Guide to buying a home

A Guide to Buying a House (1st House)

Introduction

There are many emotional high points in our lives as we grow up and grow older.

Graduating school, first dates, first cars, moving out on our own, getting married, having children, and also buying our first house.

It is probably safe to say that up there with becoming a parent or spouse, buying a property can be one of the more satisfying emotional moments, for two reasons, one being the time and effort that has been spent on your part to prepare and make this purchase, and secondly, just the sheer size and cost of buying a property.

And it is not just buying a property that you are doing/purchasing, buying a property sounds distant, cold, clinical, you are buying a house, a home, a place for you and maybe you and your family to live.

It will be your new abode, maybe for many, many years to come.

It is a process that can take weeks or months, or longer.

It will also be the largest expense of your lifetime!

That is until you move up another rung on the property ladder and perhaps buy a new and more expensive house.

 

Why This Guide?

In reviewing and looking back at previous guides that we have prepared, and knowing purchasing your first home and getting on the property ladder is not just a major concern to people, but also such a moment in one’s life, it seemed a logical move to prepare a guide on buying a home.

The terms that are used, the process it self in buying a property, can all seem confusing.

And it is a process buying a property!

There are things to do and to prepare for, and many people are daunted by the whole process.

Hence this guide.

And this guide is not just for someone looking to get on the first rung of the property ladder and buy their first home.  Even someone who has previously bought a property may find something here, not just of interest, but also informative.

In discussing the ins and outs and complexities of buying a property, we will use some terms interchangeable, one word or term is house, property, and home.

In essence they are all the same.

There is a saying that you buy a house, but make it a home.

You are buying bricks and mortar, but when you move in, it is you and your family that give these bricks and mortar life, so to speak, and make it into a home.

And houses and housing reach our far beyond just the bricks and mortar that build them.  Just as other industries have a huge impact on our economy and way of life, so does housing and the real estate and housing market.

 

Houses, Housing, and the Economy

We are going to discuss many things in our little guide here, and we may as well lay the foundation (pun intended), with a brief mention of how important the housing industry and our buying property is to the economy.

Property sales and real estate is used as a gauge as to how the economy is doing, and sale prices are a part of defining inflation and also interest rates.

There is also a “trickle down” effect from housing as there is in other industries.

The housing markets affects many other industries, which also impacts employment, on a rather large scale.

It’s not just those that build houses, construction companies and builders, that work and have jobs, but the material manufacturers, estate agents, but also councils; in the form of the council taxes we pay.

The housing market is huge!

And it all comes down to us buying a house that keeps it all going.

 

What We Will Cover

 As we may already know, and will see, buying a house is a huge undertaking and there are many aspects and facets to it.

It is not just about the house/property itself, but also:

*  Creditors

* Financing

* Location, where to live

*  Cost and expenses associated with not just buying a property, but also moving, and owning a household

*  Traps we can fall into once we are home owners

*  Terms used, estate agents, deposit, contracts, gazumped

*  Selling a property

*  Tips to help you along the way

As you can see, there is a lot to cover, so let’s begin our journey into the world of buying a house.

 

 

Chapter 1:  The Dream

 

It is a dream many people have, reach for, and achieve, owning their own homes, being property owners.  No longer paying rent to Mr. Landlord, but having our own space to do with what we wish.

It would seem compared to other countries and cultures, we as Brits seem to long and dream more than others of owning our own little part of the globe.

However, technically while we may want to get on the property ladder and begin this ascension towards greater financial heights, as a country we are only ranked number 42 of countries by home ownership rate.

We are just under the United States who is at number 41.

As of 2015 our home ownership rate was 63.5%, which doesn’t sound too shabby, until you look at a country like Romania which has a percentage of 96.4.

If you take a closer look at some statistics by the Office For National Statistics, in the early 20th century less than 10% of all homes were owner-occupied, and not a tenancy, however, by the 21st century, that figure has risen to just over 65%.

Quite an increase, and a considerable amount of time has passed, and many changes have passed as well.

And when we discuss the housing market we need to be acutely aware of two things:

*  Buying property in most instances, represents the largest purchase a person will make. It also “represents the largest single item of consumer wealth”.

*  The change in housing prices, in particular sale prices, has a large affect on the economy.

 

What is The Property Ladder and Why is it so Important?

By definition, the property ladder is, “a term widely used in the United Kingdom to describe the relative differences in constant terms from cheaper to more expensive housing.”

It is just a term, property ladder, but this “term”, represents so much.

It has become ingrained into our psyche, and a lofty goal we all wish to achieve. For some of us, the goal of getting on the property ladder and being a home owner is so strong, we consider it more important than marriage or children.

That’s quite a shift in priorities.

No longer do mum and dad say find a nice girl, get married, settle down, but go buy a property.

I apologise for being “gender bias” there for a moment.

A social research group, NatCen, did some research and analysis and found that more than 80% of those age 18 to 24, expect to become home owners at some point in their lives.

However, once a person breaches the age of 30, if they do not already own a property, they feel it is “unlikely” they will own a property.

Could just be the age of 30 “ceiling” acting up.

According to NatCen’s data, there are five (5) important milestones in one’s life:

*  Owning a homeowner

*  Becoming a parent

*  Getting married

*  Educational goals

*  Career goals

That pretty much sums it up for life, “birth, school, work, death”.

Oh wait….there is the property ladder and becoming a home owner.

Of these five milestones which did many young people see as the “most important”, why home ownership of course.

My point of attempting to be humorous here is to show how much home ownership means to people today, and getting on the property ladder is not just a term, it is a reality of life which many of us strive for.

And why do many of us see the property ladder as one of life’s major milestones….financial security, wealth, investment, secondary is the fact we have a place to live.

Of course you read about how housing prices and market conditions, and saving for a deposit, are pushing young families out of the housing market.

The facts are the facts, properties can increase in value, and there can be “housing bubbles”, and in some instances a person may need to wait for market conditions to subside in order to grab that first rung on the property ladder.

And in brief we will discuss some of this here in our guide, but the facts still remain, people, young and old want to become land Barons, and own their own homes.

A Researcher at NatCen, Lydia Marshall, has said, “[These findings] challenge recent reports suggesting that the younger generation have given up hope of ever owning, and feel completely excluded from the housing ladder. 

“The vast majority of young adults who took part in this survey felt that they would be able to own their home one day, even if that day was a long way off.”

“In contrast, people in the older age groups, who got further through life without getting a foot on the ladder, were more likely to have ‘given up’.”

Younger participants were more likely to say that not earning enough money or not being able to afford the mortgage payments was preventing them from buying their first home, where as older participants were more likely to say that they didn’t think they’d be offered a mortgage, or that required deposits were too high.”

“Older participants were also twice as likely to identify existing debt as a barrier to ownership.”

No matter what we read, people still want to buy their own homes.

 

Say Goodbye to Mr. or Mrs. Landlord

I won’t make the same gender bias mistake again.

One of the reasons given for people to want their own houses is to say goodbye to their landlords.  This is not to say that their landlords have not been good landlords, but there is this inner-self that wants to be the owner of all we survey, even if it is just a mid-terrace house that only has a small back garden.

