a guide for first time buyers
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An Introduction to Owner Occupation
Owner occupation offers a wide choice of accommodation. When considering buying a property, you should investigate the short and long term costs. Take into particular account any potential changes in circumstances that may affect your finances such as redundancy, fluctuations of interest rates, relationship breakdown or repairs. Most mortgages are offered for a period of 20 - 25 years. The property is secured on the money loaned and may be repossessed if arrears accrue. The main sources of lenders are banks and building societies. The mortgage lender will make a valuation of how much a property is worth and calculate the amount of the loan against this.
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Other Loan Options
Other options for loans are: •
Mortgage Brokers - it is not advisable to go to a mortgage broker unless you cannot get a mortgage from a bank or building society. They can organise a mortgage through a bank or building society but are likely to charge between 2 & 4% costs. Insurance Companies - arrange endowment mortgages, but only usually offer loans for the upper end of the housing market. Employer - may offer a loan off the company or arrange a lower rate of interest than a bank or building society. If you leave your job, you will probably have to pay normal interest rates. Builders - of new homes may arrange cheap mortgages. Estate Agents - check whether it is an endowment or standard repayment (see ‘types of mortgages’). Many estate agents have independent financial advisors who are able to shop around various lenders for you to get the best deal. Finance Company or Small Banks - these companies tend to have very expensive interest rates and are quick to repossess for mortgage arrears. Always get independent advice prior to signing any agreement.
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Types of Mortgage
There are three types of mortgage: 1. Repayment The mortgage is repaid in monthly instalments over an agreed number of years, usually between 20 and 25 years. Part of the repayment repays the capital (the amount borrowed); the other part is interest. You will need to take out a mortgage protection insurance policy to pay the mortgage if you die, or lose your job. 2. Endowment Only the interest is paid during the period of the loan. The capital is paid back in a lump sum at the end of mortgage period. An endowment life insurance policy is taken out to provide this sum, but this is no guarantee and depends on the slumps and booms of the property market. 3. Pension Mortgages Available for people who are self-employed, or working for a company that does not have a compulsory occupation pension scheme. It is similar to an endowment mortgage, you only pay interest each month, but you also pay contributions into a pension scheme, which will pay out a lump sum at the end of the term. It pays off the loan and gives you a pension as well.
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Shared Ownership
If your earnings are not enough to make you eligible for a mortgage for the full price of a suitable property, you may be able to purchase a home under a shared ownership scheme. These schemes are run by Housing Associations and enable you to purchase a ‘share’ in the property and pay rent on the part that you do not own. Some shared ownership schemes are only for existing Council or Housing Association tenants. Other schemes are available to all. Beth Johnson operates a scheme whereby they are able to provide a loan to cover 25% of the property price. For further information, contact Gill McGovern on 01782 203569 and ask about ‘Homebuy’. Staffordshire Housing also has a similar scheme. For further information, contact Jane Powels on 01782 744533 and ask about shared ownership.
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How Much Money Do I Need?
Take professional advice from your bank or building society and obtain some indication as to the amount that they are prepared to lend you and the methods available for you to pay back the loan. All lenders’ calculations are based on gross income. A proportion of guaranteed overtime or bonuses may be taken into account. The loan will be limited by the value of the property and your income. The maximum is usually 2.5 to 3 times your annual income and 1 times your partner’s income, or 2.5 times your joint annual income. Under the Sex Discrimination Act 1975, it is illegal for lenders to discriminate against a woman by refusing to use her income as the higher one in their calculations. Some lenders offer very large loans in relation to your income. If you are offered a very large loan think carefully about whether you can afford it. If you have any doubts whether you can repay the loan, do not take it. Always plan pessimistically i.e. under assess income, over assess out goings. Interest Rates Lenders frequently offer special rates of interest; the main four are listed below; 1. variable rate - it can be varied at any time without notice. 2. discounted rate - a discount rate is usually set for 1 - 2 years, before reverting to a variable rate. 3. fixed rate - the rate is fixed for a set period of time, usually 1 - 5 years before reverting to a variable rate. 4. deferred rate - payments are reduced for up to the first 5 years, the difference is added to the total mortgage and is charged after the deferred period. 5
Cost of Home Buying There are a number of ‘one off’ costs involved in buying a house and these are as follows (please note that some of the fees listed below are only averages and it may cost more): 1. Deposit – some mortgage packages are based on you paying a percentage of the property price upfront (typically 5 – 10%). Some mortgage packages do not require a deposit, although this may affect the interest rate that you pay on the loan in the long run. 2. Valuation Fee (approx. £160 - £400) 3. Own Solicitor £300 - £600 4. Land Registry £40 - £350 5. Stamp Duty – payable on properties of a certain value: Under £60,000 - FREE £60,000+ @ 1% £250,000+ @ 1.5% £500,000+ @ 2%. 6. Setting up – furniture, removal, gas, electric connections, curtains, carpets etc. Recurring Costs: 1. Leasehold flats will incur a ground rent of £50 - £100 per year. 2. Flat in a block could incur service charges of £200 - £600 plus a share of major repairs i.e. roof. 3. Building & Contents Insurance. 4. Repairs and Maintenance. 5. Council Tax. 6. Water Rates/Charges. 7. Gas and Electricity etc.
