers in the Region of £1.53 million)
Having whiled away a pleasant hour or two choosing your lottery win gaff and, having checked on Lotto that it’s still NOT you, it’s time to get serious and find yourself a starter flat.
You’ve found 3 or 4 that look like possibilities. It’s important not to narrow down your search too much at this stage, based only on some photos and a paragraph of blurb. Instead, ask the selling agents to email you the Home Reports for each of your possibles and set aside another evening to read through these.
Struggling your way through your first Home Report (probably running to 60 pages or so) will be hard work. But it is worthwhile reading all of it – just this once. About two thirds of it is standard, generic information: useful information to have but, after reading it once, you can skip past it next time.
The business end of the Home Report is the Single Survey and this (together with a quick glance at the Energy Performance Certificate) is all you’ll direct your attention to from now on.
The Single Survey is a report, prepared by a Chartered Surveyor following his inspection of the property. It contains fairly detailed information on the condition of the property, indicating any likely future maintenance issues and especially highlighting any current defects or problems.
The Single Survey addresses the various parts of the property (e.g. Roof, Windows, Internal Walls) in turn and awards each a score of “1”, “2” or “3”, equating to 1: No problems 2: guidance re maintenance and 3: current defects or wants of repair, requiring immediate attention.
In offering for a property with “3”s in it’s Home Report, a purchaser has to factor in the cost of putting the defects right. This can be particularly problematic for first time buyers.
Example: a Home Report identifies dampness and wood rot in the property. A Timber Specialist’s Report is obtained which estimates the cost of eradicating this at £3,000. The mortgage lender then makes it a condition of their loan that the work is done and holds back the £3,000 meantime. The result is that the purchaser has to find £3,000 on top of his or her deposit, in order to pay the purchase price. The work is then carried out, the mortgage retention released by the lenders and the Timber Specialist’s bill paid. Bottom line is that the property is costing an extra £3,000 – which the purchaser has to pay in addition to his/her deposit.
Accordingly, unless the Bank of Mum and Dad can be further prevailed upon, you’re probably best to steer clear of properties requiring any significant repairs or renovation.
O.K. Time for your first field trip. Arrange to go and view a property. Turn up at the appointed hour and have a look round: simple is that. A couple of pointers though:-
Take someone along with you – your partner, a friend, a representative of the Bank of M & D, whoever. Either the sellers or their estate agent will be showing you around and it is very difficult to carry on a conversation with them and get the answers to your questions about the property, while at the same time getting a good look around. Having someone with you as a second pair of eyes and ears makes this a bit more manageable.
Try to get some background about the sellers and their circumstances. How long have they been in their home? Why are they selling? Have they bought something else? What entry date would suit them? What sort of price would be acceptable to them? If it’s the estate agent who is conducting the viewing you’re unlikely to make much headway here; but if it’s the sellers themselves you may manage to strike up a rapport and have a useful discussion.
Part 4: Taking the Plunge
You’re now a seasoned house-hunter. You’ve viewed every flat for sale within your chosen area and vaguely within your budget. You reckon you know your micro market better than any estate agent. Right now your Mastermind specialist subject would definitely be “Starter flats for sale in the ML10 postcode, August – October 2017”. And if it weren’t that you’re so crap at general knowledge you’d fancy your chances.
And you’ve just found what could be The One. You’ve alerted me and I’ve noted your interest with the selling agents. This is just a phone call to advise them that you may wish to offer. It doesn’t commit you to anything and costs you nothing. But it gives me the chance to suss out if you have competition for the property. If there have already been other notes of interest, chances are we may be heading for a Closing Date. Let’s explore that scenario first.
A Closing Date is seller’s heaven and purchaser’s hell. It is where a selling agent fixes a date and time (“next Friday at 12 noon” is a favourite) for all prospective purchasers to have their Solicitors submit their formal written offers for the property. It is a blind auction. Everyone gets one chance to make his or her best offer – without any idea what their rivals are bidding.