There can be many types or incarnations of landlords, some may be very attentive, some may be absentee landlords, and all that goes in between.

However, landlords can in simple terms be broken down into two categories:

Social landlords

Private landlord

Both these are large and complex topics, too large and not completely related to our guide to get into detail here.  And both have their pros and cons.

The point of bringing up landlords is that when you grasp that first rung of the property ladder with both hands, you are saying goodbye to your landlord; be them social or private.

This can be a double-edged sword of sorts.

You get to become a home owner and own your own small piece of the planet, in Scotland you can become a Laird or Lady, however, you now lose the safety net of your landlord, you are now on your own in that great big housing world….even if it is just a two-up, two-down terrace house.

It is yours, not just to do what you wish with, but also your responsibility.

Should there need to be a repair, such as a boiler breaking, the rook leaking, or one of the many things that can go up or break, or need to be done in that little space you call home, it is now your responsibility to handle and take care of it.

No more phoning Mr. Landlord and having someone sent out to make the repair.

Does that scare you off of buying a property?

I hope not.

As we will see in this guide there are additional expenses associated with owning your own home, but there are also many options and ways to deal with and handle these expenses.  And soon, you will become not just knowledgable, but also secure in knowing how to handle these expenses.

So off we go into the world of buying a property, or home to many of us.  And again, this doesn’t have to be our first house or lowest rung on the property ladder.  Even those who have purchased properties in the past can learn something here.

 

We next will discuss the process of buying a property, from making the decision to do so, to moving  day.

There is a lot to cover here, so grab a cup of tea, a biscuit, and read on.

 

 

Chapter 2:  The Process of Buying a Property/Home

Be it your first time buying a home, or second, or …. whatever time it may be, the process may change slightly, but overall it is the same.

On the surface, buying a property may seem fairly basic:

*  Find a property you like/love

*  Make an offer on the property based on the selling price and other factors (market conditions)

*  Have someone, usually a solicitor handle the legal aspects

*  Get a mortgage or finalise your mortgage or loan

*  Exchange contracts

*  Move in

This is all very basic and simple in terms, it is when you go to break it all down that it can get complicated and complex.  But no worries, that is why we are here, to break it all down so that when you get to the end of this guide, you will know all that you need to buy a house.

So let’s start at the beginning, and that is actually before you go on a property search, making the decision that you want to be a homeowner, deciding that yes, I or we, wish to climb the property ladder and own our own home.

And so our research into buying a house begins….

 

In The Beginning…

Let’s picture a couple of scenarios:

1st Scenario:  You get home from a hard day at work, walk in the house and there is your mum preparing the meal, and asking you how was your day?

You have been living at home with your parents since you can remember, you never moved out, and you are in the same bedroom you have been in since you were age 5.  That was 20 years ago, where does the time go???

You feel you need to move on, get your own place, but paying rent seems like a waste of money.

Maybe you should consider buying your own flat or small house!

The seed that grows the property ladder has been planted.

2nd Scenario:  You and your partner are out having a meal with friends, other couple friends. Most of them have bought their own houses, and keep going on to you both about how you need to stop renting that “cramped little” flat, and get your own place.  Why pay rent to the landlord when you could have your own home!

As you can see in both these scenarios, the idea has begun to germinate about buying a property.

It is then once the idea is there, that you make the decision to look into what it takes to become a home owner, and possibly read this guide.

According to many people the next step here is to find a property you want, and buy it.  However, it is not just that easy, there are things to consider, considerations that need to be reviewed and looked at first.

One huge consideration is financing.  Where is the money going to come from to buy this new mansion and liberate us from the monthly regime of paying rent??

All that stuff about mortgages, financing and deposits will be explained and covered in the next chapter, for now, let’s just deal with matters at hand, the property itself and the process.

 

Location, Location, Location

You’ve made the decision, I want out of the rental rat race, and am going to reach for the first rung of property on the ladder of houses.

So where do you want to live?  What area or location is for you?

There are a few things to consider when choosing where to buy your new abode:

*  Your job

*  Schools if you have children

Amenities –  These can be the property itself, and also surrounding the property, such as shopping, restaurants, night life, etc.

*  Prices – Some locations are going to be more expensive than others, you may want to live in one part of town, only to be priced out of it to another part of town.

*  Public transportation

*  Near family and friends

*  Neighbourhood – Is it a safe area where you are looking to buy.

*  Future value – Not to get too far ahead of yourself as this is your first property purchase, but how do the property values hold up in the area you are considering?

So much to think about, and this is to just decide where you want to live.

For most people this decision is made rather quickly, they want to live around the corner from their family, or walking distance to their jobs, or close to the bus stop to get around.

It doesn’t need to be quite that complicated.

 

Finding Our Dream Home

Now that you know the area you wish to live, where do you find properties for sale, the best place to start is online.  Just like the majority of consumers these days, they go to their mobiles, tablets, or computers, and search property web sites.

And why not.

Look at how easy it is to quickly narrow down you searches by number of bedrooms, post code, prices, etc.  You can filter out all the properties that you know you don’t want, or cannot afford, or don’t suit your needs in a matter of minutes.

One other way to find your new property is slightly old fashioned, but still works, visit the area or neighbourhood where you wish to live.

You may see for sale signs posted, and while these may be also online, you can actually physically see the property, and sometimes all the photos in the world may not do a place justice, or may make it look better than what it really is.

 

Timing:  Market Conditions 

The timing of when you not just decide to buy a house, but when you actually buy a house can be a large factor in you being able to make the purchase or not.

It can be difficult to predict what the future can hold in the housing market, yet many people do make predictions, and can do so with some accuracy.

Things such as:

*  House prices

*  Government changes, such as stamp duty increases

*  First-time buyer schemes

*  Banks and mortgage lenders and changes in lending and interest rates

*  Construction, new building

All these factors can not just influence the prices and cost, but also if it is a good time to buy a property or not.

If it is a “seller’s market”  which means that there are more buyers than sellers, prices can be driven upward.  It is the old supply and demand economics model.

Timing can play a large role and influence when to buy a property, and if you can buy a property.

There also is our old nemesis “gazumping”.  In some market conditions where properties are scarce, or properties in a certain area are highly sought after, someone may make an offer on a property you have made an offer on, only to offer much more than your offer; which naturally the seller will accept over your offer.

You have been gazumped.

If you can afford to up your offer, then you may be able to do so and buy the property, if not, you would have lost out on the house.

And it is not so easy to just offer more money.  If you are seeking financing, like a mortgage, banks and lenders typically do not like to lend money on a property, or any collateral for that matter, that is not worth the amount of the loan.

More on this coming up.

 

What to do Next?

Once you find your next palace called home, the process speeds up.

You submit a bid or offer on the property, a survey and valuation is done, contracts get exchanged, and funding is secured, and a date of completion is set.

It can move rather quickly at this point, and it all sounds quite easy.

However, there are two aspects of the buying process we have not discussed, and in many ways, they are the foundation (there I go again) of the whole home buying property purchasing process.

 

Affordability

Let us backtrack a moment….

You’ve made the decision you want to buy a house, that’s a given, but you need to know how much you can afford to pay each month.

