How to become a homeowner

A step-by-step guide for first-time-buyers

Rosie Murray-West – Virgin Money Living Mentor

by Rosie Murray-West | Independent Money Mentor

Award-winning personal finance and news journalist

Making the move from lusting over properties in estate agents’ windows to holding the keys to your own front door can seem like a long and stressful journey, but the most effective way to tackle the home buying process is to take it one step at a time.

This simple first-time buyer guide will help you to tackle every milestone on the way to home ownership, as well as pointing out the potential pitfalls that can occur along the way. Follow it carefully and you’ll be cooking dinner in your very own kitchen in no time.

And if you already own your home and are thinking of moving up the ladder or downsizing then this article, A step-by-step guide to moving home, is a useful read.

When you’re a first-time buyer, it’s perfectly fine to start by pretending you’re holding the property equivalent of Aladdin’s magic lamp. Take a piece of paper and list everything you want from your first home, whether that’s a particular number of bedrooms, a certain distance from a mainline station or proximity to particular local schools. If the list gets too long (and it probably will), try to number your list in order of importance. Buying with a partner? Make sure you carry out this step together, or at least compare notes before you get started – you might be surprised by the emphasis your partner places on off-street parking or a kitchen-diner, or vice versa.

You know what you want, now what can you get? When you’re a first-time buyer, the amount of money you will have to spend on a property will depend on two factors: the size of your deposit and the amount you can borrow. In general, the larger the deposit in relation to the purchase, the more attractive mortgage rates you can access, so it makes sense to save as much as you can. If you’re struggling with this step, though, the government’s Help to Buy or Shared Ownership Schemes could help you to buy a home with less. [Editor’s note: You can find out more about these in this How to get on the property ladder article.]

The amount you can borrow depends on your income and your outgoings – expect a mortgage lender to scrutinise your spending (from your weekly shopping bill to your childcare costs) before deciding what you can borrow. To get a general idea, try this calculator from the Money Advice Service

Once you know what your limit is, take a look at Rightmove to see how it matches up with what you are hoping to buy. You may find out that you need to compromise on the property size or location, or even that you need to wait a while before you can purchase the right home for you. If you need to wait, check out savings options for deposits such as the government's Lifetime ISA.

Mortgage calculators, like the one linked to above, are a great start when you’re planning to buy, but you’ll need to visit a mortgage adviser to be sure of exactly how much is available to you.

You can either find an adviser through a bank or building society, or – to make sure that you get access to a range of deals – you can use an independent broker. Try to find a list of brokers in your local area.

A good credit score can help make sure you are an attractive prospect to lenders. It tells companies whether you have defaulted on debts in the past, and how many credit cards and other debts you have. Simple things, such as ensuring you are on the electoral roll, will increase your credit score, while you can apply to correct it if there are any mistakes. You can see your credit report for free at Experian, Noddle or Clearscore. [Editor’s note: You may also find it useful to read our article, What is a credit score and how can I improve it?]

Now that you know how much you can borrow it’s really important that you get a Decision in Principle (DIP); sometimes known as a ‘Mortgage Promise’ or ‘Agreement in Principle’. Essentially this is a mortgage quote where the mortgage lender checks your information and credit file and decides how much it is willing to lend to you. 

Some lenders can offer DIPs that only leave a soft footprint on your credit file, which does not have an impact on your credit rating as the search is logged as an ‘enquiry’. But some lenders offer DIPs that leave a hard footprint as the search is logged as a ‘credit application’. And one important thing you should be aware of is that if you make multiple credit applications over a short period of time this may impact your credit rating.

A DIP isn’t a binding offer at this stage – the lender can change its mind at any time – but it’s a good indication that the lender is willing to provide you with a mortgage loan. And the main benefit of having one in place is it will allow you to move quickly with an actual mortgage application once you’ve found the property you’d like to buy.

