How much of the final money needed to start the process?

Lolly88

I’m a prospective FTB and in need of a little advice. For a range of reasons I’ve decided that I would like to have brought a house and completed by July next year at the latest but preferably the sooner the better. I’ve read various threads on here and done some research so I have a fair idea of the process. However, working back from the date I’ve set, I’m not quite sure what to do and when?

Having played around with various affordability calculators it looks like I could borrow up to just over £200,000. But I’m sceptical of actually being approved to get this full amount and therefore I’m assuming my price range would probably be £170-210k. With my current savings of just over 23k that means I would already have just over a 10% deposit. Ideally, I would like to have 15% as this would be £100 per month less in mortgage repayments.

I could have the 15% of the maximum amount by the end of the year but I would then need money for fees on top which I’m anticipating to be around 7-8k and that would take me until about june/july next year to save which is when I want to have completed. Obviously I might buy a house towards the lower end of my range but most of the ones I like the look of are around the higher end. Ultimately, I could settle for 10% deposit if it meant getting a house I really loved. I guess because the house buying process can be very long, I’m sneakily hoping that I would be able to save the remaining amount for 15% and fees as I’m going along but I don’t know how realistic this is?

This leaves me with a few questions which I suppose are relatively similar:

When people buy houses do they have their full intended deposit and fees before they start the search process or just have most of it and keep saving?

At what point do I engage a mortgage broker? Do I have to have my full intended 15% deposit first and fees or is it ok if I’m still saving?

AIP only last for 3 months generally, so If I got one and then didn’t find a house I liked in that time frame do I need to get another one or would the expired one still be ok assuming my circumstances have not changed?

And once again when going for AIP if I was going to push for the 15% deposit do I need all of that at the point of doing the AIP or is it ok to have 10% and then when it comes to mortgage application time have the full deposit ready then?

Basically I think I’m looking for a bit of reassurance and guidance. I’ve worked so hard these past two years to save this money and although I’ve been planning to buy a house for a while now it all feels surreal that it could be happening soon and therefore I keep feeling like I’m missing something obvious. I just need to know when to start putting the wheels in motion? I don't want to be premature but also don't want to miss the boat either.

ruperts

When I got my AIP from the broker I don't think they took my deposit into account. It was just a calculation of how much I could potentially borrow given my income and some basic expenditure details. There's nothing stopping you contacting a broker now to get an AIP like that. You might want to check whether or not they do a credit check, my broker didn't so if required I'd have had no issue going back for a fresh AIP several times if necessary.

Your budget for fees seems quite high. Stamp duty on a £200k house would be £1.5k. Conveyancing the same again at most, survey say £500. If you budget £3.5k that should be plenty. Not all mortgage products have fees, some offer cashback i.e. a negative fee, so I wouldn't let not having the budget for a product fee stop you from progressing if you see a house you really like.

If I was you I'd call a broker, get a feel for how much you can borrow from talking to them and request an AIP, have another look at fees, and then reassess your situation from there.

Lolly88

Thanks for your reply ruperts.
I always tend to slightly overestimate costs to be on the safe side but I didn't think fees would be that small?

I got my figures based on this website: https://www.moneyadviceservice.org.uk/en/articles/estimate-your-overall-buying-and-moving-costs

I just assummed the maximum figure for everything so that 7-8k was for:
Stamp duty: £1700
Valuation fee: £1500
Full Survey: £1000
Legal fees (inc VAT and searches): £2100
Electronic transfer fee: £50
Mortgage fee: £1000
Removal: £200
Broker: £200

And even if that was a bit excessive then any extra would be for the possibility of having to pay for another survey on a different house should the first potential purchase fall through.

ruperts

Nothing wrong with being cautious and looking at the maximum possible costs, and the point about possibly having to pay additional fees should one house fall through is a fair one.

I still think though in reality if you find a house you like then don't let not having the full £7k-£8k in potential fees put you off progressing with it. At the very least the mortgage fee and valuation fee aren't necessary as there are plenty of mortgages available that don't charge for either. Unless you're buying a property that's particularly difficult to value then I wouldn't expect to pay anywhere near £1,500 for the valuation fee anyway. Likewise with the legal fees, unless it's a particularly complex purchase then you'll probably pay about half of that figure in reality. The need for a full survey is debatable and depends on the house. Most people don't have one. Many progress with nothing more than the lender's valuation survey. You could also use a fee-free broker so, if you needed to, you could easily cut out a lot of those costs.

jlaw4

I agree with ruperts. £7-8k is a LOT for fees. We are currently buying a house and our fees are something like this:
Val fee: Free
Basic survey: Free
Homebuyers report: £520
Broker: Free
Solicitor plus stamp duty £2350
We went with bank of ireland and the deal was a low rate (10pc dep) and valuation and basic survey free. I wanted an independent survey that i had done early on rather than awaiting mortgage. We didn't have it all when we started looking but did have the HTB isa bonus to use and i looked for ways to save free broker & no fees upfront. it depends how much you want a house vs having a 15pc deposit, id find a local broker and have a look at what you could borrow my first appointment was well over a year ago and our circumstances are much better now but it gave us an idea what we needed and made us focus good luck!

