No matter what country you live in, buying a house is a big deal. Before you can feel calm, happy, and sure about buying a house in the UK, you have to spend a lot of time researching, reviewing, and comparing.
You may have only been in the UK for a few weeks and want to buy a house for your family’s sake. You may also have only been there for a year or two and know you won’t be moving around much. If you’ve lived here for a while, you might think it’s better to buy a house than to pay rent. No matter what your situation is, we’ve laid out the steps you need to take to buy a house in the UK.
Location
Is it close to my job?
If it’s not close, is it easy to get there by car or public transportation?
How is the area or neighborhood?
Are there grocery stores or shops close by?
Are there schools or day cares nearby?
Could I rent this place sometime in the future?
Is the property likely to sell for a good price?
Cost
How much will it cost all together?
How much can I put down as a down payment?
How much would my mortgage payment be each month?
Are there any other costs (like lawyers)?
Is the price fair for the neighborhood?
Can I pay the mortgage with the money I make?
Mortgage agreement
What does my mortgage say about how long I have to make payments?
If I pay off my mortgage early, will I have to pay a fee?
Is the rate fixed, does it change, or is it both fixed and changing?
Is there a fee for the valuation?
How can I estimate if I can pay the mortgage?
When it comes to buying, a lot of things have to be taken into consideration before you commit yourself. We often think that if we are making x amount of money per month, and the mortgage is considerably less than that, then we should have no problem at all. It, unfortunately, is a little more complex than that. So let’s break down what all needs to be understood beforehand:
- What is the cost for utilities?
- How much is the council tax?
- Are there any service charges?
- Will you have to put in a phone line?
- Will you be keeping a TV license?
- Are there any other recurring costs such as broadband/insurance/satellite?
After you’ve looked at these costs and compiled an estimate, there is another chunk of data you need to keep ready- your day to day costs.
- How much are you spending on cell phone/mobile plans?
- How often are you eating out/cost for food/shopping?
- Any other recurring monthly fees (ex: gym)?
- Any debts that need repaying?
- Any car mortgages/fees/insurance costs?
How to Choose a Mortgage
A mortgage is the negotiated fee that you pay back to the lender. It is the cost of property/car/etc minus the down payment/deposit plus the interest rate.
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Which mortgage is right for me?
We want to keep this as simple as possible, so we’ll just talk about fixed-rate mortgages and variable-rate mortgages.
A fixed-rate mortgage means that your interest rate will stay the same for a certain amount of time (5 years, 10 years, etc.). During this time, you will pay off your mortgage at the same fixed rate. For example, if you agree to a 10-year mortgage to pay off £180,000 with a fixed interest rate of 2.3%, you would have to pay about £1,680 per month if you wanted to pay off the full amount within 10 years. This means that you’d have to pay back about £201,664 in total, plus about £21,664 in interest.
A variable-rate mortgage has an interest rate that changes based on what the Bank of England and other outside factors say. As the name suggests, it can go up or down based on what the Bank of England says.
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How much can I borrow?
Here, you need to look at how much you can put down on the house as a deposit. The rest of the money will have to be given back to the bank. Depending on your visa status and/or how long you’ve been in the UK, a bank may want you to put down a big deposit to lower the amount you borrow from them.
Keep in mind that if you put down a big down payment, your loan-to-value ratio (LTV) will go down, and you’ll be able to choose from more mortgages with better rates. For example, if you’re buying a house for £150,000 and putting down a 10% down payment of £15,000, your LTV is 90%. If you aim for an LTV that is less than that, you may find that your interest rates are lower.
The bank will check to see if you have any other mortgages, loans, or costs that could affect your ability to pay back the mortgages. This can affect what kinds of mortgages they offer you.
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Am I allowed to overpay?
Fixed-rate mortgages tend to offer you the right to overpay up to 10% of the yearly balance, which in turn can help you pay off the loan faster (equalling less interest paid!). The drawback is that you may face early repayment charges, but if you calculate that you’d still save more money paying back faster despite the repayment charge, you may very well opt for it.
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Am I eligible for any government schemes?
