On the list of stressful life events, buying and selling a house rates quite far down the “pulling hair out and gently shaking in the corner” scale (not an actual scale). Yet for my money (of which I now have very little because it has been taken by solicitors, mortgage advisors and pretty much anyone who has seen a house, ever) the whole bizarre world of property has left me in a state of anger, frustration, bewilderment and occasional triumph.
So I thought it might help to describe what happens when you buy and sell property, and hopefully it might help some of you before you set off down this path.
Years of watching Location Location Location has led me to think that the process is fairly simple. In TV Land property searching mostly seems to be centred around young(ish) couples who dismiss everything because it’s not good enough (usually because they want a six-bedroom mansion in Surrey for £500 and a Twix) and then eventually manage to get an offer accepted sat around a table in a nice pub.
That’s the first televisual conceit, I’m not sure I believe they leave the cameras rolling in the pub for hours while waiting for a phone call from the estate agent. In my experience agents don’t call you back unless you’re offering them a load of money and even then they like to take their sweet time.
Take the process of how you buy anything, even something very expensive like a car, and then throw that idea out the window and tie it up with red tape and involve everyone and their brother’s daughter’s sister (who all want to be paid) and you get a vague idea of what it’s like. So let’s start at the beginning.
At the tender age of almost 40 I have never owned a property mostly due to poor life choices, and a voracious appetite for rampant consumerism in my twenties and thirties. But positive life choices now have me in a situation whereby I am soon to be married to someone who does own a property, and we are relocating to Wales. So we are in the process of selling one property, and buying another. Sounds simple doesn’t it? This is how it should go:
BUYER: Hello, I really like this (insert name of object here) thing, I would like to buy it please.
SELLER: How lovely, we would like this amount of money for it.
BUYER: Alright, it’s a bit pricey can we haggle a little bit maybe?
Cue a bit of faffing around and horse trading which then leads to
SELLER: We’ve agreed on a price, excellent, that will be lovely.
BUYER: Great, here is a large sum of money.
Obviously buying a property is a bit more complicated than this, it shouldn’t be but you then have to get a whole host of other people involved and this takes time, energy and your hard earned money.
Firstly, we will take a look at the business of purchasing a property.
So let’s say that you are a first time buyer, you have nothing to sell so you are a nice prospect to estate agents and sellers due to not having any form of chain involved with your purchase. The property chain (or noose as I like to think of it, as it’s something that slowly tightens around your neck trying to kill you at every opportunity) can get extremely complicated, as we have found out.
But for now, you’re a shiny, wide eyed first time buyer with designs on owning your own home. Good for you. Got a whole load of money for a deposit? Yes, well then that’s good news. Got no deposit money? You’re a bit stuffed I’m afraid.
So before you start making regular trips to Ikea to plan your new dream home, let’s start at the first step.
I don’t understand mortgages, they’re weird and wonderful works of the devil and are more confusing than differential calculus. When someone talks to me about mortgages I imagine that the feeling I have is the same one that non-technical people get when I talk to them about my job. Blinky Boxes. That’s all you need to know.
High Street Lenders
Conventional wisdom says that you go to your favourite high street bank or building society and have a nice cosy chat with one of their advisors about how much you can potentially borrow. They will ask you lots of questions about your earnings, how much of a deposit you can put down (this is very important, more on that later), and how much other debt you have.
In my personal experience, the high street lenders take a huge dislike to any other form of debt that you have. If you owe money on credit cards or have personal loans you are seen as more of a lending risk. I have even heard of a specific bank refusing a mortgage to someone who had a personal loan with them. They had to pay off the loan before they would reconsider the mortgage.
Before you go and talk to anyone about to largest financial decision of your life, do a quick credit check for free online with someone like Experian to see what sort of a position you are in. Your potential lender will do the same thing, usually checking multiple credit agencies who will know absolutely everything. Trust me, they will find things you never even knew existed.
I went to see a high street lender about mortgages a few years ago, and all told it was a rather depressing experience. A little bit like being sent to the Headmasters office after school to receive a stern talking to, in that case regarding financial responsibility as opposed to forgetting my PE kit.
Independent Mortgage Advisor
Then we have the Independent Mortgage Advisor (IMA). This is someone who has access to a much broader range of mortgage products than your average high street lender, and is supposed to give you unbiased and independent advice. As with any aspect of life, some are more trustworthy than others so getting a recommendation of a good IMA is critical.
So how do these people get paid? They obviously aren’t doing it out of the kindness of their hearts. Your IMA earns their cut by being paid a commission by the mortgage lender, so don’t worry they aren’t going to starve. Have you ever seen anyone involved in property that looked like they were having trouble making ends meet? Didn’t think so.
Some IMAs will also charge you an arrangement fee, or admin charges, or another reason for extracting your hard earned money. It’s up to you how you view this, many people refuse to pay anything. Personally I was happy to pay a relatively low fee for the advice (nothing is free, remember that) and have the IMA deal with everything.
In the past how much you could borrow was very much determined by taking one salary and multiplying it by a factor ranging between 3 and 5, and if it is a joint application, a smaller salary multiple of the second applicant. It still sort of works like that, but now it is much more about affordability. It seems to be that there is more work convincing a lender that you can afford your monthly payments than anything else.
Self Employed v Full Time Salary
All lenders like safety and security. If you are in full time salaried employment with a firm, this pleases lenders as you have a guaranteed income going into your bank each month.
If you are self-employed it is a little bit trickier, especially if you are a contractor (like I have been) and follow the defacto contractor code of paying yourself a very small salary and then taking dividends from your company. This is the most tax efficient way of doing things. But not so great when you are applying for a mortgage.
But if you are self-employed, don’t let this put you off. If you can prove you have a steady income going into your bank each month it makes things easier, you will just have to jump through a few more hoops.
Another thing, don’t worry if you have only just recently started a new job and want to apply for a mortgage. I was in the position of having started a full time job with only a couple of months’ worth of pay slips. You will just have to answer a lot of questions.
The Next Step
So you’ve got your deposit amount sorted, and you’ve spoken to your bank, building society or Independent Mortgage Advisor and have been given an idea of what you can borrow. So now you are ready to start actually looking for property.
In the second part of this post, we will look at estate agents and mortgage applications. Which is when the fun really starts. And by fun, I mean mind numbing stress, anxiety and hassles. Seriously, why would anyone want to do this?