I’m often asked for guidance on what to offer at closing. To a certain extent this will depend on how much you can afford. If you’re already at the top of your budget, it’s likely to be a matter of offering that, adding on a few pounds for luck and having me lodge your offer at 11.59 a.m. on C Day. I’ll include a covering letter, emphasizing that you are a first time buyer, with your mortgage arranged in principle and very flexible as to date of entry.
It’s now butterflies in stomach time while you await your fate – in the form of a phone call from me, relaying the good or bad news. I try to blurt it out as quickly as I can. It’s either “Hi, Congratulations blah blah” or “Hi, I’m sorry blah blah”. I don’t actually say “blah blah” but I suspect I might as well do – ‘cause you’ll probably not be listening to the end of either sentence. Success or Failure. Victory or Defeat. That’s all that matters right now. The whys and wherefores are for another day.
If you do suffer the seemingly cataclysmic disaster of being unsuccessful at a closing date, I have two scraps of comfort for you – one fairly trivial and the other much more profound:-
The trivial is that you won’t be getting a bill from me for our failed endeavour. My practice is not to charge for my work on an unsuccessful offer (so I’m probably as gutted as you that you lost out!).
The profound is this: What’s for you won’t go by you. Pithy, glib, hand knitted even? Maybe – but, in my experience, true nonetheless.
Moving swiftly on to the other scenario. I note your interest and the selling agent tells me yours is the first. The way is open to you to make your move. To agree terms before some offer-totting punk of a cash purchaser can come along and trigger High Noon (or “Closing for offers next Friday at 12 noon” as it’s known around these parts).
At the moment though, at least here in Lanarkshire, there aren’t buyers queuing up to purchase every starter home that comes on the market. So, before putting forward your offer, we will consider a number of factors – such as:- How long has the property been on the market? What are the seller’s circumstances? Home Report value and any adverse comments? How keen are you on this property? Is it uniquely suitable for you or, if you don’t buy it is it likely that something similar will come along soon? After going through this process, you settle on a figure and I submit your offer. It may be a “Yes”. It may be a “No”. But chances are it will be a “Mibbees Aye, Mibbees Naw”. In other words, a counter offer from the seller to accept a higher figure – and perhaps, after some to-ing and fro-ing, the striking of a deal.
Part 5: Making it Legal
You’ve just had the “Congratulations blah blah” call from me. All you remember from it with any certainty is that your offer has been successful. You are ecstatic but you now realise that you’ve no idea what happens next. I probably explained that but to be honest, you took in just the “Congratulations” and everything after that was lost in all the excitement.
OK so here’s what happens next. First, you give your nearest colleague a bear hug and dance around your workplace yelling “Ya Beauty!”. Then (since your nearest colleague just happens to be your straight laced boss, who just happens to be in the middle of an important meeting at the time) you get dismissed for gross misconduct, taking some of the shine off your celebrations.
No, no, no. What really happens next is that you calmly call your mortgage advisor with the good news and arrange to meet. You already have a mortgage agreed in principle but you now need to submit a detailed application to your lenders, for the mortgage you require over the property you are about to buy.
Although your offer has been successful, there is as yet no legally binding contract for your purchase. You’ll remember that I submitted a formal written offer to the selling agents for you? Well, what is now needed to create a binding contract is a formal written acceptance from the seller’s solicitors. But it’s not quite as simple as that. Surprise, surprise!
In theory, the seller’s solicitors could issue a simple letter stating
On behalf of our client, the Seller, we hereby accept your offer for the property. Yours faithfully
Such a response would indeed create a binding contract. But in practice this is not going to happen. Why? Well, because I’ve included the following provision in your offer:
This offer and any contract to follow hereon are entirely conditional upon the Purchaser receiving a satisfactory Offer of Mortgage, the Purchaser being the sole judge of what is “satisfactory”.
Understandably, the seller is not going to agree to that condition and so will seek to delete it when accepting your offer. The result is what is known as a “qualified acceptance”. Effectively it is a counter offer – to accept your original terms, with the exception of your “subject to mortgage” condition. Such a qualified acceptance does not create a binding contract. That will only happen if you, in turn, accept the seller’s qualifications to the terms you originally offered.