If you are currently paying rent, and are comfortable with this amount, you can use it as a basis, but there are additional expenses associated with being a property owner, as we briefly mentioned prior, all these need to be considered when you look at affordability.

Affordability also brings up not just affording the house and its sale price, but paying for it.

How do you plan to pay for a £100,000 house!

For many first-time homebuyers and even those that have bought properties in the past, they require financing, a loan, and that loan usually comes in the form of a mortgage.

 

 

Chapter 3:  Credit and Mortgages

or 

How to get your financial house in order: Have your credit history and credit score ready to support buying a house. 

In discussing the process of buying a house, be it your first property, or you may be an expert at the process and have bought houses prior, one main component that is required to make this large and life-changing purchase is money; how are you going to pay for the house??

With average sale prices of properties in the UK reaching over £218,000, not that many property buyers, be they first time or experienced buyers, can just plonk down the money for a house.

So this necessitates the need for a loan, financing usually in the form of a mortgage.

Wait, hold on…. before we have the “mortgage talk”….average sale prices of over £200K!!

How many people can qualify or afford a mortgage or monthly payment based on a loan for £200,000?

We need to keep in mind that the average sale price for houses does get skewed as property prices are based and change according to region.

Naturally in the south of the country housing prices are higher, as are the average wages.

As you move towards the mid-lands, and up north of the country, property prices begin to reduce.

In reviewing the process of buying a house, while the first path to go down may be the decision that you want to be a home owner, and maybe, I state…maybe….looking for a property, the next logical step should be the financing or how to pay for the purchase.

Cash deal, money talks, I don’t think so, that would be rare in buying a house, however, I may stand corrected.

 

Cash Purchases

It would appear that there are more “cash purchases” for properties than I would have thought, or you would realise.

For the first quarter of 2015, almost 40%, or 38% to be exact of homes in the UK were purchased with cash.

A Chief Economist at Nationwide Building Society, Robert Gardner stated, “38% of homes were bought without a loan”.

 

Continued healthy demand from cash buyers has helped to support transaction levels in recent quarters, since mortgage lending has remained relatively subdued.”

He added, “The significant rise in the share of cash transactions occurred in the wake of the financial crisis, where a tightening in credit conditions and a deterioration in the labour market limited the number of people able to buy with a mortgage.”

This does not mean that people are not taking out mortgages and using financing to purchase properties.

UK mortgage loans and approvals are strong, and the housing market as a whole continues to grow.

 

Mortgages

 Like the time when someone had to have the “birds and the bees” talk to you, now is the time for us  to have the “mortgage talk”.

As we mentioned, you will need to obtain a loan to buy a house, and that loan is in the form of a mortgage.

You need to put the horse in front of the cart.  The horse is the loan/financing/money to buy the house, the cart is the purchase of the house.

Why would you put the cart (the sale, buying a house), before the cart (the financing)??

You need to know how much of a loan/mortgage you can afford, and be approved for prior to submitting a bid on a property.

Not being able to afford the house you wish to buy, or be able to secure a loan for that amount, or secure a loan at all, disappoints not just you, but all parties involved.

A mortgage by definition is: “an agreement that allows you to borrow money from a bank or similar organisation, especially in order to buy a house”.

And with the average house prices being in the hundreds of thousands of pounds, you would expect there to be some scrutiny and serious reviews being done, prior to granting such a large loan.

And there is.

One thing to keep in mind here is that a mortgage is a secured loan.  It is secured by the property, which means should you fail to meet the payments, the property can be repossessed.

Repossession is not a nice term or thought to have at this juncture as we are just beginning our walk through our new house, more on this later.

There are a few main things we need to discuss when having the mortgage talk, and they are:

Affordability:  It is not how much you feel you can afford to pay for a house or as a monthly payment, but what a bank or lender feels and states you can afford.  This means ratios, which are usually expressed as percentages.

There are two ratios a lender will look at:

Debt to income ratio – This is the percentage of all your monthly debt obligations in relation to your income.

If your income is £2,000 a month, and your monthly loan payments (before any housing or mortgage loan payment) equals £300, your debt to income ratio is 15%, or low.  If your debt payments are £500 a month, then the ratio or percentage is 25%.

Different lenders have different cut off rates/percentages that they feel may be high in granting a mortgage.

Loan to income ratio – Once again, different lenders will calculate this ratio, or use various formulas to come to an amount they will lend you for a mortgage based on your income.

Some lenders us a percentage such as 25% or 40% of your monthly income as a payment amount your mortgage can be each month.

25% of £2,000 is £500 a month.  40% would be £800 a month.

A lender my also say you can afford three (3) times or more your annual salary.

If you earn £30,000 a year, the lender may feel you can afford a mortgage of £90,000, or in the example of five (5) times your annual salary, £150,000.

You can see why when buying a property, especially if you have a partner or spouse and you both work, will allow you to afford more house.

Getting qualified:  Getting qualified is similar in finding out what you can afford in that a mortgage lender does the math and states you can afford £££ as a mortgage, which then dictates how much of a house you can afford to buy.  It is similar to finding out affordability.

The valuation: This is a crucial part of the mortgage and lending process, and home buying experience; what is the value of the house you are buying?

Mortgage lenders like to lend 80% of the value of a property, in the example of a £200,000 house, which is indeed worth or valued at £200,000, they would like to lend £160,000.  This lends itself to how much of a deposit are you going to make.

There are some home-buying schemes out there that require buyers to deposit much less than 20%, phew, good to know as 20% is a lot of money.

We are going to discuss deposits in much more detail in just a moment.

Owner occupied:  Are you buying the property to live in yourself, or as an investment to let out.

This has an influence on the loan you will receive as there are different lending criteria and rules based on if you plan to be an owner-occupant, or is the property a buy-to-let.

Deposits:  Saving the best for last, when discussing affordability and getting approved for a mortgage, one aspect of buying a house and getting a mortgage that can have a large affect on matters is the deposit.

How much money are you going to be putting down, or paying as a deposit on the property??

The more money you have as a deposit, the less of a loan/mortgage you will require.

The more money you have as a deposit, the more likely you are to be approved for a mortgage.

The more money you have as a deposit, the less exposure a lender has on the loan.

You get the idea, the larger the deposit, the better.

However, for the majority of people looking to buy a property, the deposit can be the main hindrance.

 

Pre-Approval

In putting the horse before the cart, and knowing how much not only you can afford, but how much of a mortgage you can qualify for, you may wish to get pre-approved for a mortgage loan.

Pre-approvals will take you through the entire process of applying for a mortgage,  which means that everything will be in order when you are approved, everything minus the valuation.

Pre-approvals are always, or usually going to be contingent on the valuation of the property you decide to purchase.

As we mentioned, lenders do not like to lend more than they have to, as to limit their exposure.

Getting pre-approved is a great thing to do, but if the property fails to be worth what it needs to be worth to make the loan amount you are pre-approved for work, then you need to go back to the lending drawing board.  Which means you may need a larger deposit in the instance of a property being valued at less than what it needs to be.

In the instance of a property being valued at more than that it needs to be, it means instant equity for the buyer, or more equity for the buyer.

