Step-by-Step Guide to Buying
A step by step guide to buying a property as a home, with all of the terms explained along the way.
If you’re interested in buying a property as an investment the same steps apply but you should also look at our investors section to make sure you consider the other factors that come into play when buying an investment property.
Step 1 – Money
Find out how much you can afford before you contact estate agents as this will be their first question. They are likely to ask you if you already have a mortgage in principle, which we’ll come to in a bit, but just remember this, if you don’t have one yet, DON’T TELL THEM.
Start with your salary.
Banks usually lend 4 to 5 times your salary (individual application) or 4 times a combined salary (total of two people’s salaries) if buying with another person (joint application).
For example a single person on a £16,000 salary could borrow approx. £80,000 (if given a mortgage at 5 times salary).
But that’s not all that matters. Deposits are needed.
Deposits are needed as banks will not let you buy a property purely with their money, you have to put in some of the money yourself.
In the instance of someone who could technically borrow £80,000 the bank therefore wouldn’t allow them to borrow the full £80,000 to buy a property worth £80,000, as that would equate to them lending 100% of the value of the property.
Most banks will only lend about 80% – 90% of the property’s value.
The reason being if the property goes down in value they then know their money is protected.
If our person who could borrow £80,000 had £20,000 in savings to use as a deposit and wanted to buy a property worth £100,000 the bank would then, in theory, be happy to issue the loan for £80,000 since the loan would be 80% of the value of the property, the deposit making up 20%.
This % of the value of the property the bank will lend you is called the loan to value ratio, LTV. So in this example it’s an 80% LTV the bank would be lending on.
The LTV is important as banks will usually charge a higher interest rate on a higher LTV as their risk is greater (less of your money invested to protect them if the property goes down in value).
The highest a bank is likely to offer is 90% LTV, which in the above example would mean £90,000 would need to be borrowed (and therefore a higher salary of £18,000) but the deposit required would reduce to £10,000.
Once you know roughly how much you can borrow there is no reason you can’t start looking for properties, but if you want the best chance of being able to outbid others, not just based on money, get a mortgage in principle first.
Step 2 – SHOWING YOU’RE NOT A TIME WASTER
To do this you should get a mortgage in principle. All a mortgage in principle means is a mortgage lender (normally a bank) has agreed, in theory, they will lend you the money. This is based on the calculation of your salary and deposit and a hypothetical property price. The agreement in principle would still be subject to credit checks further down the line.
The best place to start is probably a mortgage broker as they will give you a good idea of the interest rates available across different providers and what the repayment amounts will be each month.
The mortgage broker will not charge you anything until you go ahead with a mortgage through them. Some banks, such as HSBC, don’t list with mortgage brokers so you would need to go in and see those banks separately but unless you happen to have days of your life free to to go from bank to bank a mortgage broker will give you a good starting place.
If you find out some interest rate options and want to calculate the monthly repayment amount yourself, without having to remember your GCSE maths, a good calculator that will do it for you can be found here:
Step 3 – LOOKING AT FLATS AND HOUSES
You now have everything in place ready to start talking to estate agents and going on viewings.
Some key tips in terms of viewings are:
Estate agents matter – they are the ones who talk to the vendors and they can influence their decisions. Make sure you are nice to them (it can be hard at times so worth noting) and communicate that you have a mortgage in principle. They want to make sales as quickly as possible and to the people they like (as they’re humans after all) so make sure you seem like the most reliable and likely person to get them a quick sale and that you have made them want to help you.
Don’t seem too keen – only talk about the things that aren’t right with the property, or would cost you money to fix whilst viewing it. If you stand there going “Oh my god it’s amazing, I love it and could see us using that room as a nursery and that room as…” the estate agent will know you’re emotionally attached to the property and therefore more likely to increase your offer if needed.=
Paint does wonders – the places that take the longest to sell are generally the ones where the vendor has made no effort to make it look nice for the sale. If there is mould everywhere and broken windows etc. then it will probably take a lot of time and money to repair but make sure you look closely and check that the property is not just badly decorated and in need of a new lick of paint.
STEP 4 – MAKING AN OFFER
Once you have found the property you would like to buy, the next step is to make an offer, normally through the estate agent. Most estate agents suggest putting a property on the market for more than it is actually worth because it is usual to offer less than the seller is asking.
In deciding what you are prepared to pay for that particular property, bear in mind things like the property’s state of repair and how much you would have to spend on building work or redecoration.
Once you make an offer it is then up to the seller to either accept that price, or try to negotiate a higher one. If there are several potential buyers interested in that particular property, the vendor may have enough bargaining power to insist that the full asking price is met. Indeed, where there is high demand, the property may sell for a price in excess of the asking price!
If you know lots of people will be interested in the property and you are very keen on it, you might consider offering the asking price up front to avoid a bidding war.
Whatever you bid you should always make sure any conditions to your offer are mentioned upfront, for instance that nobody else is shown the property.
Once your offer has been accepted, the estate agent will confirm this in writing. You can then go ahead with arranging a survey and finalising your mortgage arrangements. Details of this process can be found here.
The acceptance of your offer is not legally binding until you and the seller exchange contracts.
Remember the estate agents act for the seller not for you, the buyer, therefore if you would like to discuss an offer you’re thinking of making in confidence just email us on firstname.lastname@example.org