There are UK government schemes that you may qualify for that can help you buy a house. You are not obligated to partake in a scheme, but it’s not a bad idea to look into them if you think you may need help. The most common scheme is Help to Buy, of which there are two types, shared ownership and equity loan. Check out what works best for your situation at the Help to Buy website.
Carefully consider the pros and cons of help to buy before agreeing to it, and make sure you understand everything before you sign any papers. Government programs can make it easier to buy a house in the UK, but you need to know what they mean.
Perks for First-Time Buyers
If this is the first time you’ve EVER bought a property, be it in the UK or abroad, you are eligible for some nifty perks. For instance, there is a stamp duty that needs to be paid on top of the cost of the property. If you’re a first-time buyer, this fee is waived on the first £300,000 for properties worth up to £500,000.
What Lenders are looking for
You will need to provide proof of income, proof of deposit, details regarding your work contract, visa duration, and at least a 3-month bank statement. If you have a P60 form, it’s ideal to provide that as well. You’ll also need to mention any financial obligations that you have (ex: utilities, insurance, etc).
Lenders also want to know that you can be trusted. You need to show that you pay on time and have never missed a loan payment in the past by showing how you’ve paid for other things. Before going to a bank, try not to take out any other mortgages (like for a car) or long-term loans.
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Other Fees to Consider when buying a house in the UK
Even though the stamp duty may be waived, there are other costs you should be aware of before you buy. These include broker fees, holding deposits, moving costs, snagging costs, and any other costs that may come up. Don’t put all your eggs in one basket, thinking that you’ll make a big down payment and have little or nothing left in your bank account. You should always have at least one month’s salary on hand.
What is Snagging?
A “snag” is a check of a property to see if there are any problems or flaws. This should ideally be done for both new and old properties. The building company may have already fixed a problem with a new house, but that doesn’t mean you can’t choose to have your own problem fixed. Usually, if you buy a new house, the building company or realtors will do a “walk-through” with you. This is where you all go through the house and you can point out any problems you see, like chipped paint, doors that don’t close properly, etc.
For older homes in the UK, it is best to hire a snagging company to check every nook and cranny to make sure you are buying a solid home that won’t turn into a money pit in the future.
What Type of Property or House to purchase
So, we’ve already talked a little bit about new and old builds in terms of what you can expect when it comes to snagging, but let’s really get into what would be best for you in terms of buying a house in the UK.
The benefit of newer buildings is that they are, well, new. Something brand new and shiny that you can call yours. These can be in newer communities or subdivisions that have sprung up in created residential areas that may be a little bit out of the way from the main city center but have other benefits, like being closer to schools, supermarkets, etc. Some people say that the newer houses aren’t built to last as long as the older ones (50+), but that’s a matter of opinion. Most homes that are more recent also come with a warranty.
Older buildings usually have a bit of history attached to them. In the UK, it’s not hard to find houses that are more than 100 years old. There’s a chance you’d have to put in a little more money to fix up a few things and maybe even give some parts a new look. These houses might also be closer to the center of town.
If you know where you want to live and have enough money to think about buying a forever home, an older property might not be a bad idea, especially if you want to add to or change a lot of the house. If you’re still learning and have been in an area for a while but aren’t sure if you want to stay there long-term, a new-built home might be best. At the end of the day, you should just think about everything and then weigh your options.
Renting vs Mortgaging
This is the most important question you should ask yourself before moving on. Does renting or buying make more sense, financially or otherwise? Again, we want to stress how important it is to make your own list of pros and cons to figure out what the best choice is for you.
If you can stay in a hospital room that isn’t too expensive and has many of the things you need every day, we don’t think buying should be your top priority. You could probably save more money by staying closer to the hospital and paying less to get more.
Where do I look for properties?
Listings can be found on websites such as Zoopla, where you can also filter information to fit your needs, such as the minimum number of bedrooms/bathrooms. If the prospect of sifting through hundreds of listings overwhelms you, you can always contact realtors/agencies and explain what you’d like to see, and they can send them to you via email. Remember that buying a house will always be a stressful experience, whether you are in the UK or at home, so take it in stride.