There’s no such thing as an embarrassing homebuying question
Are you thinking of buying your first home? Then the chances are you’ve got a head full of questions that you feel a bit awkward about asking. Don’t worry, we’re here to help.
We understand that homebuying jargon can be confusing. Many felt overwhelmed talking to professionals like estate agents and mortgage advisors , and were worried about feeling stupid or ignorant.
We don’t want you to feel this way. We want you to be comfortable asking what unfamiliar words and phrases mean, so you have the information and confidence to get your home buying journey moving. And to help get you started, let’s demystify some of the jargon with answers to 11 of the most asked questions about homebuying.
11 of the most asked questions, answered
1) What survey do I need?
A survey is an inspection of a property’s condition carried out by an expert. A survey is for your (the buyer’s) benefit, which is different from a mortgage valuation on the property which is for the lender to make sure it’s worth what they’re going to lend you. You will need to arrange and pay for the survey yourself once your offer has been accepted.
The surveyor will inspect the property and tell you if there are any issues with the condition of the property. The type of survey you choose depends on the home you’re buying and how much detail you want. Most surveys are carried out by a Royal Institution of Chartered Surveyors (RICS) qualified surveyor.
- RICS Home Survey Level 1 (Previously known as a Condition Report) – good for new build/standard homes in good condition, giving you a basic report of any visible defects and urgent issues.
- RICS Home Survey Level 2 Survey (Previously known as a Homebuyer Report) – good for standard homes in reasonable condition, giving you a more detailed report on any problems that may affect the value and highlighting issues such as damp and subsidence. There is also the RPSA Home Condition Survey which is the equivalent to the RICS level 2 survey but is offered by the Residential Property Surveyors Association (RPSA).
- Level 3 Survey (Building Survey) – for older or more unconventional homes, listed buildings or properties in poorer condition, giving you a full review of the condition and structure and can include repair costs. Also known as a full structural survey.
If you’re buying in Scotland, it is the seller’s responsibility to arrange a Home Report before they can market their property, which includes a survey by a RICS qualified surveyor. This will be shared with any potential buyers. This includes a survey and valuation, property questionnaire and energy report. Your mortgage lender may accept a transcript of the Home Report for their valuation.
2) What is conveyancing?
Conveyancing is the legal process involved in the transfer of title of the property from the seller to the buyer, and the lender taking a mortgage charge over the property to secure their loan to the buyer. It’s carried out by someone who is legally qualified to provide conveyancing services – a solicitor, legal executive or licensed conveyancer. Usually, the same conveyancer will act for the buyer and the lender, so the conveyancer needs to be on the lender’s approved conveyancing panel – we can check this for you before you choose a conveyancer.
3) What searches do conveyancers carry out and why?
Property searches give your conveyancers more information about the home you want to buy. They can flag up potential issues and help you decide if it’s the right place for you, so it’s important they are carried out before exchange of contracts, which will give you opportunity to raise enquiries with the seller if needed. They include:
- Local authority search – this will cover things such as planning and building regulations; whether the road immediately outside the property is adopted or not; whether there are any nearby roadwork or railway schemes; and if the property is listed or in a conversation area.
- Flood risk search – tells you if there’s been any problems with flooding, with detail about the likelihood, depth and specific type of flood.
- Environmental search – this provides information on whether the past use of the land in the area may have caused any potential contamination.
- Mining search – will find out if there is any likelihood of mining activity having been carried on beneath the property or in the area, and whether the property is likely to have been affected.
Depending on the location of the property and the results of these searches, certain other searches might be needed.
4) How much can I afford to borrow?
The amount you could borrow depends on how much you could afford to pay back based on your income and your outgoings. Different lenders have variations in criteria so having a broker who can do the legwork on this for you can be invaluable.
5) What is indemnity insurance and why do I need it?
Indemnity insurance is a type of protection policy your conveyancer might suggest you take out during the conveyancing process. It protects you against any costs which may arise as a result of a third party making a claim against any defects with the property you are about to buy.
For example, if your seller couldn’t provide a building regulation certificate, indemnity insurance would cover costs if the local authority made a claim against you because you didn’t have the certificate. This is not necessarily a requirement in the majority of property purchases.
6) What’s the difference between a mortgage Decision in Principle and a mortgage offer?
A mortgage Decision in Principle gives you an idea how much your mortgage lender may lend you. It’s also known as an Agreement or Mortgage in Principle. It’s typically valid between 30 and 90 days, depending on the mortgage lender. It’s not an offer guarantee, and you’ll have to complete a full application and assessment before the lender can give you a mortgage offer. Most estate agents will ask for this to make sure any offer on a property is able to proceed. We will be able to arrange this for you prior to you viewing and making any offers.
A mortgage offer is confirmation that your mortgage lender will give you a mortgage. They’ll have fully assessed your circumstances, full application and property valuation. The offer can last 3-6 months, depending on your lender.
7) What is stamp duty?
England and Northern Ireland
Stamp Duty Land Tax is a tax that’s payable to the government when you buy a property. The tax is tiered, so the amount you pay depends on the purchase price of the property. The good news is there’s currently no stamp duty land tax payable on properties costing up to £425,000 for first time buyers (unless the property is a buy-to let). If you’re buying with someone else, you must both be first time buyers for this to apply.
In Scotland you pay Land and Buildings Transaction Tax (LBTT), which is similar to stamp duty in that the rates are tiered. First time buyers don’t have to pay LBTT on the first £175,000 of the property.
In Wales you pay Land Transaction Tax (LTT) on properties over £225,000 whether it’s your first property or not (different rates may apply for second properties). It’s another tiered system like stamp duty, so the cost will depend on how much your property costs.
8) What’s the difference between a fixed rate and a variable rate mortgage?
A fixed rate mortgage is one where the interest rate stays the same for an agreed period of time – this is usually two, three, five, seven or ten years. So even if other interest rates go up or down, your interest rate won’t change.
A variable rate mortgage is one where the interest rates can go up or down, meaning your repayments may also go up and down. Variable mortgage rates often track, and are adjusted, at a level above a specific benchmark or reference rate. Rate changes can happen for a variety of reasons – some will be decided by your lender, others might be driven by what’s happening in the economy.
9) What’s the difference between leasehold and freehold?
A freehold property is one where you own both the building and the land it’s on until you want to sell it. Freeholds are usually houses.
When purchasing a property leasehold, you own the property but not the land on which it is built – that is owned by the freeholder. By owning the property you also own a lease, which allows you to occupy the property for a set period (usually numerous years), depending on the length of your lease. You are likely to have extra costs like annual ground rent. If your lease expires, ownership of the property could pass to the freeholder. Flats tend to be leasehold properties. A property lease can be extended under certain circumstances.
10) When do I sort out a mortgage?
You can apply for a mortgage after you’ve made an offer on a house. You can either do this directly through a lender, or you can use a broker.
It’s worth knowing that many estate agents will insist on seeing evidence of your ability to get a mortgage as an assurance before they’ll put your offer to the seller, so it’s worth making sure you have your DIP in place. It’s also important to plan ahead to get your mortgage advice ready for when your offer on the house is accepted, so the full mortgage application can be provided to the lender.
11) Do I pay the deposit all in one go?
Once the legal side of your house purchase and mortgage are sorted, your conveyancer will arrange a date to exchange contracts with your seller’s conveyancer. Exchange of contracts is the point when you’re committed to buying your new home, it’s also the point when your conveyancer will hand over all your deposit in one go. You’ll usually need to have buildings insurance in place from this point.
We hope we’ve answered some of the questions that have been on your mind. If there’s anything else you want to know, we’re here to help.