Advice request: Buying a house outright.

epichouse

Hello all.

I'm in my 30's, still living with the parents, but I've been saving and looking to buy a house for quite a while. I have missed one or two opportunities (through not being quick enough off the mark), but this has meant I've managed to save up much more money.

I've recently come into some money and this has now changed the prospects considerably. I am now in a very fortunate position in that I could feasibly buy a moderate house outright (without a mortgage).

An opportunity has arisen where I could buy a house which is very close by. We know the house and the sellers well. Due to this, they said they are prepared to give me a good deal on the house, which is very good of them. The house is unfortunately being sold as part of a will, so the money is to be split between two people who already have homes and families of their own. (The previous occupant did say they wanted me to have the house if I was interested).

The two estate agents estimates for the property are unfortunately about £15,000 above what I'd hoped it would be, but I don't think the suggested prices are ever really met around here (and they are also indicating a quick sale would be beneficial to all involved).

There's some work I think I'd need to do at the house. This includes a slight remodelling (removing a pillar), changing two fireplaces, possibly the boiler, re-flooring, re-worktopping the kitchen, some re-wiring and adding more sockets (as I suspect the house wiring will be pretty old), installing internet cable, re-pebble-dashing the front of the house, landscaping a back garden (including new fencing around the perimeter), general redecorating as expected.

There is nothing that much 'wrong' with the house per se, but it needs bringing up to date a bit to suit my age - and I feel I need to do these things to put my own stamp on it (and not get a constant feeling like I am living in the previous owners house, seeing as we knew them so well).

For me it is a huge step and a bit daunting, but for most people here I suspect such work wouldn't be considered anything major.

If I can get the house at the right price, I might just about have enough left over to carry out such work in the next few years (and have enough to cover bills for quite a while, as I go along). I could perhaps ask for a bit of help from my parents if necessary, but I'd rather not burden them with it.

I know absolutely nothing about buying houses, mortgages, requirements, what is financially savvy, whether solicitors would be needed if there is no mortgage, or whether it is even a good idea to have a mortgage or not.

In general I have never borrowed money. I have always saved to buy what I can afford. (If I couldn't afford a car, or a phone, or TV, I simply didn't have one). Rightly or wrongly, this has been my philosophy to life. (This may mean I have a terrible 'credit rating' score though!)

My questions are:

1) Are there any advantages to having a mortgage (if I don't really need one anymore)?

2) Are there any advantages, tax, tricks, etc I could take up to help bridge some of that £15,000 gap?

3) What would be the general consensus here on offering the seller £15,000 less for the house, given what has been said?

(Is it too impolite under the circumstances? I do not really know what the 'done thing' is here - or what kinds of margins to expect when making offers upon a suggested estate agent's price).

4) Are there any pitfalls to watch for in terms of legalities or due processes?

In my favour I could now put up the money straight away (as I may not need to arrange mortgages, wait for approvals, etc). I am not in a housing chain. I also believe that approximately £1,500 to £2,000 could be saved by the seller if it is arranged between ourselves and not put on the market.

I don't know what extra costs I'd have to pay for any legal work at my end. I'd have furniture to buy, household items, etc, but I have factored some of that in.

Can anyone offer their advice?

Many thanks.

Pixie5740

Unless you are confident enough to do your own conveyancing, which it doesn't sound like you are, use a solicitor. You might also want to consider paying for a survey depending on the type/age/condition of the property. A survey might also give a better indication of value than some over-egged estate agent valuation. What have similar properties in the area sold for in the last 6 months? About the same as the estate agent's valuation, more than, less than?

You say that the vendors are prepared to give you a good deal on the house so what is this good deal that they have offered you or have they not named their price yet? As with any property purchase you are free to offer what you like and the vendor is free to accept, negotiate or tell you to poke it.

Yes there are advantages of getting a mortgage. If you have a low loan-to-value then there are some very good mortgage deals to be had. Rather than tying all your money up in the one property you could invest the rest to make more money than your mortgage is costing you.

Pixie5740

If you have never borrowed money then you will have little or no credit history. Lenders look for patterns in your credit history when you apply to borrow from them so little or no history makes you an unknown quantity to lenders.

http://www.moneysavingexpert.com/loans/credit-rating-credit-score

lika_86

Yes, you'll need a solicitor (even if it could be done without them it sounds like you lack the experience and knowledge to do so), plus, even without a mortgage company involved then searches would be a good idea for your own peace of mind about the house.