Remember!
Do not borrow more than you can afford to repay. Allow a safety margin for any possible changes in your financial circumstances. 6
Finding a Suitable Property
FREEHOLD - most houses are freehold and you would own the
property outright.
LEASEHOLD – the majority of flats are offered on a long-term lease
and usually for 99 years. Building societies are unlikely to lend the money on a lease less than 50 years. You may get the opportunity to buy the freehold.
Contact local estate agents and check local press for details of properties within your price range. When you have found a suitable property, make an offer through the estate agent and make your formal mortgage application. Until you exchange contracts neither seller nor buyer are legally bound. You may be asked to leave a holding deposit of £50 - £250, but it is deducted from the final purchase. As soon as you have agreed a price, you should apply for a mortgage.
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The Survey Before offering a mortgage, the bank or building society will require you to pay for a survey or valuation. Sometimes this survey can be arranged through the mortgage lender. The survey will tell the lender whether or not the property is worth the amount you are asking to borrow and if it is likely to last as long as the mortgage period. For your own peace of mind, especially if you are worried about the age of the property, you can arrange for a full structural survey to be carried out. This survey is much more thorough than a normal survey and is, therefore, more expensive. Using a Solicitor If your offer is accepted, you should choose a solicitor to carry out the necessary legal work on your behalf. You can find a solicitor from the phone book or by word of mouth. Before engaging a solicitor, obtain a written quotation of fees and remember that it often pays to ‘shop around’ and compare fees. Once the mortgage is confirmed and the survey is completed satisfactorily you can instruct your solicitor to proceed with the conveyance.
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Contracts Sign and exchange contracts when your solicitor advises you to do so. On the date that the contracts are exchanged you must normally pay 10% of the purchase price as a ‘down payment’. Your lender will usually advance this money. Preparations for Moving You will need to make arrangements for removals, gas, water, electricity, telephone, council tax registration etc. Completion Completion usually takes place 2 to 4 weeks after exchange of contracts but may be completed sooner if required. The remainder of the purchase price is paid on this day. Once completion has taken place you can collect the keys and move in.
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Useful Addresses and Telephone Numbers
Citizens Advice Bureau (Newcastle) 25-27 Well Street Newcastle ST5 1BP 0870 1264049 Newcastle Housing Advice Kingsley The Brampton Newcastle-under-Lyme Staffordshire ST5 0QW 01782 635200
British Telecom British Gas M.E.B
150 0845 609 11 22 0845 714 51 46
Council Tax Bands Band Range of Value A Up to & including £40,000 B £40,001 - £52,000 C £52,001 - £68,000 D £68,001 - £88,000 E £88,001 - £120,000 F £120,001 - £160,000 G £160,001 - £320,000 H More than £320,001 For the actual Council Tax charges contact the Council Tax Office on 01782 715500.
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Where can I get help?
You can contact the Housing Advice Team on: Tel 01782 635200 Fax 01782 715498 Contact Times 9.00am to 5.00pm Out of Hours: 01782 799666. The out of hours service is for Emergency Homelessness Only.
Appointments
Appointments can be made by telephone or in person by calling into the reception at Kingsley, The Brampton. Where the matter is urgent, every effort will be made to see people without an appointment, where staff are available.
Home Visits
Home visits can be made for people who have difficulty in getting to the office due to ill health, disability or other special reasons.
Language Line
If you do not speak, or have difficulties speaking English we can arrange for a telephone interpreting service to be facilitated via ‘Language Line’.
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