In a world experiencing soaring interest rates, the cost-of-living crisis and a potential recession looming, for many Millennials and Gen Zs buying a property seems out of reach. There’s no denying that the residential market can be a hard nut to crack, unless you have some financial help along the way. However, despite the financial challenges, being a homeowner remains high on the priority list, the problem is many simply just do not know how to get there!
Kevin Coughter caught up with Sam Huth, mortgage advisor from Lockhart Murphy and Nirali Patel, solicitor from Taylor Rose to ask the burning questions that first-time hopefuls want to know.
1. Kevin: What is the deposit percentage buyers need to have and how can they save for a deposit when the cost of living is so high?
Sam: The minimum requirement is a five per cent deposit, however if you are looking at a standard residential mortgage, typically for a non-new build, the rates are often much higher. This can mean that a greater income is required to generate a larger loan. The sweet spot is in the 10-15 per cent range where you can obtain better interest rates and certain lenders will go up to 90% on new build flats. If it’s a buy to let mortgage, then it is usually a minimum of 25 per cent deposit.
Being able to save isn’t an easy task and as the cost of living goes up, you need to be adaptable and do your best to reduce your overheads. Speak to your bank, building society or a financial advisor about different savings products that are available to you.
2. Kevin: What credit score do residentials buyers need to pass checks?
Nirali: There’s no specific benchmark and lenders take several factors into consideration when conducting affordability checks. Having a higher score, may give you access to a bigger range of mortgage products. An experienced mortgage broker or financial advisor will be able to provide guidance on how to increase your likelihood of obtaining finance, whatever your credit score is currently.
If you have an unusual situation or extenuating circumstances which has impacted it or are self-employed with less than two years of accounts, you may have to complete a more involved application providing supporting documents which go to a different team at the lender for review before a decision can be made.
3. Kevin: What if the potential buyer has debt on credit cards, will they still be able to get a mortgage?
Nirali: Provided you’ve not defaulted on repayments, and you meet the lender’s affordability criteria once repayments of those debts have been factored in, it shouldn’t adversely affect your ability to obtain a mortgage. Lenders look at numerous factors to calculate whether your mortgage is affordable when considering an application. This can include looking at your bank statements showing your direct debits, month to month spending habits and other financial commitments such as memberships and phone contracts.
Certainly, the fewer and smaller debts you have, the more favourable your debt-to-income ratio will be which may increase your likelihood of being approved. You should speak with a mortgage broker or financial advisor to discuss your situation, disclosing all forms of debt including student loans and finance agreements, as well as those of the person you’re purchasing with if a joint application. You’ll need to let them know if you’ve ever been subject to a County Court Judgement (CCJ), if so, how many and when they occurred. If you have an adverse credit history or been subject to a CCJ, don’t lose hope as there are mortgage brokers and lenders who specialise in helping clients in those circumstances.
4. Kevin: Do buyers need a mortgage in place before or after offering on a property?
Nirali: Ideally you should have an Agreement in Principle from your intended lender. At a minimum you should have explored your finances with your bank or building society directly, or via a mortgage broker or financial advisor, so you have a good idea of your budget and likelihood of being able to obtain a mortgage. A full application can only be made once a property’s been found but it will be quicker if you have an AIP already.
5. Kevin: How long on average can the process take from viewing to getting the property’s keys?
Nirali: It depends on the type of property and whether a chain is involved, amongst other factors, as there are always several third parties involved. A proactive solicitor will liaise with them all to keep things moving forward, and they’ll agree a completion date that works for everyone involved. They may also be able to expedite things if there’s urgency, for example by taking out search indemnity insurance, and you may wish them to execute a simultaneous exchange of contracts and legal completion on the same day.
6. Kevin: How much on average does it cost in fees, solicitor, mortgage advisor, estate agent, surveyor, and stamp duty?
Sam: The process typically starts with an estate agent or developer, who you should never pay a fee to.
Meanwhile you are in discussion with your mortgage advisor to find out what you can afford. A good mortgage advisor will not charge you until completion of your purchase, unless it is a complicated case and requires a lot more hours and attention. At Lockhart Murphy we charge a fee of £495 on completion of purchase. Should your application be more complicated and time consuming, we can charge up to 1.5 per cent of the mortgage.
A surveyor’s fee or the valuation fee can be anything from £100 - £1,000, but for first time buyers and remortgage clients it is normally free. It also depends on whether the purchase is a residential or buy to let, as it can vary depending on the manner of the purchase.
