If you’re buying a property in Southport for the first time, you’ll soon realise that much of what you read in your search for the perfect pad is riddled with confusing terms such as ‘LISA’, ‘Help to Buy’, ‘Equity Loans’ and ‘Variable Rates’. This can make it more difficult to navigate the market and get all the help you’re entitled to from the range of smart initiatives available. Fear not – our first time buyer’s jargon guide will walk you through the confusion and put you in good stead to take that first step onto the property ladder.
Lifetime ISA (LISA)
LISAs (Lifetime ISAs) are special ISAs that can be used towards the purchase of your first home (they can also be used to fund your retirement). You can open a LISA if you’re under 40 and can save up to £4,000 each year which the Government will top up with a 25% bonus. If you are purchasing a property with your partner and they are also a first time buyer, both of you can have LISAs.
LISAs can hold cash or stocks and shares.
Help to Buy ISA
If you’re not eligible for a LISA (for example, because you’re 40+), you can instead benefit from a Government bonus by opening a Help to Buy ISA. With this type of ISA, the Government will also boost your savings by 25% but you can only save a limited amount, with a maximum bonus of £3,000. As for LISAs, both you and your partner can open a Help to Buy ISA and double your bonus.
Help to Buy Equity Loan
Help to Buy equity loans are available from the Government, allowing you to borrow up to 20% of the cost of a new build property interest free for 5 years. This means you’ll only need a 5% deposit towards your purchase, and can get a 75% mortgage for the balance. There’s no interest due on the 20% loan for the first 5 years.
With a shared ownership property, you own part of the property and rent the rest. You have the opportunity to purchase additional shares in the property when you are financially able to do so, with the goal of eventually owning the whole property.
This is someone who provides advice on the best mortgage for you. Some lenders compare deals across the whole market whilst others will look at just a few lenders.
Sometimes mortgage companies ask for a guarantor before agreeing to lend. This is someone who will be obliged to pay your mortgage payments should you fail to do so. Alternatively some lenders allow a sum of money to be deposited by a relative as a guarantee – the money is untouched (typically earning interest) provided that you meet your payments.
This is the amount of money you borrow from a lender in comparison with your deposit. For example, if you have a 10% deposit, you will have a 90% LTV mortgage.
Fixed rate mortgage
If you take a fixed-rate mortgage, you’ll pay a set amount of interest for a certain period regardless of the economic climate or what happens to the Bank of England’s interest rates. So, for example, if you see the term ‘two year fixed’, that means you’ll pay the rate quoted for two years. After that, your lender will put you on their Standard Variable Rate (and you should then calculate if it’s cheaper for you to switch). Fixed rates give you certainty – you know that even if your lender puts its other interest rates up due to economic pressures, you won’t pay more than a fixed amount for the agreed period. However, you’ll see that usually longer fixed rate deals come with higher interest rates.
Standard Variable Rate (SVR)
Your lender’s Standard Variable Rate is the rate of interest you’ll pay after your fixed term deal (see above) has finished. The lender sets the SVR and it does not depend on Bank of England rates. If the Bank of England put its rates up by 1%, the lender has the choice of whether to increase your payment by an amount which may be more than 1%. Borrowers subject to a SVR have little certainty and should check to see if they could save money by switching to another deal and/or another lender.
Conveyancing and other fees
First time buyers don’t always appreciate just how much there is to pay out when buying a home. The fees you’ll need to pay when purchasing a property include:
- Fees for solicitor to do the legal conveyancing work.
- The cost of any necessary searches (for example, a local search, drainage search and mining search).
- Fees charged by your lender in arranging the mortgage, carrying out any required surveys, and completing necessary legal work relating to their interest in the property.
- Stamp duty – this is a tax you must pay any time you buy a property. First time buyers pay a reduced rate which is 0% on the first £300,000 of the purchase price and 5% on £300,000.01 to £500,000 (on that portion of the purchase price only).
- Land Registration fees – the cost to register the property in your name, once purchased.
- Insurance for the new property, once contracts have been exchanged.
- Practical fees such as the cost of hiring a moving lorry.
- The final bills for utilities and expenses from your current home.
Your solicitor can advise on the conveyancing, search, stamp duty and land registration fees payable when buying a property in Southport.
This is the point where you’ve found a property and you offer to pay a price for it which may be the asking price, more (if the property is in demand) or less. Note that even if the seller accepts your offer, there is no binding contract and generally they are free to pull out of the deal at any time before exchange of contracts, even if this leaves you out of pocket.
Searches and enquiries
Your solicitor will carry out a number of searches to see whether there are any issues affecting the property affecting its value or use. The searches depend on the individual property but will usually include:
- Search of the local land charges register;
- Enquiries of the local authority and, if appropriate, additional enquiries;
- Water and drainage enquiries; and
- Environmental search.
Your solicitor is looking for legal issues that affect the property (for example, restrictions in the title deeds) and practical issues (such as whether it is connected to services and whether it has been subject to flooding).
Your solicitor will also ask the Seller to answer a series of questions through its solicitor, to help ascertain if there are any other issues that might affect the property such as disputes with the neighbours. In addition, they will recommend you make a careful personal inspection of the property (assuming it has been built!) to check for matters that might affect the sale.
Surveys can be confusing to first time buyers, as there are several different types available. First, there’s the lender’s valuation which is carried out to confirm that the property is worth what you’re paying for it. Whilst lenders will insist on the report being produced and may charge you for it, it’s important to appreciate that this is not actually a survey at all and will tell you very little about the condition of the property.
At the lower end of the survey scale, you can commission a RICS condition report for around £250 which provides some basic information as to the property’s condition. This may be suitable for newer properties. An alternative is the new-build snagging survey which flags aspects of the property that haven’t been finished properly and which require the developer’s attention. Chances are there will be a lot more on the report than you’d spot if producing the snagging list for yourself, so it’s well worth the money.
The next survey type is a Homebuyer’s report, also from RICS – these cost about £450 and will give you more detail about the property’s condition. Most buyers go for this report but it’s important to appreciate that the surveyor won’t look beyond the surface – which means problems such as dry rot, damp or subsidence could be missed.
The final survey type is a RICS building survey which costs around £600 and offers a more comprehensive look at the property’s condition. If you’re buying a larger or older property, this could be a good choice as it covers problems that are hidden from view such as damp and rot.
Exchange of Contracts
This is the point at which the buyer and seller exchange their copy of the contract through their solicitors, and a binding contract is created. By this time, the buyer’s solicitor will have investigated the property and discovered any issues the buyer (or lender) should be aware of. Having received the buyer’s (and lender’s, if necessary) confirmation that they are happy to proceed, contracts will be exchanged. If the buyer withdraws from the deal after this point, he or she will forfeit the deposit.
There is a difference between the deposit required by your lender and the deposit required by your buyer. Some lenders will accept 5% or even 0% (although for the latter, a guarantor will usually be required). However, a seller usually expects more than 0%!
It’s important to appreciate that if less than 10% is paid on exchange of contract and the buyer subsequently withdraws, the balance between what was paid and 10% of the purchase price will usually still be payable, unless the parties have agreed otherwise.
The deposit is paid to the Seller’s solicitor who will hold it in their client account until completion. However, if the seller is also purchasing a new property, the deposit may be used to fund this purchase.
This is a list produced by the buyer of a new home which identifies all the issues with the home to be fixed before the buyer moves in – both significant and trivial. It can be helpful to have the snagging list produced by a professional so that all issues are identified comprehensively.
Need advice on purchasing your first home? Get in touch with our conveyancing team on Southport 01704 532890 or Liverpool 0151 928 6544.