Q&A

An open letter to first time buyers…

Dear new buyer,

Please ignore the horror stories. Forget the tales of corrupt estate agents, endless chains, unscrupulous solicitors and sinister sellers. These are in the minority, we promise. For every tale of woe you read in the newspaper, and every picture of a heartbroken couple standing outside what they thought would be their dream home, there is literally thousands – a recent report from HM Revenue & Customs, UK Property Transaction Statistics, reports a provisional seasonally adjusted UK property transaction count for October 2013 of 94,950 for residential, and 8,650 non-residential transactions – of happy first time home owners who made successful purchases.

Of course there’s no point in sugaring the pill. Whether you’ve acquired a mortgage or you’re a cash buyer, getting your very own, legally owned home is not for the faint of heart. It will test your nerve, your bank balance and your relationship. But it’s worth it. We promise. To walk into your very own home, is a wonderful feeling.

With that in mind, it’s time to ask yourself some tough questions and gather as much information as possible, so you’re confident when you enter the market.

How much you can afford?
Sounds a bit like we’re telling you how to suck eggs, but the reality is that too many people underestimate the amount of hidden costs involved in buying a home. Whether you’re a cash buyer or have a mortgage, you need to be aware of what it’s going to cost you to buy your dream home. One-off expenses from agents, to solicitor’s fees, to moving costs can add up to anywhere between £2000 - £5000 pounds, according Home.co.uk. And then there’s the dreaded stamp duty. Put simply, stamp duty is a tax. More specifically, if you buy a property in the UK over a certain price, you have to pay Stamp Duty Land Tax (SDLT). This is charged on all purchases of houses, flats and other land and buildings. If you’re buying a home in Fulham, which we’ll assume you are, it won’t be under £500,000, which means that stamp duty will be between 3-4% of the house price. Not small change, and it might even go up.

The Telegraph reported in December that: “The average home in the capital now costs £434,000, according to the ONS (Office for National Statistics). Using the Government’s own national forecasts - updated in the Chancellor’s Autumn Statement - this figure will rise to £513,000 by 2016, pushing the transaction up from the 3% bracket (which applies on transactions priced at £250,001 to £500,000) into the 4% bracket (£500,001 to £1m). The duty liable would go from £13,020 to £20,520, an increase of £7,500 or 58%.” So if you want to buy a home but you only have the bare minimum to cover the cost of the property, the brutal truth, is that you’re not ready.

Choose a home
You have the image of what you want from a home in your head. It’s likely been forming there for years. From the size and shape to the ambiance and location. Well, time for another nasty home truth: get ready for that image to change. There are very few people in a position to buy or build the literal home of their dreams, so for the rest of us, it’s about making a detailed list of your requirements and then finding a property that ticks as many of them as possible. They are obvious but hugely important questions.

Ask yourself:
• Where do you want to be?
• Do you want a house or flat?
• Do you need public transport?
• How many rooms do you want?
• How many rooms do you need?
• Do you have children?
• Are you planning to?
• Is your work secure?
• How long are you planning to stay there?
• Will the property increase in value?
• Does it need any renovation?
• How much will it cost?
• Is there any potential to expand ?
• Is the property leasehold or freehold?
• What council tax band will you be in?
• Is there parking?
• Are there good schools nearby?
• What are other houses like in the street?

The estate agent
The vast majority of buyers, first time or not, will purchase their homes through estate agents. There are of course other ways to own a home, from inheritance to a private sale, but the lion’s share overwhelmingly take place through an agent. After all, they have the details on the area, and, of course, the details on the homes. So what will happen when you enter the office and take a seat in the stylishly understated chairs across from the agent?

Questions. You’ll have them, and the agent will certainly have them, because the first thing they’ll do is gather as much information as possible so they can assess your position in the market. It’s worth remembering that the agent is looking to sell houses, they get most of their money from the seller (or vendor as you’ll likely hear them referred to), so they’re looking for the best possible buyer at the best possible price. This might sound mercenary to some people, but it’s simply business. This isn’t to say you should be treated with any disdain by an agent. If you feel for a second that you’re not being treated as you wish to be, turn on your heel and try down the road. When you do find an agent you’re comfortable with, who knows about the area you want to move into, and, most importantly, has the stock, it’s time to start tackling those questions. The agent will need to know several things, including your budget, whether you’re a cash buyer or have a mortgage in principal, are you in the process of selling a property or caught in a chain? What’s your timescale? These are all questions you should have the answers too.

Get a solicitor
You will need some legal backup to handle the conveyancing, which is the blanket term for all of the legal and administrative work surrounding the transferring of the ownership of land or buildings, from one owner to another. You are completely within your rights to carry out the conveyancing yourself, but unless you are a solicitor, this isn’t advisable. It is a complex process that makes filing a tax return look like a simple word search. And if you’re buying in London, get a London based solicitor. Forget the feelings of the trusted family practice, if they’re not savvy with the machinations of the city you want to buy in, you’re missing out on a valuable asset.

If buying a home is a competitive sport, then buying in SW6 is like playing in the Premier League

Making an offer
Make no mistake. If buying a home is a competitive sport, then buying in SW6 is like playing in the Premier League. An average property for sale in Fulham will have a minimum of four to five seriously interested buyers. So you, your finances and your information need to be in perfect condition if you’re ever going to compete. You need to reassure the seller that you are serious, secure and ready to move – if you’re in a chain but a rival party isn’t, you’re going to loose out unless you make a fairly radical offer. That’s not to say that you have no ammunition at all, because you do. Always remember, these people need to sell their house. The opening offer on a home is usually about 5-10% lower than the asking price, and the two parties should take this as the starting point for further negotiations. The number of people who’re interested in the property obviously affects your position. If you are the only people making serious enquiries, that’s good, but it would also be worth asking yourself, and your agent, why that is. And take the time of year into account, too. Sales, and prices, are traditionally higher in spring and summer, so if you’re buying in the autumn or winter, there’s a chance the seller is looking for a quick sale, which means more flexibility.

Exchange contracts
The Homeowners Alliance spells this part of the process out in black and white: “When you exchange contracts with the seller you become legally committed to buying the property – and they are legally committed to selling it do you.” More poetically put, this is the point of no return.

If you pull out at this point without good reason, you are liable to loose your 10% deposit, which will have been paid when your offer was accepted. Contracts should only be exchanged after a detailed sales memorandum has been circulated between buyer, seller, and both party’s solicitors and estate agents. This will detail timescales for completion date – usually about four weeks, but it can be as little as ten days if it’s a cash purchase – deposits, whether white goods will be included and even the blinds!

From the big to the small, everything needs to be put in writing and documented so that there is no way anyone can claim to have been left out of the loop. Contracts should only ever be exchanged once you and your solicitor have received the surveyor’s report on the property you are buying, and all parties are satisfied.

And a small, but important note to remember, is that you make sure you have insurance in place for the property from the date of completion, because even if you’re not quite moved in, it’s now your responsibility. It’s your new home. It’s yours.

Words:
Josh Woodfin in conversation with James Sims / MIke Horne