Before issuing a DIP, a lender will look at your credit record, bank statements and employment history, so it is important to get documents together in advance. It is worth noting here that the mortgage lender will still have the right not to offer you a mortgage once you’ve made an offer on a property, so although these agreements are useful, they aren’t binding. [Editor’s note: There’s more about how to find the right mortgage for you here.] 

It’s at this stage that many people shop around and compare mortgage deals with different mortgage lenders, obtaining what is called a ‘mortgage illustration’. This is essentially a document outlining all of the key information about a particular mortgage deal such as how much you’re borrowing, any fees or charges you’ll have to pay upfront and what your monthly repayments may be. Mortgage illustrations are a great way for you to easily compare between different mortgage deals, so you can work out which may be the best one for you. 

And don’t forget, if you’re using a mortgage broker (rather than going direct to the mortgage lenders yourself) to find a mortgage deal, then they will search the market and compare mortgage deals for you – saving you some of the leg work.

With the DIP in your hand, it’s time for the exciting bit: finding some properties to view. Technology has made this process so much easier in recent years. Use Rightmove and Zoopla to find properties for sale as well as the most recent sold prices for properties, to help you compare. Rightmove allows you to search by drawing a map, or using a radius from a certain point, which can help to narrow the process down.

However, it is still worth registering with local estate agents in your chosen area, as some properties are sold before they ever hit the online property portals, and you want to be given a heads up first. Make sure you’re specific with estate agents about your requirements, so that you aren’t sent too many unsuitable possibilities.

It’s easy to fall in love with a home and not notice potential pitfalls, or to overlook a great property possibility because of clutter or old-fashioned décor. To avoid either scenario, it’s a good idea to take a checklist with you when you view properties. Either make one of your own, or have a look at the Which? checklist here for inspiration.

Important things to check include signs of damp, cracks and the direction in which different rooms (and any garden) face. If you don’t have a floorplan, measuring rooms can also help you to work out whether you can actually fit a bed into a really small bedroom. [Editor’s note: you may find our article, Things you mustn’t forget when viewing property, useful.]

If you are buying a flat, you will also need to check whether your purchase also includes a share of the freehold or the ability to participate in the management of the building the flat is in. 

Most flats are sold on a leasehold basis, which gives you a legal right to occupy the flat, subject to the terms of the lease. The lease will set out the terms of occupancy and may be especially restrictive about things such as keeping animals, the décor and floor coverings and also maintaining fixtures and fittings. 

It may oblige you to pay regular ground rent, service charge and insurance costs to the owner of the building or their managing agent (if in doubt, you can chat these things through with your conveyancer). These restrictions and costs could be significant so you should be clear about the arrangements that you will be bound by and in particular that you can budget for paying the charges when they fall due. 

Often, but not always, the flat owners are also able to share in the ownership and/or participate in the management of the building through a management company and are thus able to plan for themselves the cycle of maintenance and repair of the building or arranging insurance for the building. If this lease is very short it can affect the value of your home. There’s more about the leasehold and freehold system here on the Government’s website.

Once you have decided you would like to buy a property, you will need to make an offer. In most cases, in England and Wales, properties are advertised with an ‘asking price’, but you are free to make an offer over or below this amount. It can be very tricky to work out where to pitch your offer. Too far below the asking price, and it is likely to be rejected, but if you offer too high you risk either paying more than the property is worth, or having your mortgage company quibbling the property’s valuation.

One of the best ways to work out the best offer to make is to keep your eye on the property market in the area you are considering. Knowing the average sold prices of local properties, as well as how long they typically remain on the market, will help you to know the offer to make. You can ask the estate agent how many other people are viewing a property, how long it has been on the market, and even why the sellers want to move, but remember that he or she is working for the seller, not for you, and wants to get the highest price possible. By law, the estate agent must pass on all offers received to the property’s owner.

Once you decide what to offer, make your offer to the estate agent – this can usually be done via phone or email – and remember to stress your own attractiveness as a buyer. If you are buying for the first time, you have the advantage of not having a long chain of other properties that also need to go through the sales process which could slow down or stop a purchase, while having a DIP also makes you an attractive prospect.