Which is a good thing.

So all this discussion about getting pre-approved and qualified for a loan/mortgage, and what we can afford to pay each month, while important, is a moot point depending on one’s credit history and credit score, as that is one of the major factors and criteria used in granting any loans, and including mortgages.

 

Your Credit and Credit Score

When you think about applying for a mortgage, a lender needs to take a snapshot of you as you are now, and project it ahead 10 or more years, as that is how long the loan term may be.

One of the strongest indicators or how you will pay back a loan in the future, is how you have repaid your obligations in the past.

 

Credit Scoring

The definition of a credit score is: “a statistical number that depicts a person’s creditworthiness. Lenders use a credit score to evaluate the probability that a person repays his debts.”

This numerical score can be used as a basis to grant or deny a loan, including a loan to buy a property.  So knowing what makes up this score, and how to improve it if need be, can be a valuable tool to have.

Your credit score is made up of the following:

Payment history:  How have you paid your accounts in the past.  This again is a strong indication of how you will pay in the future, and makes up the largest percentage of your credit score, over 30%.

Amounts owed:  How much do you owe, on each account, and in total.  If you are close to your credit limits, such as with credit cards, this will reduce, or lower your credit score.

Length of credit history:  How long have you been credit active.  The longer you have been in the credit bureaus, such as with your oldest credit account, it helps your credit score.

Types of credit:  The types of credit accounts you have can affect your credit score.  Just as a mortgage is going to be your highest credit limit or amount, and has a strong affect on your credit score, store credit cards or catalogues will have less an impact.

New credit:  Each time you apply for credit a “footprint” or inquiry is placed on your credit file.  Too many of these will reduce your credit score.

As you can see, it can be a complicated process to calculate one’s credit score, but if you know to:

*  Pay your accounts on time

*  Not to apply for too much new creditability

*  Close any unused accounts, except your older accounts

*  Don’t max out your credit lines

Your credit score can be improved as credit scores are fluid, and change over time.

However, not everyone is going to have a strong enough credit score to get approved for a mortgage…right away.

I say/write, right away, because as we just mentioned there are things you can do to improve your credit history and credit score, and there are things one can do to buy a house with weak, poor, or no credit.

 

Buying a House With Bad Credit or No Credit

Since not everyone who wants to get on the property ladder may have strong enough credit to qualify for a mortgage, but they may however be able to afford the loan.

Affordability is not the issue, just qualifying and being approved for the loan.

There are things and options open to those in this situation that can improve your chances of getting a mortgage.

The first thing to do is to get a copy of your credit history and see what it states.

There may be errors on the report that drag down your credit score, or omissions of certain accounts that could help your credit score.

These need to be corrected.

This can be done by either:

*  Contacting the creditors in question directly

*  Contacting the credit bureaus and having them investigate and correct the matter

Creditors and credit bureaus have ways to correct errors and omissions.

Other ways to increase your chances of being approved for a mortgage are:

Larger deposit:  If we are to remember the golden finance rule, the higher the deposit, the less you need to borrow, which means the more likely you are to have your loan or mortgage approved.

Larger deposit = less loan = higher probability of being approved.

Co-signer or guarantor:  If your credit is really weak, or you have had credit issues in the past, a lender may ask if there is someone who will co-sign on the loan for you, or guarantee the loan.

A co-signer or guarantor, strengthens the loan for the bank/lender, and should you default or fail to make the agreed payments, the lender can request the co-signer or guarantor to pay the payments.

Show affordability:  Document that you can afford the loan by having proof of income and all your outgoing expenses.  A lender may request these anyway, so have them nearby and available.

References:  Such as from your landlord stating you always pay your rent on time.

If you have no credit, then you just need to show you can afford the loan, and also that you pay your monthly bills on time.  Your rent, electricity, gas, and any other bills you may have.  Documenting and proving this will help.

Bankruptcies, IVA’s and CCJ’s and Getting a Mortgage

While having weak, poor or no credit can put hurdles in the way of getting approved for a mortgage, as we can see, there are still options,

However, if you have a bankruptcy that has yet to be discharged, an IVA/Individual Voluntary Arrangement, or open CCJ’s/County Court Judgments, these can prove extremely, if not impossible to overcome to get approved for a mortgage until they are finished or resolved.

Once a bankruptcy has been discharged, an IVA completed, and any CCJ’s satisfied, then you can begin the process of getting things in order to apply for a mortgage, until that time, it may be an exercise in frustration.

As long as you are bankrupt, and not discharged, any new credit you wish to apply for must be approved by the Official Receiver in your bankruptcy.

In an IVA, the IP handling the IVA would need to be aware and approve.

With outstanding CCJ’s a lender would be nervous to grant a loan of such size as the property could fall victim to another creditor should they enforce the CCJ with an Enforcement Order, and then a Charging Order against the property.

Once your bankruptcy has been discharged, or an IVA completed, you are then debt free, getting a fresh start.  And while right away many lenders may not want to grant a mortgage, in time you can get back on-track and then consider grasping that property ladder rung.

 

Buying Schemes 

Home buying schemes are programmes that are in place to help people buy a house; they are usually aimed at first-time home buyers, and also those with the income to afford a property and the mortgage payments, but lack a large enough deposit.

These schemes can be broken down into three (3) categories:

*  Government schemes

*  Private lending

*  Builder or construction company schemes

Basically the schemes have one common aspect and that is to get home buyers into a property for as little as possible.  Not that the sale price will be reduced, but there will be incentives for the buyer in the form of requiring a low deposit.  (We keep hearing more and more about deposits)

Many schemes will only require a buyer to have 5% of the sale price as a deposit, rather than the traditional 10% or even 20% of the sale price.

As we discussed earlier, 20% of a £200,000 property is £40,000 as a deposit, which is a lot of money for someone to save.

 

Deposits

We may have touched on deposits and how they impact getting a mortgage, but not enough can be said about the importance of having a deposit.

Remember the golden rule, the higher the deposit, the lower the loan amount, and the better your chances of being approved for a mortgage.

That is not to say someone with good credit may still be approved for a mortgage with a low deposit.

Even with a low deposit, many new home buyers feel that “saving for a deposit”  is their “biggest obstacle” in trying to buy a property.

However, there are many ways to gather the funds required for a deposit to buy a house:

Save: Simply put money away each month, in some form of savings.  It can be difficult, but starting out with a budget and tracking your spending and seeing areas you may be able to make adjustments is a start.

Gifted Equity:  This way to gather the funds for a deposit usually takes the form of a family member, or build or someone selling a property for less than what it is valued at.

An example would be your Aunt sells you her house valued at £150,000 for £120,000, which means that you only require a mortgage for £120,000, which gives you instant equity of £30,000.  So you are only borrowing 80% of the value of the property, so essentially you have your deposit.

Pledged Deposits:  This form of assistance in getting a deposit involves a family member pledging either money in savings, or equity in their own home, as a deposit for a new home purchase.  Parents can do this for their children.

Bank of Mum and Dad:  It is believed parents are going to lend or gift their children roughly £6.5 billion this year to help them get on the property ladder!

