House buying process explained
Buying a new home can be stressful. To help explain the process in simple terms we've put together our simple guide: The Seven Steps to buying a new home.
The Seven Steps most customers take are:
- Decide to buy or rent
- If buying, find a property
- Find a mortgage
- Have a valuation and survey
- Agree a price
- Exchange contracts
- Complete the purchase
Step one: buy or rent?
When you consider whether to buy or rent the advantages and disadvantages need weighing up depending on your individual circumstances.
||You own the property.
You gain from the increase in value.
|No interest rate risk
Flexibility to move quickly
||You often need a loan
Risk of losing your home
You need a large deposit
|You never own your home
You need a deposit
You must obey the Landlord's rules
Step two: find a property
If you decide the time is right to buy a property then it's time to start looking around to find your perfect home in your perfect area. The following places may be useful in helping you find your dream home:
- Estate Agents
- Property websites such as Zoopla
- Private adverts in newspapers
- Word of mouth
- Look around the area to see what's for sale
Step three: find a mortgage
There are two ways to find a mortgage:
a) Go direct to a high street bank
b) Go through a broker or financial advisor
Both options have advantages and disadvantages. Financial advisors may be better placed to provide you with an independent view of the whole lending market. The disadvantage of selecting a broker is that they may take some time to identify which lender has the best product for you. When selecting a high street bank they will generally only offer their own in-house products which may limit your ability to obtain the best rates. The advantage of using a high street bank is that your lender should be able to process your application quickly, particularly if you have a history of transacting with that bank.
There are a number of different types of mortgage, including:
- Fixed Rate
You pay a fixed rate of interest for a set period, so you know exactly what you will be paying each month during that time. When the fixed period ends, you will usually move to the lender's standard variable rate. There are usually penalties if you pull out early.
- Interest Only
With an interest only mortgage you make monthly repayments for an agreed period but this will only cover the interest on your loan. You will normally also have to pay into another savings or investment plan that will hopefully pay off the loan at the end of the term.
- Standard Variable Rate
With a variable rate mortgage your payments go up or down with the lender's standard interest rate. This often changes following Bank of England base rate changes.
Tracker rates are linked to the Bank of England rate or some other 'base rate'. This means they will always go up or down in line with changes to the base rate.
- Discount Rate
You pay a lower interest rate to begin with then move to another rate (usually the lender's standard variable rate) after a set period.
Beware of fees charged by Lenders for arranging the loan, Early Redemption Charges if you finish a fix rate mortgage before the full term agreed and 'Payment shock'.
'The risk that a loan's scheduled future periodic payments may increase substantially'. Payment shock can be the result of several things, including the expiration of an initial or temporary start interest rate (sometimes known as a teaser rate), the end of a fixed-interest rate period, the end of an interest-only payment period, an increase in an adjustable-rate mortgage's fully indexed interest rate or the recasting of a payment option ARM.
When lending money, the lender will want to ensure:
- The buyer can pay - what is your income compared to the loan requested?
- The buyer will pay - what is your record of paying loans?
- The security - 'if you do not pay, your home is at risk' – the lender wants to be sure the property is worth more than the loan
So, the lender needs a valuation.
If you are the buyer and spending your money, you will want to ensure:
- You can afford - what the income compared to the loan required?
- You can pay - what is your experience of paying loans?
- The value - the buyer wants to be sure the property is worth the asking value (and what may repairs need to be done)
So, the buyer needs a survey.
Step four: instruct a valuation and survey
A lender will not lend without a valuation. A buyer should not agree a price without a survey. As you will see from our product matrix there are a number of surveys available to choose from depending on your circumstances. For more information on surveys please click here.
Step five: agree a price
Once you've agreed a price and your mortgage then it's over to your solicitor. They will act on your behalf to:
- Check with the Land Registry that the property exists
- Check with the Charges Registry who has a Charge over the property (e.g. an existing mortgage lender or an existing finance lender. NB. There may be more than one charge on a property)
- Ensure legal title for the lender (they get paid back first)
- Receive the loan from the new lender
- Pay the previous lender (if one exists)
- Pays the balance to the vendor/builder
Step six: exchange contracts
When the solicitor is satisfied that everything is in place (legal checks, mortgage funds), 'Exchange of Contracts' takes place. This legally binds both parties to the deal.
Step seven: complete the process
When the solicitor is in a position to pay the previous lender and the vendor, 'Completion' takes place at which point the buyer becomes the legal owner of the property and gets the keys.