Exciting as it is to have an offer accepted, remember that this still isn’t a guarantee of ownership. Offers in England are not legally binding and you could end up being ‘gazumped’, which is when someone makes a higher offer than yours after your offer has been accepted. You should ask your seller to take the property off the market once the offer is accepted, to try to minimise the risk of this

Before viewing houses and making an offer, you’ll probably want to have a Decision in Principle (DIP) (see Step 4 above) – this will ensure that the estate agent and seller know that you are serious when you make an offer, making them more likely to accept it. A mortgage broker will be able to help you to decide what mortgage is right for you. The interest rate you will be paying is an important part of the decision, but there are other issues to take into consideration as well.

Some of the questions you’ll want to ask will include whether you want to fix the rate you’ll pay for a length of time, so it doesn’t move up or down if the Bank of England changes interest rates, and whether you want the flexibility to take payment holidays or overpay if your salary increases. You may also be given the option to take the mortgage over a longer or shorter period of time, although 25 to 30 years is still the most common term for a mortgage. A longer mortgage term can help make monthly payments more manageable, although you will pay more interest in the long run.

Conveyancing is an important part of the home buying process as it’s the legal process that transfers a property from one person to another. A conveyancer is a regulated legal professional who is authorised to do this work. This could be a solicitor (regulated by the Solicitors Regulation Authority) or a licensed conveyancer (regulated by the Council for Licensed Conveyancers) responsible for completing all of the legal paperwork on your behalf, including the Land Registry and local council searches, drafting the contract and handling the exchange of money. 

They also act for your mortgage lender in the mortgage transaction, so you should ask your conveyancer to confirm that they are able to act for your particular lender as not all conveyancers are able to act for all lenders.

Search tools are provided by both the Solicitors Regulation Authority and the Council for Licensed Conveyancers to help you find a conveyancer. And if you can think ahead, it’s worth giving yourself some time to find a conveyancer so you can be sure you’ve chosen the right one, taking into account their experience and costs, as they can often be expensive. 

It’s worth remembering that while all solicitors are able to carry out conveyancing, they may not be an expert in it. The Law Society is the group which represents solicitors in England and Wales and it operates an accreditation scheme known as the Conveyancing Quality Scheme (CQS). It accredits those solicitors who can demonstrate a high level of quality in conveyancing services. So, if you choose a solicitor, it is worth establishing whether they are accredited to the CQS standard. Licensed conveyancers are specialists who only act in conveyancing transactions. 

Once the conveyancing process, which includes all of the things mentioned in Step 11 below, takes place, contracts are exchanged, and only then is the contract legally binding between the two parties. Sometimes you can exchange contracts and complete (see Step 17) on the same day; however, sometimes there is a lag between the two.

If you have few possessions you may be able to find a van and do this yourself, but most of us find we’ve accumulated more than we’ve expected. A removal firm might cost less than you think – according to the Money Advice Service, the average removal cost is between £300 and £600. 

Removal companies can get booked up quite far in advance, especially if you’re looking to move on a popular day such as a Friday or even during the school holidays, so it’s a good idea to start getting quotes now. Search the British Association of Removers website for companies in your area

Next you may need to carry out a property survey to ensure that the property is in good condition. While the mortgage lender will have already carried out a basic valuation to satisfy itself that they are happy to lend on the property, this is not a survey and is not for your benefit so you should also consider carrying out a formal property survey so that any issues are flagged before you actually buy the property – and this is something which your mortgage lender could help to arrange for you. Legally, it is your responsibility to be satisfied as to the condition of the property – the seller is under no obligation to tell you about the condition. 

There are two main types of surveys which you can choose from – a Homebuyer’s Report and a Full Structural Survey – and each comes with its own level of detail and price tag. So be sure to choose the one which is most suitable to your circumstances.