There's no harm in making your position clear to the sellers - ie. at £15k less you could get through the process faster, but at the current price then you'll need a mortgage. It's up to them as to what they do.

If there's work that needs doing on the property then having a small mortgage may not be a bad idea if it allows you to buy the house and also do the work now and furnish the property rather than doing it gradually as you save up month by month.

glasgowdan

I wouldn't be afraid of getting a small mortgage, say £30-40k or so, to enable you to get all the work done and have some free to use on luxuries.

epichouse

Thanks Pixie5740.

I just had to look up conveyancing (embarrassing!) - but yes, I think you're right. I would very likely need somebody to do that kind of work for me.

I wasn't going to bother having it surveyed, as we know it is very sound and could thus be a waste of money. However, maybe that would be very foolish considering the overall spend - and I had not considered the potential impact on price. Thanks.

I have never borrowed, never had a credit card (just a debit / cashpoint card). Therefore it sounds like I will have absolutely no credit rating at all.

Would this therefore give me a bad deal on a mortgage? If they know I have the actual assets to buy it regardless, would the credit score matter?

I don't know what 'low-loan-to-value' means in real terms, sorry. I realise the clues are in the name, but I don't quite picture what it means in my case.

I am getting about 1.5% on my savings at the moment. Can you get a very small mortgage, and in what way would paying that mortgage earn me more than 1.5%? Or do you mean I should take that money and invest it in something else? I am not sure what I'd put it into as I am quite risk averse.

Apologies for asking very basic questions, I have not done anything like this before.

Katgrit

Hi,

This reply is going to be very "Noddy & Big Ears Guide to Mortgages", I'm pitching it assuming you've got next to no knowledge of mortgages. Apologies if it's too basic, but I thought it was better to spoon feed you then assume too much prior knowledge.

Theres basically 2 ways of getting a mortgage.....either going directly to a lender yourself, or via a broker. I've bought 3 houses and had about 6 different mortgages, and I've always gone direct. But I was very straightforward so it was easy for me. A broker is basically a middle man who knows the ins and outsnof lots of lenders, and will do a lot of the researching and donkey work for you. You'll usually have to pay him (or her!) for this, but if you're feeling out of your depth its money well spent.

If you want to borrow money to help you buy the house you'd pay interest on this money (I did warn you it would be basic spoon feeding!) and that interest will be bigger the bigger proportion of the house's value you borrow. Eg, Your house is worth £100,000....if you put down £70,000 cash and ask a bank to lend you £30,000 you might pay 1.8% interest. If you only put down £50,000 and borrowed £50,000 you might pay 2.4% interest. This called LTV...Loan To Value.

In my opinion, if you're working or have other steady income, and you've got a lot of work to do, then it might be a good idea to borrow at least some money on a mortgage. Interest rates are very low, so you could then use the rest of your pot of money to do the work without uncertainty that you might run out. Renovations and doing up houses always cost more than you initially think. Then, in say 4 years, you've done every single thing you'd ever want to do to your house, anr you have money left in the pot you could pay your mortgage off.....(but I'd personaly keep it as a reserve incase I got sick or couldn't work or just fancied a whopper of a houday).

I too was brought up to believe "If you can't afford it you don't have it". However this was also along with the fact that Mortgagee and educational debt is ALLOWED debt. Not many people could afford to buy a house outright without a mortgage.

As for the £15,000 difference in valuation that very much depends on the price. An £85,000 house in North.....thats a bit cherky, but if you don't ask you'll never know. A £480,000 house and you're a family friend and they all want you to live there and make it your home, then £15,000 might not be an issue whatsoever for them.

Hope that's helped a bit. Apolgies again if I've assumed wrongy!! xx

epichouse

Thanks Glasgow Dan and Lika86.

Okay, so it is looking like I will definitely need a solicitor. I will try and ask around friends and family to see if there's somebody they recommend. Thanks.

I like the way you have positioned that explanation Lika86. I have been worrying about going in with such a low offer, but perhaps if I just explain it how you did, it will help sort things out.