Lilla_D

Well, I would like to add some corrections to the above posts.

An AIP does mean going to a lender and doing a credit search, so Ruperts may not have been aware of it, but there were searches done every time. However, some searches only leave what is called a soft footprint, i.e. it is only visible to the lender and you, so it doesn't impact on your credit score or future applications.

Also, there is no need to do an AIP just for the sake of it every time it expires if your circumstances don't change in the meantime. Brokers can tell you how much you could borrow without doing an AIP, so the paper is only needed when an estate agent wants to see evidence that you could in theory get a mortgage.

In terms of the deposit and fees, a number of points to note:
- you do not need to have all the costs saved up in order to do an AIP, because no proof is necessary at this point
- once your offer is accepted on a property and you have to apply for the mortgage, the FULL deposit amount has to be proven
- most lenders don't ask for proof that you have the money for the costs, but sometimes the request does come up. Consequently, many people are still saving for the costs while the purchase transaction is running its course.
- based on the above, there's no point in getting an AIP until you have the deposit saved up, because if you're not ready to prove your full deposit, you are not ready to buy, so having an AIP is pointless
- if you are happy to buy with a 10% deposit, then by all means get an AIP and start looking around for properties and apply for a mortgage with 10% deposit. It is possible (with most lenders for free) to change the deal to a 15% deposit option later down the line, once you saved up the extra amount. However, that lender may not have the best 85% LTV deal at the time and changing lenders at that point will likely mean extra costs and time.
- in terms of the arrangement fee, indeed it is typically about £1k, but can be less or more or even zero. Normally the less it is, the higher the interest rate that goes with it, so just bear in mind that a zero arrangement fee deal may not be the cheapest overall. It can normally be paid upfront, on completion or be added to the loan with the last option obviously meaning that your monthly payment will go up a bit and you'll pay more interest overall.
- I agree that the valuation fee estimate above is way too high for a property valued around £200k, it should only be a few hundred pounds dependent on the lender and the deal chosen
- a full survey is only normally necessary when buying a very old property, one that has been extended, modified or shows serious problems. If you'd like one you can of course get one, but most people just go for a Homebuyer survey, which is another few hundred pounds for this property value.
- solicitor fee at £2100 is way too high as well, half of it is more realistic
- re broker fee - well, yes, there are fee free brokers and some charge thousands. One contributor on this forum has it in his signature that "It is prudent when shopping for something important, not to limit yourself to Poundland". Lenders don't pay that much and a broker is typically only getting a percentage of that, so if someone is fee free, they can't really dedicate much time to each case.

In summary, if you speak to a broker now, they can help you understand what you can realistically borrow, but only get an AIP and start looking around when you have enough saved up for the deposit just in case you stumble across the perfect house on your first viewing

Lolly88

Thanks both, your replies have been really helpful. jlaw4 if a house I loved came up it would be my priority to get that over having a 15% deposit but i just don't want to be caught short of money.

It's good to know that I've been perhaps a little excessive in estimating costs. In any case to help my planning further when and what order do you generally pay the different fees?

Is it:
1) Valuation fee if applicable
2) Survey
3) Mortgage fee if applicable
4) Deposit
5) Electronic Transfer fee if applicable
6) Legal fees
7) Stamp duty

Is that about right? If the deposit comes really late in the process then I guess I could use some of that money towards fees initially and replenish as I go along. I have a HTB ISA also but my understanding is that the bonus from that wouldn't be useful for any part of the house buying process as you would only get that after exchange by which point you would ahve paid all fees....is that correct?

Lolly88

Lilla_D wrote: »

Well, I would like to add some corrections to the above posts.

An AIP does mean going to a lender and doing a credit search, so Ruperts may not have been aware of it, but there were searches done every time. However, some searches only leave what is called a soft footprint, i.e. it is only visible for the lender and you, so it doesn't impact on your credit score or future applications

Also, there is no need to do an AIP just for the sake of it every time it expires if your circumstances don't change in the meantime. Brokers can tell you how much you could borrow without doing an AIP, so the paper is only needed when an estate agent wants to see evidence that you could in theory get a mortgage.