So why did I include the “subject to mortgage” condition in the first place, knowing the seller wouldn’t accept it? The answer is that your offer also contains a standard penalty provision which sets out what happens if you don’t pay the purchase price on the agreed settlement date.
And what happens could be very nasty indeed because:
You don’t get the keys to your new property (fair enough since you haven’t paid for it)
Interest runs on the price at, currently, 4.5% p.a. until paid (OK, maybe you can live with that)
If you still haven’t paid a fortnight later, the seller can cancel the contract, resell the property and charge you all the estate agency and legal costs of resale (ouch!) and
If the seller, on resale, can’t achieve the same price you were due to pay, you are responsible for the shortfall (bankruptcy beckons!).
You’re relying on loan funds to pay your purchase price. So you need to have your Offer of Mortgage in black and white from your lender – to be certain that you can pay for your property on time – before binding yourself into a contract that could annihilate you if you don’t.
To be on the safe side, maybe you should also be asking the Bank of Mum & Dad for proof that they can come up with the promised GIFT for your deposit (but a word of warning: such a request may not be well received – and what’s the World coming to if you can’t trust the good old Bank of M & D?).
You duly receive your Offer of Mortgage and, on your instructions, I now write to the seller’s solicitors, accepting deletion of your “subject to mortgage” condition and thereby concluding the legally binding contract for your purchase. Success! It’s all over, bar the conveyancing.
Conveyancing? That’s the boring lawyery bit between the bear hug and the house warming party.
Part 6 (and last) Mine all mine!
Mortgage offer issued, missives concluded. So what’s left to do other than book the removal van for your entry date and send out the housewarming/painting invites for that evening? (BYOB – bring your own brush). Well first thing I’d say is – calm your jets. Yes, I should be able to get you your keys on your entry date but no saying at exactly what time. Since you don’t have to move in immediately, there’s no point in putting yourself (and me) under that pressure.
Similarly, the party could keep for wee while: cement your standing with the neighbours as “that lovely young professional who’s just moved in next door” before testing out your sound system (and your friends) on them.
Isn’t all that just a tad patronizing and clichéd? The bit about the window shattering so-called music and the wild eyed moronic mates probably is, I’ll grant you. But not the plea to push back your removal by at least a couple of days: that’s just sensible advice borne of experience.
Conveyancing: What is it? And why should you give a damn?
Conveyancing – The What: A wise old solicitor once defined Conveyancing as “The boring lawyery bit between the bear hug and the house warming party”.
No hang on – that was me, last week. Impressive stuff, don’t you think?
This week, I present my definition of:-
Conveyancing – The Why: “So you’re not sold a pup”.
Conveyancing entails:-
A lot of examination of documents: home reports, property questionnaires, title deeds, plans and plans reports, property enquiry certificates, coal mining reports, land register searches, planning permissions, building warrants, completion certificates, letters of comfort, timber specialist reports and guarantees and mortgage offers are the usual suspects – but there are often many more.
A fair amount of preparation of documents: usually, for a purchase, a Disposition, title observations, Standard Security (mortgage deed), Land Registration Applications, land and buildings transaction tax submissions, report to mortgage lender, cash statement and your Will.
And most importantly, communication with you, the client, about all of this and much more.
Twenty five years ago, when my wee niece, Jessica, asked me what being a lawyer involved, I replied that it was mostly about reading my newspaper, eating chocolate biscuits and looking out my window. While I continue to aspire to this, I’ve never quite managed to achieve it. Conveyancing, Will writing and the like always seem to get in the way – and long may that continue, from a #keepingthewolffromthedoor perspective. But I have also eaten a fair few chocolate biscuits in my time. So whether it be about buying your first home, drawing up your Will or the relative merits of a Chunky KitKat and a Caramel Wafer, I’ll always be pleased to give you the benefit of my considerable experience.
Keep Right On To The End of The Road Map
For those of you who have tenaciously steered your way through all 6 parts of my First Time Buyers’ Road Map, I offer my grateful – if somewhat bewildered – thanks. Now you’re there … at the end … of the road! (and I defy you not to hum the tune dementedly for the rest of the day).
By David C Murray Senior Partner at Gebbie & Wilson LLP