That’s a lot of parental love in a financial sense.

In 2016 the average money a parent provided to help their children was £17,000, and it is expected to be as high as £21,700 for this year.

Research done by Legal and General, and Cebr, showed that for 2017, parents will help their children make purchases of property that will be worth about £75 billion!

The Chief Executive of L&G, Nigel Wilson said, “This is the second year of our bank of mum and dad research programme and the statistics show the problem is getting worse, not better.”

“Transaction volumes are down in the housing market, but [parental] funding is growing exponentially. This is not a good thing, nor is it sustainable or equitable for our parents [the lenders] or young people [the borrowers].” 

“The intergenerational inequality that creates the demand for [parental] funding continues to widen – younger people today don’t have the same opportunities that the baby boomers had, including affordable housing, defined benefit pensions and free university education.”

“Parents want to help their kids get on in life, and the bank of mum and dad is a testament to their generosity, but it is also a symptom of our broken housing market.”

“The UK is experiencing a supply-side crisis in housing – we are simply not building enough houses. We need to build more homes for the young, old and families alike, more quickly and cost effectively.”

Borrow the deposit:  Right now someone who is in mortgage lending is reading this and rolling their eyes.  Borrowing the deposit to buy anything, including a property, has long been thought of as a no-no in the lending industry.

However, for a select few, it may be an option. 

If you have very good credit, and no other debts, and can show you can afford both loans, the deposit loan and the mortgage payment, in theory it is possible to borrow the deposit.

When you buy a house and apply for and are approved for a mortgage, it is a very happy time in one’s life.  It is also a time when your credit is probably at its strongest, as you have just been approved for the largest loan you may ever take out in your life. 

Next up, what other costs or expenses are associated with being a homeowner.

 

 

Chapter 4:  Additional Expenses Associated With Owning a Property

 So here you are now, a new homeowner, a property Lord, your own Manor, or Estate, your little piece of the world.

It is a happy time, and it should be as it took a lot of work to get to this point.

You researched as to where you wanted to live, looked at properties until you could recount them in your sleep, went through the process of being approved for a mortgage, and now have the keys to your new retreat away from the world.

And as I stated, financially, you may be in the best shape of your life.  You have been approved for a mortgage, and know you can afford this new place to live, which has the potential to change your life.

You are a home owner now, you own property, it is yours to do with, within reason, what you wish, and with it comes all the additional expenses that are associated with owning your own home.

For those that had previously been renting, they may be more aware of the costs of having your own place to live, but there still are some expenses they may not be aware of or used to.

If you are moving from Mum and Dad’s B&B, then you could very well be in for a shock.

 

Moving Day 

Unless you are just putting clothes into a bag and walking down the street from your old place of abode to your new home, there can be some costs involved with moving day to the new property.

Some new home owners chose the “I’ll get my friends to help me move and supply them with pizza and beer” method.

Having drunk friends carry and move your prize possessions is not the optimum way to move house.

For some they may need to use a removal firm to do this.

And this is an expense you need to plan for.

You may pay £40 to £60 per hour for a couple of men and a van to do this.

The cost will depend on:

*  How much you have to move

*  How far you are moving

*  Are you going to do the pre-packing

*  The size of your possessions

*  Are there stairs

So once you are moved into your new home, what other expenses can you expect??

 

Council Tax

If you have never paid council tax before, then this expense can come as a shock, as it is not cheap.  You can be required to pay anywhere from £75 to £100 or more each month to your local council.

The amount of council tax you pay is based on the band your property is assessed to be in.

Even if you have paid council tax in the past at your old flat or place you lived, you could be required to pay more now due to the property being in a higher band.

And not paying council tax is not an option.

Councils can be very aggressive in their enforcement of collecting this tax as well.

In some instances a discount or concession can be made as to the amount of council tax one may owe, but the odds are that if you just recently purchased a property, are working, which you would need to be to qualify for a mortgage, you will not be able to seek out any relief from council tax.

 

Insurance

Just as when you have a car and drive, you take out insurance on your car, which is mandatory if you wish to drive in the UK, there are various insurance policies one may wish to consider, and in some instances you must have as a new homeowner.

One form of insurance that will probably be required by the lender of your mortgage, as a condition of the mortgage is building insurance.

Building insurance directly protects you, and indirectly protects the mortgage company.

This form of insurance covers:

*  The house itself

*  Any garage or outbuildings

*  The property itself

Most policies cover damage due to:

*  Fire

*  Theft

*  Downed trees

*  Frozen and/or burst pipes

*  Storms, earthquakes, explosions, and floods

*  Collisions by aircraft or vehicles

So if your new house is damaged in anyway, this insurance kicks in to repair the damage and if need be, replace what has to be replaced.

This saves you as the homeowner any out of pocket expenses, minus any excess.

How it protects the mortgage lender is that as the property is collateral for the loan, if this collateral is damaged, it reduces the value of the property in which they have a secured an interest to secure the loan.

In addition, many homeowners could not afford to rebuild a property if it was destroyed, and there is a high rate of defaults when this situation occurs.

So building insurance will probably be required by the mortgage lender, however, there are many other forms of insurance you may be offered as a new homeowner, and some you may wish to consider.

Contents insurance:  This is insurance that protects the contents inside the property.  If you had previously rented a place, you may already have a policy in place.  You will need to contact your insurer to make changes to the policy and update it.

Life or mortgage insurance:  Life insurance is not for the person who dies, but for the living people they leave behind. If you have a family and purchase a home, you may wish to have life insurance in place to pay off the mortgage should anything happen to you.

If two people together, partners or spouse, purchase a home together, and rely on both incomes to pay for the property, each may need a life insurance policy in place.

Some life insurance policies are called “mortgage insurance” as the policy is a life insurance policy, but strictly there to pay off the mortgage, so as the mortgage balance decreases so does the death benefit paid out.

Mortgage payment insurance:  This is insurance that will pay the mortgage payment should be not be able to pay it.  Policies usually cover things such as being made redundant or losing one’s job through no fault of their own, illness, etc.

You do not need all these forms of insurance, but you can see the value in them, and also they are an additional expenses associated with being a homeowner.

 

Repairs – Maintenance – Upkeep

Nothing screams being a homeowner more than not being able to phone Mr.  or Mrs. Landlord, should something break or need repaired in the house.

The cost of these repairs can vary according to what needs to be repaired, how big or small the job is.

A new boiler can be quite expensive, where as if you just wish to do some redecorating, you may be able to do this yourself as a sort of DIY venture.

Of course you need to know what you are doing should you decide to take on the challenge of a new roof, or adding a conservatory, or a second bathroom.  Many DIY “disasters” can be costly adding over £2,000 to the costs.

 

Buying versus Renting 

In looking at and discussing some of the additional expenses associated with owning your own home, it can be a bit scary financially, even with the pride of ownership and the feeling of walking into your own house.

So is renting cheaper and maybe a better option?

The first thing to review when looking at this debate, is the area one may wish to buy a property.  There are areas that buying a property is off the chart expensive, and renting in that area may be the only option.

But that is a cost factor, and one that needs to be looked at and considered, but also is outside our control.

