Buying and selling a property at the same time can be one of the most stressful things you will ever do. This is our step by step guide on the main steps of the house buying process;
Step 1) A good starting point when you are thinking of moving home is to get your own property valued by a local estate agent. It is worth getting 3 independent valuations from different agents as you may find that figures vary between agents. An average of the 3 valuations will normally give you an idea of what you should achieve for your property.
Step 2) Once you have an accurate idea of the value of your home, then this is the correct time to start the mortgage process, as you will now need to get an accurate idea of how much you can borrow and how much is it all going to cost.
Step 3) Get a mortgage agreed in principal. Once you are happy with the figures, then get your mortgage agreed in principal. With Lee Berry – Mortgage Adviser, there is no cost to you for this to get you to this stage. We can apply to the chosen lender on your behalf and get a credit check carried out. Provided you pass, then the lender will give you a yes or a no depending on your credit score. If you pass, then many lenders will then issue you with an ‘approval in principal certificate’ which you can use when dealing with estate agents. Having an approval in principal certificate will add strength to you as a buyer. And in situations where there is more than 1 person interested in a property, if you have an ‘approval in principal’ and the other buyers do not, it is perhaps more likely that a seller will prefer you over the other buyers. To get an approval in principal, you will need to provide accurate evidence of your income. If you are employed, this would be your last 3 months payslips (last 14 weeks if paid weekly). If you are self employed, then this is likely to mean your most recent 2 years tax calculations. These can be requested from your accountant or downloaded from the HMRC website directly.
Step 4) Get your property on the market! The best move here is to test the market with your property to see what offers you get before you offer on a new property. The main concern that many sellers have at this point is that they are reluctant to place their own property on the market without a property ready to purchase as they do not want to feel pressured to complete on any sale until they are ready. The best thing here is to be upfront with any prospective buyers (and your selling agent) that you will only move IF you find the right property. What you will find is that once you accept an offer, most buyers will be prepared to wait a number of weeks, maybe months for you to find. Once you accept an offer, this then puts you in a much stronger position when you do find a property that you wish to make an offer on. If you do not find a property in time, and then your buyer withdraws their offer, then this should have cost you nothing as most estate agents work on a no sale – no fee basis (always worth double checking this with your agent).
By achieving an offer before you offer on a purchase, there are additional benefits as follows;
- You are in no rush to sell as you haven’t found a property yet. This means that you can hold out for the best price for your own property
- Because you have an offer on your own, this puts you in a stronger position to negotiate on the purchase. This means sellers are more likely to drop their price for you.
Imagine, by doing it in this order, you achieve 5k more on your sale and then get a 5k drop on the prospective purchase. You are now 10k better off.
The incorrect order to do this is to try and offer on a purchase before you have an offer on your own. If you do this, then you may find that the sellers won’t drop their price as you are not in a ‘proceedable’ position. You are then in a rush to sell as you don’t want to lose out on the property you have seen. This may mean that you accept a lower offer than you would have normally.
Imagine, by doing it in this order, you achieve 5k less on your sale and then pay 5k more on the purchase. So, not only have you not saved 10k by following the previous method, you have actually paid 10k more in true cost, so following this method has cost you 20k by comparison.
Step 5) Assuming you have now secured an offer on your own property and have had an offer accepted on a property that you wish to purchase. Then the next step is to instruct a solicitor. When choosing a solicitor, do not fall into the trap of purely basing your decision on price. With solicitors, you often get what you pay for. Often, the cheaper solicitors are just big call centres, and you rarely get to speak with the actual solicitor acting for you. You don’t have to pay over the odds though. There are plenty of reasonably priced solicitors that offer a decent service. If you need help choosing, we have solicitors that we can recommend for you.
Step 6) Submit your full mortgage application. This is the correct time to get the full application process moving. At this point, we meet up to go through the paperwork. This is a list of the documents you are likely to need to progress your application;
- Identification – Passport or driving license.
- Evidence of address – Driving license can be used for this, but many lenders will want additional evidence in the form of a utility bill dated within the past 2 months.
- Last 3 full month’s bank statements for all bank accounts held including any savings accounts.
- Evidence of deposit funds. If your funds are held in a savings account, then a bank statement showing funds will be fine. If your deposit funds are coming from the sale of a property, then you will not be required to show evidence as your solicitor will be able to confirm the source of the funds.
- Proof of income. If you are employed, then this will represent your most recent 3 month’s payslips (if paid monthly) or last 14 week’s payslips (if paid weekly. If you are self employed, then you will usually be asked to provide your last 2 year tax calculations and ‘Tax Year Overview’ forms. You can request these from you accountant, or download them directly from the HMRC website. If you have only been trading for 1 year, then there are some lenders that will accept 1 year tax calculations.
Step 7) Survey to be carried out. When you apply for a new mortgage, the mortgage lender will want to carry out a basic valuation on the property to make sure that you are not paying more than the property is worth. They will normally charge an upfront fee for this. This can range between £200 – £500 depending on the lender. This can normally take up to 2 weeks to get instructed after your full mortgage application has been submitted. You should be aware that, although you pay for this valuation, it is actually carried out for the lenders purposes only and so you do not normally get a copy of this valuation. If you want a more in depth survey carried out on the property and you want to receive a copy of the report, then you can normally pay extra (in the region of an extra £300) and this will provide a more in depth survey of the property (called a homebuyer’s report). Because you have paid the extra for this, you will also receive a copy of this report. Not all lenders will offer this service however. If the lender will not provide this service for you, then you can always instruct an independent surveyor yourself and at your own cost. This would have no involvement in the mortgage process. You can expect a survey to take approximately 2 weeks to be instructed after the full application has been submitted.