Solicitors’ fees vary depending on the quality and speed at which you want to get the transaction complete. Industry standard in London is around £1,700 to £2,200, with disbursements paid at the beginning and the end of the purchase.
Stamp Duty is payable at completion; however, the amount is dependent on the purchase price of the property and whether you own another property. Full government guidance can be found here.
7. Kevin: If a couple are purchasing a property but are not married, where do they stand if they have different amounts saved?
Nirali: There are different ways of legally purchasing the property which your solicitor will advise you on. Joint Tenants is where both you and your partner have agreed you will have equal shares and rights in the property, or Tenants in Common, where you can decide to hold different shares in the property. Both have different outcomes in the event of either purchaser passing, so it’s important to obtain full and through advice on both scenarios from your solicitor.
In this situation, you may also wish to take out something called a Cohabitation Agreement which is a legal document between unmarried couples who are living together. This document sets out arrangements for how finances and property are allocated in the unfortunate event that you split up, or either parties become unwell or pass away.
8. Kevin: What schemes are in place to help buyers save and get on the property ladder?
Sam: There is a Lifetime ISA (LISA) for a property costing £450,000 or less. To qualify for this, you must be between the ages of 18 and 39 and make your first payment into your ISA before you’re 40. Up to £4,000 a year can be transferred into this ISA and the government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 a year. If you’re buying with another first-time buyer who also has a LISA, you can both use your LISA towards the same property. However, it is worth noting that there is a penalty for taking money out of a LISA if you’re not putting it towards a deposit or withdrawing after age 60, so best to be committed before signing up!
The First Home Scheme is where you can buy a home for 30 per cent to 50 per cent less than its market value. There are specific criteria which can be found, along with further information, here.
The Shared Ownership scheme allows buyers to purchase a portion of a property that they may not have been able to purchase with a standard mortgage. The remainder of the property is typically owned by a housing association who charges the buyer rent on the unowned share. You can buy a greater share of the property which is also known as staircasing. The scheme has its benefits but can be incredibly costly monthly, when factoring in the following: mortgage, rent on unowned share and service charge. Click here to find more about Shared Ownership and the eligibility criteria.
9. Kevin: If someone loses their job what happens to their mortgage payments if they can’t pay?
Nirali: Your first step should always be to contact your lender and alert them to your situation. They’ll work with you to find a temporary solution for example a payment holiday, or sometimes a longer-term solution, to help you whilst you get back on your feet.
10. Many people ask us at Colliers how do I know where I buy will be a good investment?
The Residential team at Colliers has analysed 20 of the UK's largest cities so that overseas investors and first-time buyers can find out what the UK's best cities are for investment. The report highlights strengths and weaknesses of each city ranking them on 25 different indicators, grouped into five key pillars:
• Economics including GDP and population.
• Liveability including access to education and leisure facilities.
• R&D including university rankings and new businesses.
• Property including house price growth and rental yields.
• Environmental Including EPC and recycling rates.
About the authors
Kevin Coughter works in the New Homes department within the Residential team at Colliers. With three decades expertise in the London property markets, Kevin has built up a formidable network of contacts in the industry. His experience means that his can give his international clients an overview of the investment cycle and as such is always in demand with savvy investors looking for the inside track of an otherwise complex market to navigate.
To contact Kevin email: Kevin.Coughter@colliers.com
Sam Huth is Sales Director for Lockhart Murphy. He has spent many years in the real estate industry and has a strong network spanning across the UK. The team at Lockhart Murphy pride themselves in providing unparalleled customer service, going above and beyond to empower clients to make an informed decisive when purchasing, meanwhile making sure the best rates are locked in, the correct paperwork has been submitted and that each client has a dedicated advisor from start to finish.
To contact Sam, email: sam@lockhartmurphy.com
Nirali Patel is a solicitor at Taylor Rose specialising in New Builds, off-plan purchases, Help to Buy, contract reassignments, acting for lenders, re-sales, outright residential sales and purchases, and re-financing of residential properties. Her 14 years in the retail sector has given Nirali customer service skills that are second to none, leaving every client feeling truly special and valued. With uncompromising personal and professional standards, Nirali’s values and work ethic shines through in the consistently superb feedback received from clients and developers.
To contact Nirali, email: Nirali.Patel@taylor-rose.co.uk