So how do the sides, renting vs buying add up:

 

Deposit or Security Deposit:

With buying a property you may be required to have a sizeable deposit, so that can be an issue.  In renting you may only be required to put-up a security deposit of one month’s rent.

 

Flexibility to Move:

If you buy a house, you need to stay there for a little while, you could sell it on right away, however that would depend on market conditions and if you would make or lose money.

In renting you can move every six (6) month is you wish and have a short-term tenancy agreement.

It comes down to “freedom or responsibility”, which do you want.

 

Security:

Even with a tenancy agreement, should the landlord decide not to renew it, for whatever reason, or decide to sell the property, you could be faced with moving.

If you own your own home, you make the decision as to when and if you wish to move.

 

Modifications/Changes: 

If you own your own home you can do with it as you wish, within reason.

You can paint it any colour you wish, add rooms, decorate it as you fancy, however, not so if you are a tenant.  You may need the landlord’s permission for changes such as these.

 

Pets:

There are some landlords that do not allow pets of any kind.  If you have always wanted a dog sleeping at your feet besides a roaring fire, then buying a house with a fireplace and having a dog is your choice.

 

Financially:

Buying a property can be viewed as an investment, you are not tossing money away each month by giving it to the landlord.  You can build up equity in the property which is an asset for you.

 

Which is Cheaper?  Buying or Renting?

According to Halifx, buying and owning a home is on average £651 better off than those that rent.

This amount does change by region, and if you go south, the amount buyers are better off increases.

A Housing Economist at Halifax, Martin Ellis stated, “Although the average costs associated with buying costs have grown at a faster rate than average rents over the past few years, owning a home is still the more financially attractive option.”

“However, the gap has narrowed since 2011 because of the rising prices of a typical first-time buyer house.” 

So for the purposes of this research and the figures that were calculated, buying is cheaper than renting, however again, there are other factors to consider.

 

As we can see, owning your own home is a great experience and feels good, but it can also be costly.

And there are other considerations we need to factor in when choosing our perfect home.

 

 

Chapter 5:  Things to Look For and Consider In a Property

 We have discussed financing for our new home, expenses we may have with our new home, let’s have some fun now, and look at things we may be in need of, or want to consider in our new home.

Think of it as features we want or require.

It doesn’t have to be all ££ and credit score this and that, what are some factors to consider, and what is it we want??

Since this is one of if not the largest purchase in your life, let’s get it right the first time, or close to it as we can.

 

The Property Itself

How large a house do you need?

Do you have children, who all wish to have their own bedrooms.  Do you want a garden to hold family barbecues, or set-up a football net for the kids.

All these things need to be considered.

Also, is there room to grow with the house.  Could you see yourself outgrowing the property in a few years.

If you are buying a 2 bedroom house, but plan on having a gaggle of children, you may want to look for more bedrooms in the property of your dreams.

Other this to consider as a part of the property:

 

Is there damp?

This is one of the dreaded questions and worries of buying a house in many parts of the country.  We are known for our fish and chips, roast dinners, the Monarchy, and our damp.

Damp not only is destructive, it also can be a health hazard causing sinus and chest infections, as well as just being unpleasant smelling and looking.

 

Storage Space 

Just as we look at a property and need to think a head as to if we plan on having children there and needing space to grow, is there storage space?

A house may look beautiful and great, but if it has no or limited kitchen cabinets, no loft, garage, or anywhere to store our Christmas decorations, or old heirlooms, things may get tight in the house very quickly, or look cluttered.

 

Which Way Does the Property Face?

If you want the sun all day, a house facing south is ideal.  The sun rises in the east and sets in the west, so facing south may be ideal to catch the sun all day…if there is sun.

If you want a garden, and one in which plants and possible edible things may grow, this can be a huge consideration, as you do want to catch some sun each day.

 

The Location 

As we mentioned at the very beginning of this guide, location, location, location.

Where is it you wish to live????

Near work, near family and friends, near schools, in a specific city, town or village.  The choice is yours to make.

Do you want local shopping and restaurants and nightlife on your doorstep, then that is one of your criteria in the location of your new home.

Location as we know, can also have a huge impact on the price of a property.

 

How Old is the House 

A second question to ask with this one is, has the property been modernised or upgraded.

If you purchase an older home, you may get great craftsmanship, however the property may be in need of some repairs, or soon in need of repairs.

Check the roof and the foundation, to make sure not only are there no cracks in the foundation, but that the roof seems in good repair.

Roofs can only last up to 20 years, so asking if the current owner knows when it was last replaced, unless a new build, would seem logical.

Of course many home inspections will check for these things.

 

Power Points and the Electrics 

Nothing is more frustrating than moving in, going to plug in all your appliances and the TV, stereo, computer, clocks, etc, and finding not enough plugs.  You then need to use extension leads or adaptors, which may not be safe depending on the electrics of the property.

It is a small thing, but look and count the power points per room.

 

Noise

Are the rooms adequately sound-proofed, meaning can you hear a pin drop in the room next door.  Have someone stand in an adjacent room and see if you can hear noises and walking around.

In addition, check the windows for double glazing and road noise.

Can you hear your neighbours through the walls if a terrace or joined property.

What about someone walking around upstairs, is this sound muffled, non-existent, or does it sound like a herd of elephants walking about up there.

While we are on the subject of noise, is the property near any train tracks or railways, or on the flight path towards an airport.

You may be surprised how these things are not disclosed until you are viewing a property and suddenly an Airbus A380 flies near on its way to land.

 

Warranties 

Some new build properties come with a limited warranty as to protect the buyer should there be any structural repairs needed, or something faults.

Home warranties can also be purchased on older houses and properties as well.  Some mortgage lenders as a condition of the loan may require a warranty be purchased.  This goes hand-in-hand with a building insurance policy as many new homeowners could not afford to pay for any substantial repairs on a house either through a storm or other act of nature, or if the roof or any other structural component needed fixed or repaired.

 

What Kind of Property

This may get dictated by what we can afford, and also by the location, but are you looking for a terraced house, semi-detached, fully detached, castle, etc.

Cost of these will vary, especially according to area and region.  For many first-time home-buyers, a  terraced property may be their first rung on the property ladder.

The type of property can be dictated by what size house you require for you and your family.

 

Future Potential

This ties in with the size of a property, is there room to grow in the house.

Maybe in time you want that conservatory to sit in during the Winter months to just view the outside weather, and any birds and small animals that may find their way into your little world.

If you may be taking in family to live with you in later years, will there be space.

 

Compromises

You may not be able to tick off every box you have in finding the perfect property, especially your first house.  However, with the future potential factors and all it may have, are you OK with any compromises that may need to be made.

Maybe the house is in the perfect location, but is one bedroom shy of what you think you require.

You need to bear in mind not just what it is you want in the house but also what you are willing to work with.

Just as a mortgage lender needs to get a glimpse of you and project it a head many years to grnt your loan, you need to know what it is you need in a property now, and may need in the years to come in order to make the best possible decision on what property you want, and also fits your current and future needs.

There are many “checklists” and guides on not just what to look for when buying and considering a property, but some little “smoke and mirror” tricks to watch out for.