While your mortgage application is being looked at by the mortgage lender, your conveyancer will start to carry out the necessary searches for your new property. These conveyancing searches will include local authority searches, land registry searches and environmental searches to name a few.

Following your mortgage application you will now receive a formal mortgage offer and offer illustration from your mortgage lender, confirming they are happy to lend you the money to buy your new property – the next big milestone in buying your new home!

It’s really important that you check all of the details contained in this document are accurate. If there are any discrepancies, go back to the mortgage lender as soon as possible. This is an important document so ensure you keep it safe.

Depending on the arrangements that are negotiated between you and your seller (through your respective conveyancers) you may have to pay an amount of money to your conveyancer to cover the deposit payable on exchange of contracts on your purchase. The deposit will typically be 10 percent of the purchase price. You should confirm in advance with your conveyancer what arrangements are preferred for payment of the deposit on exchange of contracts.

The quickest way to pay the deposit to your conveyancer is to arrange a Clearing House Automated Payment System (CHAPS) payment with your bank or building society so you can pay them the full amount in one go. This payment can usually be done within the same day and there may be a charge for this type of payment.

Time to get the champagne out! At this stage in the process your conveyancer and the seller’s swap signed copies of the contract and deposits are paid between them, which makes the house sale a legally binding contract between you and the seller. You will be bound to buy the property for the agreed price on the completion date and neither party may withdraw from or change the arrangements without legal consequences. Your conveyancer will also arrange simultaneous exchange of contracts in your house sale. 

Now it’s really important for you to put in place insurance for the property, to cover yourself should anything unexpected happen – and many people choose to put in place combined buildings and contents insurance. If you’re unsure as to what value you need to set your buildings insurance at, check your mortgage valuation report to see what the rebuild value may be estimated at, as you’d need enough money to be able to cover the rebuild cost should the worst happen.

You should also confirm the completion date with your removals company as you will be expected to have vacated your existing property on the completion date. Some removals companies will want confirmation that contracts have been exchanged before they will confirm your booking. 

Now that you’ve exchanged contracts, the next key milestone is for your conveyancer to agree a suitable completion date, which is the date when the keys will be physically handed over to you (and the official date that the interest on the mortgage loan is payable from). 

The conveyancing process involves a number of steps and it’s at this stage that you should talk with your conveyancer to ensure everything has been completed as expected, including:

  • Finalising any checks on leases 
  • Checking the seller is still the legal owner of the property
  • Completing any outstanding surveys (see Step 13 above)
  • Completing any local authority searches (see Step 14 above)
  • Checking the mortgage valuation (see Step 15 above)
  • Preparing and then exchanging contracts (see Step 17 above)

Once you’ve successfully negotiated the conveyancing process, congratulations – the home is now yours. Now you just need to move yourself in, so read on! 

The final thing is to think about redirecting your mail from your old residence to your new home. The Post Office usually needs about a week’s notice to put the redirection in place. Register with the Post Office to set up your redirection. You can choose to redirect your mail for 3, 6 or 12 months and there will be a cost to do this.

At last, the keys to your new home are finally yours. Now you have the pleasure of moving in, unpacking all of those boxes and making the place feel like home.

While your solicitor is completing the conveyancing, you will need to put in place insurance for the property, to cover yourself should anything unexpected happen. Now you’ll be a homeowner, you’ll need buildings insurance as well as contents insurance – many people choose combined buildings and contents insurance. [Editor’s note: You may find our article, How much home insurance do I need? useful.]

Now you’re in your new home you can breathe a sigh of relief that you made it through the home buying process. Phew! Now all that’s left for you to do is to ensure you’re all set up to start paying your mortgage as agreed with your mortgage lender. You’ll usually receive a Completion Statement from your lender which will set out the date of your first mortgage payment, and subsequent payment dates, as well as the method of payment (Direct Debit is preferred but standing order is also an option).

Congratulations, you’re a homeowner!

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.