Are you a first-time home buyer and are not to sure what are the effects of stamp duty changes? Look no further. This article will walk you through it.
Buying your first home can be full of many emotions which can range from excitement to feeling terrified. For many, purchasing a home is a significant milestone and a major financial decision, raising numerous questions.
This blog is here to help. Some common questions from home buyers include:
- Can I afford to buy a home?
- How do I find the right estate agent for me?
- What are the not-so-obvious fees involved in buying a home?
This blog aims to answer those unanswered questions and assist you in understanding the home-buying process from the very start to the very end, making your journey smoother and more manageable. This guide will walk you through every step of buying your dream home. Additionally, this blog will reveal the hidden costs of buying a home and help you understand the mortgage and legal procedures involved.
Step 1: Determine What You Can Afford
The most important step is determining what you can afford. Knowing and understanding your budget will help you determine what you can afford. If you end up having to offer more than the asking price, you will know what’s the maximum you can go up to.
You can determine what you can afford by assessing your finances. Firstly, what are you savings for a deposit and buying costs? Then speak with a mortgage advisor who can tell you your maximum lending and even provide a ‘Mortgage In Principal’ which is sort of an initial offering from the bank. You can use this to also have better success with the seller as it shows you are a serious buyer who has their ducks in order.
The mortgage amount is based on a few factors such as your income, age, and even monthly expenses. The mortgage amount will give you a clear picture of your financial situation and help you make a smart and realistic decision.
Saving For A Deposit
Lenders, usually banks, require a deposit of at least 5% of the property’s value, but many lenders may ask for 10-15%. A higher deposit means the borrower needs to borrow less money. This smaller loan amount means the bank is lending less and has less at stake if the borrower can’t pay. Additionally, a larger deposit means you own more of your home outright, and it can give you access to better mortgage rates.
Understanding Loan-to-Value (LTV)
Loan-to-value (LTV) is the ratio of the mortgage to the property’s value. For instance, if you put down a £100,000 deposit on a £1,000,000 home, you need a £900,000 mortgage, resulting in a 90% LTV.
Estimating Your Mortgage
Your mortgage can be estimated through a mortgage broker who helps with navigating the different options available based on your financial circumstances. In most cases, lenders will allow you to borrow 4.5 times your annual income; however, with individuals who have existing debts or monthly expenses, they will get less of a mortgage. Some lenders are now offering up to 6 times your annual income and allowing you to repay over 30 or 35 years. In some cases, lenders will offer higher multiples for certain professions, so a broker can help navigate the different options available and set realistic expectations.
Step 2: Budget for Additional Costs
People think that buying a home just requires a deposit and a mortgage. However, in reality there are more additional costs to be aware of such as stamp duty.
Under the current rules for first-time buyers in the UK, if you purchase a home for less than £425,000, you won’t have to pay any stamp duty. If your home costs between £425,001 and £625,000, you’ll pay a 5% stamp duty on that amount. Homes over £625,000 don’t qualify for first-time buyer relief, and the normal standard rates are applied.
To illustrate, if you buy a property valued at £510,000, your Stamp Duty Land Tax would amount to £4,250.
If you’re not a first time buyer and moving homes, the standard SDLT rates apply;
| Property or lease premium or transfer value | SDLT rate |
| Up to £250,000 | Zero |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% |
| The remaining amount (the portion above £1.5 million) | 12% |
If you own other property anywhere in the world and are not replacing your existing Principal Private Residence, you will also have to pay an additional 3% SDLT on the entire purchase price. This is in addition to the standard SDLT you will also have to pay as above.
Step 3: Get House Hunting
After you have got your budget and mortgage ready, then start your home search. Whilst searching for your dream home you should consider your likes and dislikes in what you’re looking for and just be prepared for an extended search.
Step 4: Make an Offer
Once you find your desired home then make an offer. Usually you will be buying via an estate agent as they cover majority of the housing market. An estate agent can guide you on a competitive yet reasonable offer depending on the market conditions and comparable properties.
Step 5: Apply for a Mortgage
After your offer is accepted, make sure to finalise your mortgage application. Your broker should gather the necessary documents and help with navigating the application process, ensuring that you secure the best possible deal for your financial situation.
Step 6: Understand Mortgage Fees
When getting a mortgage there are other potential fees involved such as arrangement fees, valuation fees, and early repayment charges. This is why it’s vital to have a broker as they can inform you about these costs.
Step 7: Navigate the Legal Process
With purchasing a home it’s important to engage a solicitor or a conveyancer to handle the legal aspects of your purchase. This is because if your legal situation is not handled correctly, it could mean that the house is not legally yours. The solicitor/conveyancer will manage the contracts, conduct searches, and ensure the property’s legal status is clear.
Step 8: Get a Survey
A survey’s role is to assess the property’s condition and can reveal potential issues. The bank will require a basic one regardless, but you might consider getting a full survey or what’s know as a Homebuyer Survey which can spot problems with the potential home. This avoids unexpected repair costs after purchasing.
Step 9: Exchange Contracts and Complete the Purchase
When both the buyer and the seller are satisfied with the terms of the sale, you will exchange contracts and pay your deposit. This contract legally binds both parties to the sale, meaning that the seller cannot back out. Finalising everything takes around a few weeks, when the remaining funds are transferred, and you receive the keys to your new home.
If you need assistance with a mortgage or a solicitor, reach out to Lexicon Tax and we can recommend from our network of mortgage advisors and solicitors.
We work closely with RKS Solicitors based at Unit 10, Riverside Court Don Road, Sheffield, S9 2TJ (0114 3273230). https://www.rkssolicitors.com/adil-raoof/
For mortgages, our first go to point is Matt from ABC Mortgage Solutions. https://www.abcmortgagesolutions.com/
