Moving home can be a busy time for all parties involved. So, we’ve put together a quick and simple guide, offering tips and some food for thought to help you through the process.
1 Planning for a new home
Save for a deposit
The more money you can put towards a deposit, the cheaper the mortgage deals on offer may become in terms of interest rates. Lenders are often more inclined to offer cheaper deals when this is the case as typically the lower the loan to value ratio (LTV), the less risk for the lender (see below for further information on LTV).
For first time buyers, saving for a large deposit by yourself can be a struggle. However, there are many ways to fund a new home. Things like shared ownership schemes and buying a property with friends can help people take those first steps.
Your credit score
Having a good credit score can be an incredibly important factor in securing a mortgage, so it’s obviously best to avoid anything that might have a negative effect on your credit rating. For example, high levels of debt, any mistakes on your credit report and applying for a number of credit cards or loans in a short time period can all have an impact on your rating.
The government’s Money Advice Service gives useful advice on how to improve your credit score.
Selling your home
The time has come for a change of scene and you’re thinking of selling your home and moving on. A home can often be the most valuable asset we have and it’s certainly not unreasonable to want to achieve a good price. Have a look at our guide on How to sell your home for more info.
How much can you borrow?
It’s important to have an idea of what you are likely to be able to borrow before you start the search for a property. Most lenders have online tools that will be able to give you an indication of how much you may be able to borrow by doing a high-level affordability assessment. See how much you may be able to borrow with our useful calculator.
Online tools are helpful as a guide, but for a more accurate view, you should apply for a ‘Decision in Principle’ (DIP). This will tell you, in principle, if a lender may be able to lend you the amount you need. Do remember that this is not a guaranteed offer, as at this stage you have not gone through the full application process.
What is a loan to value (LTV) ratio?
Simply put, your LTV ratio is the size of your mortgage in relation to the value of the property you are buying. It is usually given as a percentage. For example, if your mortgage is £300,000 and the home you’re buying is valued at £400,000 then your LTV ratio would be 75%.
2 Finding your new home
Start your search
When you start your search for your perfect home there can often be lots of different things to consider. Average house prices in the area, local schools and amenities, furnishings and interior design etc. For useful tips on what to look out for, why not check out our handy guide.
Offer accepted – is it legally binding?
Hopefully, if your house hunting goes well, you’ll have your offer on a property accepted.
Bear in mind that, just because an offer has been accepted, it does not necessarily mean that the seller has to go through with the transaction. In England, Wales and Northern Ireland, this also applies to the buyer as neither party is legally bound to actually go through with the transaction until they have signed and exchanged contracts.
In Scotland, however, once you have had your offer accepted, it’s legally binding from that moment. The system in Scotland aims to prevent gazumping – where another buyer comes in after the sale is agreed and offers to pay a higher price.
Take the house off the market
This is normally something that the estate agent should do as soon as your offer has been accepted by the seller.
Find a conveyancing solicitor
Conveyancing is the legal process undertaken when you are buying a home. A solicitor or a licensed conveyancer will carry out checks on the property title and local searches, liaise with the seller’s solicitor or licensed conveyancer who drafts the sale/purchase contract and your solicitor or licensed conveyancer will approve the contract.
Mortgage lenders and brokers can offer advice by recommending the mortgage most suited to your circumstances. They can give you an idea of how much you can afford to borrow based on things like your annual income, expenditure, any outstanding debt and your credit score.
An ‘execution-only’ application is the term used when a borrower chooses to select a deal based on their own research and without receiving advice.
3 Completing your mortgage application
Preparing for your application
You might want to think about pulling together all the important and required documents that you may need when applying for a mortgage. These often include:
- Your last three months’ payslips
- P60 form from your employer
- Current account bank statements for the last three to six months
- Statements from your savings accounts
- Proof of benefits received (if applicable)
- Statement of two to three years’ accounts from an accountant if self employed
- Tax return form SA302 if you have earnings from more than one source or are self-employed
- Self-employed people should look to provide information alongside their tax return, which supports what the SA302 says about their income, such as bank statements
- Utility bills
- Passport or driving licence as proof of identity
When organising all the documents you need for a mortgage application, it is advisable to remain mindful about accuracy. Make sure that what is written on your application form matches the documents you provide.
You will also need to provide a rundown of your outgoings. This often includes things like outstanding borrowing on credit cards and other loans, as well as household bills, including council tax, utility bills, insurance policies, and general living expenses.
Your mortgage lender will carry out a mortgage valuation. A mortgage valuation is only for the benefit of the lender – it makes sure that the value of the property is adequate security for the amount being borrowed.
The building survey
A surveyor can undertake a home survey and it is often in the buyer’s interest as it should highlight any problem areas. There are different types of survey and inspection – naturally a more detailed one will cost more. Surveys normally entail an in-depth look at the structural condition of the house and will highlight any potential issues or reasons for you to reconsider purchasing the property – or requesting money off the agreed purchase price.
Have your application accepted
When your lender accepts your loan application and the mortgage valuation is agreeable, they will be in contact with an offer.
4 Finalising the sale
Exchange contracts and pay the deposit
Once your mortgage has been accepted and approved, and your solicitor or licensed conveyancer has completed all the legal work, you will be invited to sign the contract. The process in Scotland is slightly different and our article, Buying a home in Scotland, helps to outline the process.
Your solicitor or licensed conveyancer will then be required to pay the deposit on your behalf. When you reach this stage in the process you can no longer pull out of the purchase without losing your deposit and having to pay other costs.
Confirm completion date
Once contracts have been signed and exchanged and you have paid the deposit, you will have agreed the completion date. Sellers must move out of the property on the date of completion, so once it has been confirmed, you can begin planning to move out of your current property and into the new one.
On the day of completion, your solicitor or licensed conveyancer will transfer the remaining funds to the seller’s solicitor or licensed conveyancer. The final step is for you to pick up the keys from the seller’s estate agent and enjoy the excitement of moving into your new home.
The material contained in this article is intended for information purposes only and not as advice.
You should obtain professional legal or other advice if you are unsure about the effect on you of any matter in this article.
Published: 26 January 2018