THESE are tough times for first-time buyers, for many of whom the main obstacle is the initial financial outlay, particularly with the end of the stamp duty concession last weekend.
Those still determined to get on to the first rung of the ladder need to be clearer than ever about the process, the terms used and the financial implications.
David Alexander, proprietor of the letting and estate agency, D J Alexander, gives his top ten tips to those who hope to become home owners.
The most popular type of home loan is a repayment mortgage, with the capital (and interest charged) typically paid off over 25 years. There are several options within a repayment mortgage. For example, with a ‘standard variable rate’ (or SVR) mortgage, monthly payments rise and fall in line with interest rates, whereas a capped mortgage places a limit on monthly repayments over an agreed period (for example, two years).
This is the biggest disincentive to first-time buyers entering the market at the moment. Until relatively recently, mortgages of up to 100 per cent were quite commonly available, meaning first-time purchasers needed little or no cash to put down as a lump sum.
To protect themselves against a further fall in property values, banks and building societies are now demanding substantial deposits. This means, for example, that someone paying under £100,000 for their first flat might still need to find almost £20,000 for a deposit.
MAKING AN OFFER
In Scotland, and especially the Edinburgh area, houses were until recently placed on the market at an ‘upset price’ or ‘offers over’ a certain amount. This has changed with the slump in the market, which means that most properties are now marketed at ‘offers around’ a named figure or at a straight fixed price.
In the case of the latter, some canny buyers will make an offer under the advertised price – which, in certain circumstances, could be accepted as long as the sum in question is not ridiculously low.
If, having viewed a property, you feel you might like to buy it, a ‘note of interest’ should be lodged with the seller’s solicitor. This will ensure that you will be given the opportunity to make your bid (or agree to pay the fixed price) prior to any relevant deadline for offers, usually called the ‘closing date’.
Since December 2008, all vendors of houses in Scotland have been required by law to provide a Home Report. This is made up of a single survey (containing an assessment by a surveyor of the condition of the home), a valuation and an accessibility audit for people with particular needs; an energy report containing an assessment by a surveyor of the energy efficiency of the home and its environmental impact; and a property questionnaire containing additional information about the home, such as council tax banding and factoring costs that will be useful to buyers.
Despite the contents of the Home Report, most lenders still want a valuation provided by a surveyor from its own ‘list’ and the cost of this will be charged to the borrower. Buyers should be aware that a bank or building society will only provide a mortgage equal to their surveyor’s valuation of the property – not the actual price at which the property changes hands.
When a new or relatively new house or flat is being offered for sale, a valuation is usually sufficient but in the case of older properties (e.g. from the late Victorian or Edwardian eras) the lender may insist on a survey, which is an examination of the structure of the property. There are three types of survey, and the cost of these will depend on how detailed the level of investigation.
When buying an older property, it is usually in the interests of the buyer as well as the lender to have a survey carried out.
This is the process whereby your solicitor will check the title deeds of the property you are buying to ensure that there are no restrictions which might be detrimental to your interests, as owners, or ‘hidden’ responsibilities.
This will focus on issues such as local rights of access, possible legal inhibitions on home extensions, joint responsibilities (e.g. the upkeep of communal gardens) and local authority planning decisions relevant to the immediate neighbourhood.
CONCLUSION OF MISSIVES
Neither buyers (nor sellers) should be lulled into thinking that in Scotland a bargain has been struck if a formal offer to purchase has been formally accepted. A ‘missive’ is basically a contract, meaning that only when missives are concluded is the sale done and dusted and buyers presented with the keys to their new home.
Buyers will need to budget for expenses related to the buying process. These will consist of a lawyer’s fee and a surveyor’s fee (for providing a survey or valuation).
The lender will probably charge a fee for arranging the mortgage. The average mortgage arrangement fee has increased from £889 to £1,498 in just 12 months, according to Moneyfacts.
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