 

Things like:

*  Turning the lights on and also off to see how the house looks.

*  Turn off any music the seller or estate agent may have playing.  Listen to the road noise and the area’s sounds and noise.

*  Prior to seeing any properties, measure all your furniture, then measure the rooms in the house you are viewing, just to see if things will fit.

*  Look for damp, not enough can be said about this.  Check windows for condensation.

*  Turn on the taps and check the hot and cold water.  Look for discolouration.

*  Are the floors level.  If a marble rolls down a room towards another side, that my be a sign of a floor that is not level.

*  Has the property been recently painted or has new carpets.  This can be a nice thing to have, but did the previous owners smoke.

*  What conveys with the property?  Some homeowners may leave a fridge, washing machine or other appliance to stay with the house.

*  Turn the heat on, even in the summer.  Check the boiler to see if it is working.

*  Walk around the neighbourhood, talk to neighbours in the area if they are out and about, and a big question to ask of the seller if possible, why are they moving?

*  Listen to your little man, or little woman inside. Buying a house is an emotional experience, one that many of us do with our hearts, but we also need to follow out gut instinct as well.

If just due to outgrowing the property, or moving on, fair enough.  However, you may get some straight forward answers which can influence your buying decision.

 

The Financing

OK, maybe it is somewhat about £££ and money when considering what house to buy, as the financing is a large aspect of buying a house.

And you need to think of what kind of financing you may want, yes a mortgage, but how long a term, can you get the elusive fixed rate mortgage or are you going to be on a tracker mortgage.

A fixed rate mortgage gives you the same interest rate for the entire term of the loan.

Which means that if you have  10 or 15 year mortgage, you know what your mortgage payment will be for that 10 or 15 years, the interest rate will not change, so your monthly payment will not change.

There is some stability there.

A tracker mortgage is a “variable rate” mortgage which means the interest rate may be fixed for a short period of time, say 3 years or so, and then the rate adjusts to the base rate of the Bank of England, plus a margin above this rate.

What this means is that you do not have a stable fixed rate for your mortgage, it may adjust or change in a few years, which can cause your mortgage payment to increase.

Many tracker mortgages offer a low introductory interest rate, which helps first time, and all buyers, to qualify for a higher mortgage or more house.

This is good, however, if the tracker increases to much, or the buyer can not afford the increase in the mortgage payment, this can lead to financial difficulties.

 

Chapter 6:  Property as an Investment

One reason many people wish to get on the property ladder, besides the pride of ownership, is that owning a property, as we previously stated is one of the largest accumulations of personal wealth.

Properties are an asset, they are worth money, and in the majority of instances, gain equity. And in some instances, and housing markets, a property may gain equity at a quick rate.

If you buy a house for £150,000, put a deposit on it of £20,000 and mortgage £130,000, you immediately have £20,000 worth of equity.

As you pay down the mortgage each year, and the property appreciates each year, meaning the value of the property increases, you gain/grow equity on two fronts.

Within a few years your mortgage may not have reduced that much, perhaps a couple thousands of pounds, but the property may now be worth £165,000.

So conceivably you could have £35,000 to £45,000 or more of equity in the property.

You’re rich!!

Not quite.

These riches or equity is not realised until the sale of the property. Which means the property is only worth what someone will pay for it, and you do not get the money until the sale is complete.

However, with property usually going up in value, it is easy to see why some investors choose to put their money in it. Property can be a good sound investment.

There are two ways to approach using property as an investment, however both have the same outcome in the end, profit off the sale of the property.

 

Buy-to-Let

Many landlords or property tycoons, buy specific houses for the purpose of letting them out. They want the rent on the property to pay the mortgage or mortgages, and during this time of letting the properties, the properties build equity, which possibly later on the investor sells the properties to gain access to this equity or new fortune.

This a good business/investment model, which does have a few caveats to it.

One is the investor needs access to the funds to buy properties to build their property portfolio.

This can be done with lines of credit at a bank, or getting approved for a mortgage each time they wish to buy a house.

There are a couple of things that can impact our investment strategy here:

*  Buy-to-let mortgages

*  Stamp duty

Getting a buy-to-let mortgage is slightly different that just getting an owner-occupied mortgage.

Remember that term “owner-occupied”  from the beginning of this guide.  I can be clever how I foreshadow things early on:)

To qualify for a buy-to-let mortgage you may need a larger deposit, and while you may receive rental income to pay the mortgage, lenders are viewing this income in a different light, especially if you have multiple properties.

Owner-occupied mortgages have lower default rates due to the fact the person living there may lose their home.

Landlords only lose their investment if they default on a property and it is repossessed.

Another consideration is the recent increase in the stamp duty for buy-to-let property sales. This makes it more expensive to purchase a property as a buy-to-let.

However, as you can imagine, if you have 10 properties all let out, and are paying the mortgages and upkeep, you can be building a sizeable amount of equity in a relatively quick period of time.

So as an investment, property can be attractive.

 

Buying a Property, Living There, Moving On, Letting it Out 

The title here really says it all.

You purchase a property as an owner-occupier, live there for a period of time, then decide to move to another property, purchase a new house, and let out your old or previous house.

Sounds simple and easy, and it is done many times a day.

There can be issues with this.

One is to advise your mortgage company of the change.

The mortgage was approved and granted based on your living in the property, and buy-to-let mortgages can come with a higher interest rate, so you should notify your mortgage company, who may require some changes.

There also is the insurance issue or aspect of things.  Landlords usually only carry building insurance, and as they are not the ones residing in the property the insurers can feel there is a greater risk, and may charge more for the premiums.

By not notifying the insurer, should there be a claim against the insurance policy, the claim could be denied.

So if you want to become an “accidental landlord”  you may wish to know the implications of this, and also you have responsibilities to your mortgage company and insurer.

Next let’s look at selling a property.

 

 

Chapter 7:  Selling a Property

They sort of go hand-in-hand, if you buy a property to get on the property ladder, and you wish to climb that ladder, then you at some point will be selling a property.

When considering selling a property you need to cast your mind back to when you first bought the very house you now wish to sell, and also to project matters forward.  Gaze into the crystal ball of properties….

*  What was it that attracted you to this particular property?

*  Has the neighbourhood changed, is it better or worse?

*  What are similar properties in your area selling for?  You want to be competitive in how you price the property, not to ask too much, but not to leave money on the table.

*  How much do I need to sell the property for?  If you have a mortgage to pay off, and are seeking another mortgage and the proceeds from this sale are your new deposit, you need to know how much money do you need from the sale.

Remember, the larger your deposit the less your new loan will be.

*  Timing is everything.  If you have a new property in mind to buy, how quickly do you need to sell yours?  Buying a property with a chain, be it just you, or a multiple chain, can be tricky. It is like a house of cards or dominoes, when one goes, so can the whole deal.

Just as in selling anything, marketing is key, and what better way to market a property than online.

Deciding to market and sell the house online is a no-brainer, but do you sell it yourself or use a help-to-sell programme, or an estate agent??

Naturally if you sell the property yourself you will save money, however, estate agents are professionals in what they do (did I hear a cough or a laugh??), and they should be compensated for their work, and the reality of it is, how much is your time worth?