Maybe depending on the outcome of this offer determines whether I try and apply for a smaller mortgage. Cheers Dan.

The thing that crosses my mind is that, although I ideally do not want to borrow off my parents, they would be able to do this. They do not get much of a pension, I know savings rates are pretty dire at the moment, so maybe I could be better off borrowing a small amount from them if I need to and be paying them an interest rather than a bank?

Given my history, lack of credit rating, etc, no idea what I am doing....how long could it take to arrange and approve a mortgage?

Cheers.

Katgrit

If you have a steady income and will only require a small amount of borrowing I'd ask you to reconsider borrowing off patents, especially if they only have a small pension. For the very small chance that you might lose your job, or be unable t9 pay them back for another reason it isn't worth bringing potential heartache or stress into what seems like a good relationship. Please don't risk their future finances......if you borrow on a mortgage you can get insurance to protect you from unemployment, illness etc and protect your income, making sure you can still cover your outgoings. It's just not worth risking your parents security.

epichouse

Thanks Katgrit - Noddy and Big Ears is definitely the right level!

Regarding a mortgage, I assumed I'd just be heading down to a high street bank like Halifax or Yorkshire etc and trying to arrange something there.

I will perhaps need to wait to see whether I think I need one. I have factored in some margin of safety for the work that needs doing, so I might not need one - especially if the offer is approved. I am expecting that this £15,000 amount could cover pretty much all of it. I would be doing most of the renovating myself, along with the garden fencing and landscaping.

I have just thought about borrowing off my parents if I need to do so at a later date. If you're suggesting that a mortgage could be 1.8% interest, my parents are only getting about 1.5% on their savings....so, I suppose I might as well pay them a bit more interest (whilst I save paying more interest).....

The house is indeed in the north. It is in one of the poorest towns in the north as it happens. However, the house is in a relatively good area (for now!). The average price around here is about £140,000-£160,000.

My parents house is valued on Zoopla at around £140,000 (its the same style and location of house), next door is valued at around £150,000 (however, it was last sold for less than £90,000 - they got a bargain at the time!). One house further down the street was on the market for over 8 months at £150,000 but ended up being sold for just less than £112,000. Admittedly, it wasn't as nice as my parents or the one I am looking at - but still a decent house.

My rule of thumb, which I plucked out of nowhere, is to say 'estate agents are advertise for, say, 150,000.....nobody offers full price (do they?!).....so any other prospective buyer would likely offer, say £140,000.

I have the advantage of not being in a chain and can move in straight away, the owners save the fees of an estate agent, and they are kindly offering to give me a good price a bit lower than what they'd take from others (although they have not said what that will be....they told me the estate agent price and left it for me to make an offer)....

So, if the house in my example was 150,000 - I was hoping to get it to the magic £135,000 which means I can avoid a mortgage, have some left to carry out some work and still have a factor of safety for some unforeseens.

G_M

Good advice above. Just to add:

* living in a property and doing it up gradually can be cost-effective especially if you DIY a lot of it. But it's messy, means living in a construction site, and may mean duplicating work )eg lifting floorboards sevarrl times fo differen jobs. If you possiby can, I'd plan your improvements and get them all done together as soon as you can. Then you have the house you want.

But that means having the cash to pay for the work straight after buying - so, as others have suggested, a modest mortgage would leave you with cash for doing up (and possiby for some longer term investing too).

* with that amount of work, and your minimal expertise, get a decent survey. Speak to the surveyor before chosing one and tell him your plans. Rather than just ask for a standard survey, ask him to look at the house with respect to your plans eg would removing a pillar, fireplaces be possible, and what's involved - these might be major structural issues.

* I'm a great believer in DIY conveyancing where there's no mortgage, and for the righ people. But (with respect) I don't think you're the right person. Use a local solicitor.

* do you know who is selling the property? It wwill probably be the Executers of the will of the ex-owner. If the Executer(s) is the same as the Beneficiaries ( the 2 peope who will share the money), they can sell for whatever price they agree.

But if the Executer is, for example, a solicitor, he will have a legal duty to maximise the money it sells for on behalf of the Beneficiaries. If he were to sell it to you cheap, they could take him to court for depriving them of some of their inheritance!