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Last Updated: Tuesday, 15 November 2005, 14:59 GMT
A first-timers guide to buying a home
MONEY TALK
By Duncan Pownall
Mortgage development manager, Bradford & Bingley

Duncan Pownall
Mortgage adviser Duncan Pownall
Buying your first home can be a daunting experience, navigating your way through a labyrinth of properties, mortgage products, surveys and solicitors.

With a little forethought, planning and advice the process can be enjoyable rather than stressful.

Things to consider: how much can I spend, what sorts of property can I afford, how do I get a mortgage and what are the costs involved?

The first and most important step to take before looking in an estate agent's window is to ascertain how much you can spend on your first home.

This will ensure that you match what is perhaps your dream property with the financial reality and thus avoid any disappointment later down the line.

There are vast differences in how much lenders will allow you to borrow - ranging from three to almost six times your income.

However, other factors will have an impact on how much you can borrow such as whether you have any existing personal loans, credit cards debts and a deposit already saved.

Mortage matters

As a first time buyer there are specialist products designed to help you. Key things to consider are how much deposit you have and if you are receiving help from parents or relatives.

A key consideration for borrowers is whether they need to pay a Higher Lending Charge or HLC. This fee is levied when borrowers have a high loan to value ratio - that is a small or no deposit.

Even having a deposit of just 5% saved can substantially increase your choice of mortgages.

There are a few products that don't charge HLC at 95% but by having a 10% deposit, you widen the range available even further.

House buyers
First time buyers have plenty to do

Those buyers who are lucky enough to be given a helping hand by their parents have a number of choices too.

Guarantor mortgages can increase the amount borrowed as parents guarantee the mortgage payments.

Meanwhile offset mortgages - where a parent puts their money into a relevant savings account and offsets this against their child's mortgage - helps reduce the amount of interest payable on the mortgage.

With all these variables in mind you should really find out exactly how much you can borrow and more importantly the likely cost of the repayments from a qualified mortgage broker before you start looking for your new home.

There are many sources of mortgage advice. However, check the status of the adviser and company before proceeding.

You may find some advisers are tied to one lender or network and are unable to advise on a selection of different products.

A multi-tie or independent broker can select from a panel or the whole of the market and may be able to find larger loans at better rates and help you chose the best deal that is available from a wider range of products.

There are other routes available.

It is possible to choose your own mortgage by visiting the websites of brokers or mortgage lenders and transacting online - but be aware that these options do not involve advice.

Property hunt

Armed with this information you can start to research areas and homes that you can afford and get on with the exciting part of viewing properties.

Remember - an asking price is just that and you don't always need to pay the full amount

Visit a number of properties before making a decision.

Purchasing your first home is a big commitment and you need to be sure you've chosen wisely.

Visit the home at different times of day and research what the area has to offer.

Ask how much typical bills are, for example monthly electricity, gas and council tax as this all helps with the affordability calculations of a new home.

Once you have decided on a home, you need to put in your offer, typically this could be between 5-10% below the asking price.

Remember - an asking price is just that and you don't always need to pay the full amount. Use it as a basis for negotiation.

As soon as your offer is accepted you need to proceed with your mortgage application and conveyancing process (the legal work).

Provided you initially visited a mortgage broker you should have already narrowed down the mortgage search and it is just a case of finding the best-priced product at this point.

But, you will need supporting documentation such as your payslips for the last three months, your most up-to-date P60, bank statements for the last three months, proof of address and proof of identification.

Ensure well in advance of making the application what exact documents your lender requires.

Paying out

This is now when the financial outlay begins.

Before looking to buy a house, carefully budget for fees as they can often mount up.

RISING COST OF STAMP DUTY
House price 200,000, tax = 2,000
House price 300,000, tax = 9,000
House price 600,000, tax = 24,000

You may need to pay an application fee to your lender of up to 500, which can sometimes be added to your loan.

Some lenders offer products that are 'fees free' - but remember you don't get something for nothing.

Expect to spend approximately 500 on solicitor's fees; between nothing and 1% in mortgage broker fees and again anything from zero to more than 1,000 in survey costs depending on product and choice of survey.

This is a government tax on the purchase price of the property and could well be your single biggest cost.

It is charged at various rates, once your property price is above 120,000.

The first rate is 1% on properties costing more than 120,000 up to 250,000, then 3% for homes over 250,000 and up to 500,000. The top band is 4% for properties worth more than 500,000.

Survey check

Every house purchase where a mortgage is required must have a basic mortgage valuation performed as a lender requirement.

However, it is recommended that you have at least the more in-depth Homebuyer Survey.

Derelict house
The property may be in bad condition

This is carried out by a chartered surveyor who assesses the state of a property and its value and will give you enough information to make a decision on your offer and the property.

It will reveal most defects such as damp and subsidence and may enable you to negotiate on price or in the worst case scenario withdraw from the purchase.

Once you have your survey, your lender will be able to provide a mortgage offer.

Assuming the solicitors have completed their necessary work you can then proceed to exchange contracts where the deposit must be forwarded and you become legally bound to buy the property.

It is then just a matter of time until the lender provides you with your mortgage, the vendor receives the outstanding sum, the stamp duty is paid, and you are handed the keys to your first home.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.




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