Having someone else handle the details, who knows the market conditions, and can help with the pricing of the property, how to present it, and may already have buyers looking in your area, can prove invaluable.

Unless you have confidence and experience in this area, I recommend using an estate agent. Even property investors and other real estate tycoons use estate agents, so why shouldn’t you.

You can factor the cost into your sale price.

I totally believe in online sales and using the Internet to market, research, and make purchases.

However, this statement by Ed Mead, who is the Executive Director at Douglas and Gordon states, “The internet brings a lot of things, personal service is not one of them.

When you work with an estate agent they are working for you, and unless there is a sale, you pay nothing in most instances, unless other considerations are made.

So you really have nothing to lose.

Next up, the dark side of the property ladder force…repossession.

 

Chapter 8:  Repossession

We cannot discuss buying a house/property/home, without looking at the dark side of the matter.

Sure if you put a bid on a house you love and it is not accepted, that can be a sad day.  There also is the feeling of being gazumped and losing out on a house.

There can be many things that get in the way, or are hurdles in buying a house, even getting approved for a mortgage can be a challenge, but once you are living the dream in your own home, nothing makes the hair on the back of your neck stand up more than the word….repossession.

Defined repossession is:  “when a lien holder takes possession of an item from its registered owner that was used as collateral for a loan

Simple by definition, complex by the emotional aspects.

While it is not something pleasant to discuss, it is a fact as many homeowners do lose their homes to repossession.

Repossessing a property is a last resort, as it serves no good purpose for the mortgage lender, and especially the borrower/homeowner.

No mortgage lender wants to repossess a property, this is why the process of getting a mortgage and how the loans are underwritten can seem as complex as they are.

Remember what we stated back when we discussed mortgages, lenders need to take a snapshot of you now, and project it ahead 10 or more years.

However, sometimes life does get in the way and a property does get repossessed.  For whatever reason a homeowner can no longer afford to repay their mortgage, and the lender begins the process of repossession; and it is a process.

 

The Process of Repossession 

There are various steps, and actions a lender must take in order to repossess a property, which along the way there are options open to the homeowner to avoid this.

*  The mortgage company sends you correspondence or post advising you that you are in arrears, and seek to help you find out as to what has happened, and if they can help.

*  The mortgage company can next apply to the court for an order to retake the property.

*  The court will send you a notice advising you of a hearing date, and also supply you with a “defence form”.

*  A Judge then hears the case and can decide to suspend the action, allow the action, or adjourn the case, which means it is postponed.

*  If the court makes an order for repossession, this means your home can be repossessed.  A date will be set by which you must vacate the property, usually within 28 days, but could be as long as 56 days.

*  If you have not moved out by the date the court has set, Bailiffs can be used to remove you and your belongings from the property.

*  The mortgage lender at some point after this will sell the property, usually at auction.  If the lender does not receive enough to pay off the full balance on the loan, you as the borrower may owe a deficiency balance.

This balance then becomes an unsecured loan in which you can be chased for payment.  This balance can also be included in an IVA, or Bankruptcy.

 

Try To Sell The Property  

One option you have as a homeowner facing repossession is if you have no other way out of the situation, you can try and sell the property yourself to pay off the loan.

Depending on how much equity you may have, you may have this option, and the flexibility to be able to sell the property for an amount that is attractive to buyers, but also will clear your loan.

There are investors and companies that state they will buy any house, and they very well may.  But again, depending on what they are willing to pay, and what you may have left to owe on the mortgage, can determine if the sale is viable or not.

Depending on the mortgage lender and other factors, you may be able to hand the keys back to the lender on a short-sale where the lender will accept what the property is sold for and consider the loan paid in full.

OK, enough of this depressing doom and gloom, repossession stuff.  This is a happy time, you have bought or are buying possibly your first home.

Wouldn’t it be nice if there was a guide, like this one, that also offered some tips of advice.  Advice from those who have already opened the home buying door already.

Read on…

 

Chapter 9:  Tips and Common Mistakes

You my friend are not the first person to ever buy a property and make it a home, oh no, many have gone through the doors you are about to enter.  So why not look at and share some of their tips and also see some of the common, and not so common mistakes home buyers can and have made.

As Homebuyers We Underestimate

There are many fallacies we have with money and finances, one is we think when we sell something  the item in question is worth more than if we were buyer for the item.

We also may underestimate what not the just the cost of a property may be, but also how much our mortgage payment will be. 

Much as to what our mortgage payment will be can depend on factors outside our control, such as interest rates, and the term of the loan.

A lender may dictate these.

If we remember that the larger our deposit the less we need to borrow, this is within our control and can impact our monthly payments.

We also may underestimate some of the costs involved with purchasing a property.  Stamp duty, solicitor and conveyancing fees, valuation fees, etc. 

These can all add up.

 

Moving On Up 

We have discussed the expenses associated with moving and also with now owing a home. But there is a syndrome associated with buying a new home, and it is called “old sofa syndrome”.

When you buy a property and get approved for a mortgage, as stated, you and your finances are at a high point.

So there you are, moved into your new home, setting up house with your old furniture and things just don’t look right.  You feel that since it is a new house, you need new furniture to go with it, to accentuate the new abode.

So you run out and buy new furniture. 

Then the old drapes and curtains don’t match, or look old compared to the new furniture, so you replace them. 

Next you need a big screen TV as your old TV looks small in the new lounge.

You see where I am going and what I am getting at, your old sofa or old whatever, is causing you to replace things, and you may have the money to pay for these items, or you may take out credit; as since your credit was good enough for a mortgage it is good enough for a credit card or personal loan.

This is how people find themselves over-extended and in debt.

Something to bear in mind when you move into the new house.

There are many other tips and pieces of advice people will give:

*  Shop around for a mortgage or use a mortgage broker 

*  Beware of estate agents (I think we discussed this in a positive manner)

*  Negotiating the sale price, you don’t need to offer what a seller is asking

*  Research the area in which you want to live, and also property prices 

*  Inquire about lower interest rates depending on the loan amount

*  Research first-time home-buyer programmes and schemes to help with deposits

*  Consider shared ownership as a way to get your foot in the door and own a property.  If you cannot qualify or afford a mortgage for 100% of a property, then maybe you can share the ownership with the builder, the council, or a housing association. 

You get a mortgage for 25% of the price of the property, or even 50%, and then rent the remaining balance.  You share the ownership, and also share the building of equity.  At a later dte you may be able to buy-out the other portion and own the property 100%.

*  Be aware of communal fees or service charges with some flats or houses 

*  Be aware of any easement or boundary issues

*  Be aware of any chancel repair liability

 

Chancel Repair Liability

Chancel repair liability is something which goes back to the 1500’s and is when the towns and villages that were ministered by a Vicar or Rector, were responsible for repairs to the church.

These laws are still on the books, and people have been hit with bills for thousands of pounds to repair old churches in their town or village.

While this has obligation has been phased out, there are those that still recommend chancel repair liability insurance as a precaution.

So here we are at the end of our journey and guide into buying a property, your first home of many, or your first and last home.

Open the door and come on in.

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