Step 8) Valuation to be assessed. Now that the survey report is back in, the lender will need to assess the report to make sure the property is suitable security for them to lend. The surveyor will have assessed local comparable properties when placing a valuation on the property in question and will provide this report to the lender. As long as the valuer agrees that the property is worth no less than the purchase price and there is no obvious sign of structural damage, then they will provide a report to the lender giving their recommendation to lend. If they feel that the price being paid is too much for the property, then they will ‘down value’ the property. If this happens, then the mortgage lender may reduce the amount they will lend you accordingly. If this happens, then you may wish to attempt to re-negotiate the price down with the seller via your estate agent. It normally takes around 1 week for the valuation to be assessed after the valuation has been carried out.
Step 9) Mortgage Offer. Now that the property has valued up okay and the report assessed, your mortgage offer will be issued. A mortgage offer is written confirmation from the mortgage lender that they are prepared to lend on the property. A copy of this document will be sent to you, your mortgage adviser and your solicitor. Your solicitor can use this document when the time comes to request the funds, however they will need to make sure that all other legal works have been carried out before funds are requested.
Step 10) The rest of the process is now really down to the solicitors. This following list gives you a basic guide on how the solicitors process works;
- Sellers solicitors issue ‘draft contracts’ to the buyer’s solicitors. You need to make sure this happens swiftly, as the buyer’s solicitors won’t be able to start the legal process until they have received these.
- Apply for local authority searches. This will reveal whether the roads and footpaths adjoining the property are publicly maintained, whether the council have in place any major road schemes close to the property and minor schemes affecting the property and all planning decisions affecting the property. Depending on which area the property is in, local authority searches can take up to a month to come back from the local council (this varies depending on area).
- Once the local authority searches are back, the solicitors will raise a list of enquiries to the seller’s solicitors which will include any concerns they feel are relevant to the purchase. This list of enquiries can sometimes be small, maybe only 2 or 3, or, if the solicitors have many concerns, this list could have 20 enquiries. The amount of enquiries raised will likely affect the time it takes to complete the legal work. If the property being bought is a ‘leasehold’ property such as an apartment, then they will also need to a copy of the management pack from the company that manage the block.
- Once all the enquiries have been answered satisfactorily, the solicitor will be looking to send out contracts to you for signing.
Step 11) Exchange of contracts. Once the solicitors are satisfied and a moving date is set, the solicitors will then ‘exchange’ contracts between buyers and sellers. This doesn’t complete the purchase, but instead, makes the purchase legally binding on both sides. A set completion date with then be set for a later date. There are heavy penalties for pulling out of a sale or a purchase after you have exchanged contracts.
Costs Involved in Moving Home
This following list gives you a guide of the kind of costs you will need to budget for when moving home. Ofcourse, there may be other costs involved, such as moving costs, but this list is a rough guide on the mortgage and legal costs.
Because these fees will vary depending on prices and which companies you instruct, I will be basing figures on a sale price of £200,000 and a purchase price of £350,000.
Estate agent’s fees for selling – This varies depending on agent but will normally range between 1% of the sale price – 1.5% of the sale price. Remember to budget for the VAT on top of this commission amount. So if you sell at £200,000, and pay a commission of 1.25% plus Vat. This would be £3000.
Solicitors Fees. Once again, solicitor’s costs vary depending on the company. For the sale you could expect to pay around £1000. For a purchase, the legal fees will be much higher as you have the added cost of paying for disbursements such as local authority searches. Most people budget around £5000 to cover the legal fees for selling and buying. The true cost shouldn’t be as high as this, but it’s always best to over estimate than underestimate.
Stamp Duty. Stamp duty is tax that is paid based on the purchase price of the property. The calculation is slightly complicated, but is worked out as follows;
Chart for the Current Charges for Stamp Duties
**PLEASE NOTE** During the Covid pandemic the following charges have been temporarily reduced significantly. No payment of stamp duty applies upto a purchase price of £500,000 for the purchase of your main residence.
From 22nd November 2017, first-time buyers pay no stamp duty on the first £300,000 for property purchases up to £500,000. You pay no tax up to £300,000 and 5% on the portion from £300,001 to £500,000. If the property exceeds £500,000, then the standard rates apply.
Up to £125,000
Over £125,000 to £250,000
Over £250,000 to £925,000
Over £925,000 to £1,500,000
So, based on the purchase price of £350,000. The stamp duty payable will be £7,500.
Survey Fee. When you purchase a new property, the mortgage lender will require that a valuation is carried out on the property you are purchasing. A basic valuation of the property will normally cost between £200 – £500 depending on the lender. It is worth adding, this basic level of survey is carried out for the lenders purposes only (even though you pay for it) and so you may not actually get a copy of this report. Some lenders offer the ability for you to pay extra (normally around an extra £300) for a ‘homebuyers survey’. This report is more in depth, and you do receive a full copy of this report. Alternatively, you can instruct your own in depth survey independently, however you will still have to pay for the lenders standard valuation. For the purpose of our costings for this example, we will use the figure of £500.
Admin Fees. You will need to budget for admin fees for your mortgage application. A typical fee would be £699.
Summary of moving costs;
Based on the sale price of £200,000 and the purchase price of £350,000, a summary of your moving costs are as follows;
Estate Agents – £3,000
Solicitors – £5,000
Stamp Duty – £7,500
Survey Fee – £500
Admin Fees – £699
This means that you would have needed to budget £16,699 for the cost of your move. Hopefully this guide will help you to work out what you will need to set aside from your equity for the moving process.