Buying a home is one of the biggest financial commitments you’re ever likely to make, and it’s easy to feel intimidated and stressed before even starting the process! If you’re reading this as a first-time buyer, you may not even know where to start and what to do first. Your head might be spinning with questions like “How much can I borrow?”, “What are all the costs I should be aware of?”, and “what’s a leasehold?”. While the process may seem scary, it doesn’t need to be difficult – and that’s where this guide comes in. So sit back, grab a cuppa, and read on.
We’ll start this series of first-time buyer guides by sharing the key things you need to know about the housing market, such as what to expect in terms of prices, the time things take, and the important concepts of leasehold and freehold.
House Prices Vary By Region
As you can imagine, understanding the average prices for where you want to buy will help you set a realistic budget for your needs. The housing market varies massively between regions, with London being at the most expensive end where a two-bedroom property can cost anywhere upwards of £500,000 – with many luxury properties in central London priced well into the multi-million pound range. On the other hand, in the Southwest of England you could be paying anywhere between £175,000 to £300,000 for a similar sized property with a beautiful garden, and have plenty of change left in your pocket to buy all the Cornish pasties you’d like!
A good first step is to figure out what you can afford financially, and what you need in terms of space. These two constraints will work in conjunction to help you start narrowing down where you can afford to live. More on this later in the guide!
Understanding Freehold vs. Leasehold
You may have heard the terms leasehold or freehold being thrown about in the world of property, but if you’re reading this guide there’s a good chance that you’re wondering what these words actually mean!
Let’s start with leasehold. this will typically apply to you if you are buying a flat within a block, rather than a standalone house. Under a leasehold, you will have the right to occupy a property for a fixed period of time, otherwise known as the length of the lease. Ultimate ownership of the property lies with the landlord or ‘freeholder’. The lease length is typically 90+ years, but some leases last up to 999 years. At the end of this lease, the property will revert back the freeholder.
One thing to be wary of is properties for sale with short leases – these tend to be cheaper but come with some potential issues down the line as the property will soon revert back to the freeholder. If you’re planning on taking out a mortgage, lenders tend to be wary if the lease is shorter than 80 years. Whilst you can always extend your lease, the cost of doing so can often outweigh the discount you receive when buying a short lease property. As a leaseholder, it is likely that you’ll also be responsible for paying ground rent and a service charge to the freeholder annually, which will cover in more detail in section 2 of this guide.
A freehold is the simpler of the terms, and it will generally apply to you if you’re buying a house. As a freeholder you own the property and the land it sits on outright, for an indefinite time period. But keep in mind that since the property and land are both yours, you are responsible for maintenance. Freehold is often the favourable option of the two.
Finally, we have the concept of owning a ‘share of freehold’ for flats. This is when you buy the freehold for the land from the existing freeholder. There are many reasons to want to buy the freehold – for example, leaseholders pay ground rent to the owner of the freehold on top of their mortgage payments, and leaseholders aren’t in control of the service charges related to the upkeep of common areas. The price to purchase the freehold varies, as there are various factors including; the original purchase price of the freehold, the cost of a surveyor to value the land, legal fees for the leaseholders as well as the freeholder, and stamp duty tax for purchase prices over £125,000.
To purchase a share of freehold you’ll have to work together with the other leaseholders in your building, as you will need at least half of the leaseholders to buy out the freeholder. The building must also have no more than 25% or the property being used for non-residential purposes like shops or office spaces, whilst at least two-thirds of the leaseholders need to possess leases longer than 21 years.
Once you successfully own a share of the freehold, you will gain many benefits. Firstly, you usually won’t have to pay ground rent, you will be in control of any service charges, you will also have the ability to extend your lease to 999 years and only pay the legal costs. It’s also likely to increase the value of your home.
With the time taken between starting your property search and exchanging contracts varying between 12 weeks and 8 months, buying a property is not an overnight process! There are many factors which contribute to the time it takes, but there are four key parts to consider:
Part 1: The Property Search
This is probably the most variable stage, as deciding on which home to purchase is not a decision taken lightly. And besides, even once you find that perfect home, it isn’t guaranteed that your offer will get accepted. It is not uncommon to view dozens of properties before eventually making a decision, and you may want to wait on the sidelines until that ‘forever home’ comes on to the market. Allow for plenty of time and avoid rushing into a decision.
One way you can be efficient with time when searching for a property is to be realistic with your budget, and avoid viewing properties that you ultimately won’t be able to afford. It pays to have your budget set from the start!
Part 2: Surveying your property
Once you decide to make an offer on the property of your choice, you will want to have it professionally surveyed. Many lenders will in fact require this to be completed before they offer you a final quote. Surveys can be very useful in many ways: They are a chance to evaluate the current condition of the property by examining aspects that you wouldn’t usually find in a viewing, including structural problems, roofing, chimney cutes, or damp. Having this knowledge before you move offers you peace of mind knowing your investment is safe. Sometimes surveyors can also uncover issues that can knock off a few thousand pounds from the asking price! The surveying process can take up to anywhere between 1 to 3 months. Once this is complete you can exchange contracts – this is the point at which your offer is legally binding.
Part 3: Payments
Deciding how you are going to pay for your property is another decision that has many moving parts. You can either pay in cash (if you can afford it!) or take out a mortgage, however much like every other decision you’ll have to make on your property hunt, each approach has its advantages and disadvantages. Paying in cash is the faster option and is seen as being very attractive to buyers, often allowing you to put in a lower offer. Unfortunately this is not feasible for those without large cash reserves. That’s where a mortgage comes in. Now don’t let the word intimidate you, it’s just the term used for a large loan secured against a property. As it is a loan, there will be a longer process as you will need to ensure that you can afford the monthly mortgage payments, and the lender will also need to conduct their own checks on the property. That is why this stage can take up to 6 weeks.
Part 4: Conveyancing, Exchanging Contracts and Completion
So you’ve made an offer on the property and it has been accepted – congratulations! Now you’ll go through the process of conveyancing: the legal process of transferring the ownership from the seller to the buyer. It’s usually all done for you by a solicitor or a licensed conveyancer, which does mean you will have to pay between £700 to £1,500 for this step. The purpose here is to make sure that you are aware of any restrictions before you are legally committed. The solicitor will carry out ‘searches’ on your behalf, they are enquiries to various authorities in regards to the property, the land, and other factors affecting your purchase. These provide you as the buyer with peace of mind knowing that your investment into a property is safe.
Once your property checks out and you get the green light, your solicitor will start the process of exchanging contracts, where you will be required to pay your deposit. Once the contracts are exchanged, you are in a legally binding contract with the seller and therefore neither can back out without penalties. This process can be stalled for many reasons as often the seller will not exchange until they have finalised their purchase of a new home, again taking anything from a few weeks to several months. Once contracts are exchanged, you and the seller will decide on a completion date, often 2 weeks after the exchange of contracts. The completion date is the official date when you are handed the keys to your new home and you can move in. Home sweet home!