The pitfalls to avoid when buying a house
I am gearing up to become a first-time buyer. By autumn, my fiancé and I hope to be sleeping under our very own roof after a decade of renting. We’ve been saving hard and, thanks to a little help from our parents, we now have a good deposit and know we’d be at least £200 better off each month with a mortgage before insurance and fees.
We thought getting the deposit together was going to be the hardest part of buying a house but it turns out the whole process is hugely complicated.
And it doesn't seem to matter whether you're buying your first home, upsizing or downsizing, the way we purchase property in England and Wales is slow and frustrating (the legal process is different in Scotland and Northern Ireland).
Normally, when we make big purchases such as a computer or a sofa, we know exactly what we're buying. You go into a shop, view the product, check the price and head over to the till. But when we make the biggest purchase of our lives, we rarely know exactly what we're going to get for our money. We don't even know how long it's going to take to buy it.
Huddersfield-based estate agent Emma Oxley says the time between putting in an offer on a house and exchanging contracts currently takes six to eight weeks on average, while fellow agent Chris Hope says it's more like 10 to 12 weeks in Swansea.
"The process is taking considerably longer than it was this time last year for buyers and sellers," says Hope, senior partner at Dawsons estate agent. "And it's largely because the Financial Services Authority (FSA) has come down hard on banks and building societies in a bid to reduce mortgage fraud."
It used to be that lenders were happy for the buyer to appoint the legal professional of their choice to do all the buyer's and the lender's conveyancing - the process that deals with the transfer of property ownership.
But because mortgage fraud is often perpetrated by fiddling details such as the buyer's income to secure a bigger mortgage (minor mortgage fraud), or by criminals setting up fake conveyancing firms and disappearing as soon as they receive mortgage funds from the lenders (major mortgage fraud), banks and building societies are restricting how many conveyancers can act for them by setting up panels of preferred partners.
Lenders say this is good for consumers as it adds an extra layer of quality control and reassurance. But in reality it seems to delay the sale process because conveyancers are having to adhere to stricter rules and rising demands.
"Conveyancers know they can't sign off a mortgage offer without checking it inside out now or they'll have to pay compensation to the mortgage providers," explains Hope. "None of the lenders have got their acts together to properly deal with the deluge of work that has to be done as a result of this," adds buying agent and property expert Henry Pryor.
Out of date process
It seems the way we buy property in England and Wales is out of date. Mark McLaren, principal advocate for consumer rights at Which?, says: "The process is difficult to understand. It would benefit from some standardisation."
There are moves afoot to achieve this. For example, The Law Society is consulting on the protocols behind property transactions, such as a property's fixtures and fittings list.
"It could be a move to create a more national set of protocols and establish national conveyancing rules. Consumers wouldn't directly notice the improvement upfront but it would help," says McLaren.
"Until there is a degree of certainty that a sale will go ahead earlier in the process, buyers and sellers will continue to pull out of sales. It's a mad system!"
Speeding things up
So, what can you do to make sure your property purchase runs smoothly? First, as soon as you start thinking about buying you need to sort out your finances. "Sellers are looking for buyers who can help them sell quickly," says Hope.
"We encourage all our buyers to speak to an independent financial adviser so they fully understand the legal and financial processes involved in buying a house and get their mortgage in place."
Instead of falling in love with a house, making an offer on it and then trying to arrange your finances, you will put yourself in a far stronger position if you get your finances in place first.
"Preparing for a mortgage starts early so make sure your documentation is in order," says Andrew Montlake, director of London-based mortgage and financial advice group Coreco.
"Lenders like to see your last three years' address history (no gaps), your last three months'payslips and bank statements, your last P60 and full details of any loans or credit cards. Providing this information on day one speeds up the process no end."
Once you’ve got your finances in order, you should aim to get a mortgage agreement in principle (AIP). Securing it in principle before you start looking for a property will likely speed up the buying process by proving to your estate agent and the seller your creditworthiness and that you are a serious buyer.
It confirms in writing how much a lender will be prepared to loan you, subject to it checking information such as valuations and surveys. Only then will you know exactly how much you can spend on a house.
Montlake suggests getting AIPs from no more than two lenders as too many credit checks can damage your credit rating. He also points out that some lenders move slower than others, especially if they have the best rates and have attracted lots of new customers.
Timings should be taken into account when deciding which lender to proceed with. Taking a slightly higher rate to meet your moving-in timeframe could make all the difference in securing your dream home, he says.
And if your lender allows you to instruct your own conveyancer, start looking for someone to act for you as soon as you are ready to put in an offer on a house. Your estate agent should be able to recommend a local firm.
Montlake suggests asking two or three for quotes on how much they will charge based on your offer price. For a list of Conveyancing Quality Scheme accredited firms, visit lawsocietyapproved.com.
Investors who borrow money they use for investment and use the securities they buy as collateral for the loan are said to be “gearing up” the portfolio (in the US, gearing is referred to as “leveraging”) and widely used by investment trusts. The greater the gearing as a proportion of the overall portfolio, the greater the potential for profit or loss. If markets rise in value, the investor can pay back the loan and retain the profit but if markets fall, the investor may not be able to cover the borrowing and interest costs, and will make a loss. Also used to describe the ratio of a company’s borrowing in relation to its market capitalisation and the gearing ratio measures the extent to which a company is funded by debt. A company with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
The branch of law concerned with the preparation of documents for the buying and selling of property (or remortgaging), always handled by a qualified solicitor. The conveyancing process covers many of the legal aspects of the sale/purchase/remortgage such as land registry, local authority searches, freehold and leasehold status, title deeds and much more.