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House Buying Process

From 31st October 2004 all lenders and intermediaries have to give you a personalised key facts illustration (KFI) before you apply for a mortgage. This tells you the costs and terms and conditions of a mortgage.

The KFI helps you decide which mortgage to choose. Because it is a standard document it should make it easier to compare one mortgage with another.

The KFI is several pages and will set out key information about a mortgage:

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• A KFI must be clear, fair and not misleading.
• It must describe the mortgage and specify rates and periods.
• It must highlight areas of further information such as incentives, flexible features and options to switch to a selected product.
• It must show any restrictions such as lending areas or limitations on availability.
• It must clarify all fees payable and any early repayment charges.
• It must show the predicted cost of a 1% increase in interest rates (or the maximum additional cost where rates are capped and the minimum where rates are collared).
• It must show any commission paid to, or fees charged by, third parties.
• It must show how much will be paid back to the lender for every £1 borrowed.

As from 31 October all mortgage advisers must be registered with the Financial Services Authority.

Appointing a Solicitor
When an offer on a property has been accepted, the seller's estate agent will need your solicitor's details. Your solicitor handles all legal aspects of buying a property. This is known as conveyancing. You have to pay all solicitors costs so it is a good idea to get quotes from a number of solicitors to decide which firm you wish to use.

Finalising Mortgage Arrangements
Once your offer on the purchase has been accepted you need to finalise your mortgage arrangements. The lender will usually want to see evidence of your earnings (recent pay slips), P60 and bank statements.

Most lenders will also survey the property to work out if the property is suitable as their security. You can pay for a more detailed survey that may point out any problems with the property:

• A homebuyer's survey and valuation provides a report on the general state of repair of the property.
• A full structural survey is more expensive as the surveyor covers all accessible parts of the property.

The lender will only use a surveyor to obtain a valuation survey. It will not cover you in the event of any structural or other faults. If you have any doubt as to the state of the property it is a good idea to get a survey of your own, which you have to pay for.

Exchanging contracts
Once your solicitor has carried out all necessary searches and the contract terms have been agreed, the contracts can be exchanged. Once each party has signed the contracts and they have been exchanged, they are binding.

The contracts will include a completion date, which is the date that the property becomes yours. At exchange of contracts any deposit needed has to be paid. At exchange of contracts you need to arrange buildings insurance so that the property is insured from that day. Usually, if you have one, your present insurer will cover this new property free of increased premium until the completion date.

Completion
This is the day when your solicitor will have completed the purchase on your behalf and the property is vacant for possession. The Transfer Deed, the document confirming you as the owner, will then be sent to the relevant registry for an update to the title showing you as the new owner.

Moving In
The property is now yours and you can move in. You may need to get a firm of professional movers to help you. Once you are in your new home you have need to tell certain people. These include:

• Bank / Building societ
• Business contacts
• Cable / Satellite Company
• Clubs and Societies
• Council Tax Office
• Credit Card Company
• Dentist
• Doctor
• DVLC
• Employer
• Family
• Friends
• Gas Provider / Electricity Provider
• HP Companies
• Inland Revenue
• Insurance Company
• Library
• Loan Company
• Mobile Telephone Company
• Optician
• Pension Provider
• Royal Mail
• Schools
• Telephone Company
• Television Licensing
• Vet
• Water Provider

What are the costs?

• Deposit
  When contracts are exchanged a deposit is usually required and paid through your solicitor.
• Valuation / Surveys
  To make sure the property is an acceptable security for a loan, the mortgage lender's surveyor will need to inspect and value the property. The cost, if any, of this valuation depends upon which lender you choose.
• Legal Costs
  Usually a solicitor or licensed conveyancer needs to be appointed to deal with the legal aspects of purchasing a property. This will incur costs. You can ask for an estimate of these costs before you instruct the legal expert.
• Local Authority Search
  Your legal adviser will carry out a local authority search to discover if there are any plans for future developments that could affect the value and purchase of your chosen property.
• Land Registration
  This verifies legal ownership of the property and registers the owner at that address.
• Stamp Duty
  This is a government tax based on the property's purchase price and is calculated as follows:
  • Up to £125K - Nil
  • £125,001 - £250K - 1%
  • £250K - £500K - 3%
  • £500K+ - 4%.
  • Please note that the applicable rate of Stamp Duty must be applied to the whole of the consideration paid to acquire the property.
• Arrangement Fee
  Most lenders charge an arrangement or application fee for a mortgage. Some lenders will allow you to add this to the mortgage and the fee varies depending on the lender chosen and the mortgage offer.
• High Lending Charge
  This is an insurance policy designed to protect the lender against losses incurred if the property needs to be taken into possession because of arrears. This insurance is commonly used for high loan to value mortgages, where the value of the property is not much more than the requested amount of the loan. This charge is usually passed on to the borrower but it is important to remember that this is insurance for the lender, not the borrower, but paid for by you.
• Insurance
  Lenders insist that the property is insured with a buildings insurance policy, covering against the usual risks. In addition to this you will need contents insurance to cover theft, fire, damage etc. Another form of insurance is a mortgage payment protection plan that is designed to offer income protection against unemployment, sickness and redundancy.
• Life Assurance
  Most lenders need life assurance to be taken out to cover the value of the loan if you die.