In terms of the deposit and fees, a number of points to note:
- you do not need to have all the costs saved up in order to do an AIP, because no proof is necessary at this point
- once your offer is accepted on a property and you have to apply for the mortgage, the FULL deposit amount has to be proven
- most lenders don't ask for proof that you have the money for the costs, but sometimes the request does come up. Consequently, many people are still saving for the costs while the purchase transaction is running its course.
- based on the above, there's no point in getting an AIP until you have the deposit saved up, because if you're not ready to prove your full deposit, you are not ready to buy, so having an AIP is pointless
- if you are happy to buy with a 10% deposit, then by all means get an AIP and start looking around for properties and apply for a mortgage with 10% deposit. It is possible (with most lenders for free) to change the deal to a 15% deposit option later down the line, once you saved up the extra cost. However, that lender may not have the best 85% LTV deal at the time and changing lenders at that point will just mean extra costs and time.
- in terms of the arrangement fee, indeed it is typically about £1k, but can be less or more or even zero. Normally the cheaper it is, the higher the interest rate that goes with it, so just bear in mind that a zero arrangement fee deal may not be the cheapest overall. It can normally be paid upfront, on completion or be added to the loan with the last option obviously meaning that your monthly payment will go up a bit and you'll pay more interest overall.
- I agree that the valuation fee is way too high for a property valued around £200k, it should be only a few hundred pounds dependent on the lender and the deal chosen
- a full survey is only normally necessary when buying a very old property, one that has been extended, modified or shows serious problems. If you'd like one you can of course get one, but most people just go for a Homebuyer survey, which is another few hundred pounds for this property value.
- solicitor fee at £2100 is way too high as well, half of it is more realistic
- re broker fee - well, yes, there are fee free brokers and some charge thousands. One contributor on this forum has it in his signature that "It is prudent when shopping for something important, not to limit yourself to Poundland". Lenders don't pay that much and a broker is typically only getting a percentage of that, so if someone is fee free, they can't really dedicate much time to a case.

In summary, if you speak to a broker now, they can help you understand what you can realistically borrow, but only get an AIP and start looking around when you have enough saved up for the deposit just in case you stumble across the perfect house on your first viewing

Thanks that's excellent, really helpful. I think I better get searching for a broker.

Lilla_D

You are welcome

Once you have an offer accepted, you instruct a solicitor and pay for searches (circa £200-£300), apply for a mortgage and pay for valuation (and survey, if you choose to do it and decide to do it via the lender) and may pay the broker fee at this point.

Once you have the mortgage offer and the solicitor is ready with the legal stuff, you come to exchange of contracts (normally after about 2-3 months). This is typically when you pay the solicitor fee, the deposit, the Land Registry fee (£95-£270 dependent on the actual purchase price, whether it's a new built and whether it's done electronically), the stamp duty and money transfer fee.

Some brokers charge when the offer is issued, some on exchange or on completion.

Re mortgage fee (arrangement fee) - either on application, on completion or you can add it to the mortgage.

Stamp duty in theory is only payable on completion, but solicitors typically ask for it on exchange of contracts. You don't have to pay it on exchange, but expect to be asked for it at that point.

ruperts

Lilla_D wrote: »

Well, I would like to add some corrections to the above posts.

An AIP does mean going to a lender and doing a credit search, so Ruperts may not have been aware of it, but there were searches done every time. However, some searches only leave what is called a soft footprint, i.e. it is only visible to the lender and you, so it doesn't impact on your credit score or future applications.

I got my AIP through a broker and they did not do any sort of credit search. Maybe if you go through a lender it's different. My AIP satisfied the estate agent when making an offer and also proved to be correct in terms of what I could borrow.

Lolly88

After making this thread I put house buying plans on ice as I decided to quit my job. I’m now keen to get house buying plans in motion but like last time, I’m a bit unsure about timings and thought it better to bump this thread then start a whole new one.

My probation period in my new job which I start end of next month will be 6 months. Therefore I wondered if I should wait for this to be over before doing anything in regards to the house buying process?

Also I have a lifetime ISA and bearing in mind my account has to be open for 12 months before I can use the funds towards a purchase without penalty (this will be June 8th 2018) I wondered when realistically is the earliest that I could start viewing properties and making an offer/engaging a broker to enable me to use these funds towards the purchase?