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The first-time buyer cheat sheet

Here's the heads-up on chains, conveyancing, gazumping and much more.

Looking to buy your first home can be a daunting prospect, especially when it comes to working out how the buying process works, the various hoops that need jumping through, and the complex terminology used by professionals.

In an attempt to help first-timers overcome this disadvantage, Stipendium, the platform that simplifies life’s complex events, has produced a comprehensive, jargon-busting guide to the buying process to add transparency to the complex language and discourse used by property professionals.

Previous research from Stipendium revealed that 66% of those to have purchased a home in the last six months were unaware of how the actual process worked. Because of this, 72% think property should become part of the national curriculum in order for people to have a better understanding of how the buying process works when the time comes for them to step onto the ladder.

Sadly, that’s not going to happen any time soon, so Stipendium has created a cheat sheet to help first-time buyers get ahead of the game.

LTV - loan to value

LTV, or loan to value, is part of mortgage jargon. It’s basically a percentage figure that measures the proportion of your property that is mortgaged and the amount that has already been paid for with the deposit. For example, a £100,000 deposit on a £200,000 home would be 50% LTV.

Some first-time buyers presume LTV means ‘long term value’ and that the percentage figure refers to how much the value of the property will increase over time. Sadly, this isn’t the case.

Exchange

Exchange refers to the moment when contracts are signed and both parties are legally bound to the sale. It is not, as many people believe, referring to the exchange of house keys on moving day.

Buildings insurance

Buildings insurance is different to home insurance. While home insurance covers everything inside the home, buildings insurance covers the physical structure itself. If the house burns down, for example, it’s buildings insurance that will help you rebuild it.

It’s best to organise buildings insurance to kick in at the point your exchange contracts because that’s when you become liable for the property.

(Mortgage) Agreement in principle

A mortgage agreement in principle is basically confirmation form the mortgage provider that they are willing to lend to you. You can show this to a seller as proof that you can afford to buy their house. You will still have to get your final mortgage approved, but this should be a fast process having already been accepted in principle.

Chain
When a homebuyer needs to sell their existing home in order to fund the purchase of a new home, it creates a chain where each sale is dependent on another sale. First-time buyers won’t contribute to the chain because they don’t need to sell a home to be able to afford a new home, but they can still get caught in a chain.

Conveyancing

There are a lot of legal processes involved when buying a home. The process of completing them all is called conveyancing and is essential. The work is done by specialist property solicitors often called conveyancers.

Ground rent

If you’re buying a leasehold property (very common with flats), ground rent is a fee you’ll have to pay to the freeholder who is often the building owner.

Gazumping

When a new buyer swoops in to trump an existing offer that the seller has already accepted from another buyer, it is called gazumping and it happens all the time!

Deeds

The legal paperwork which states who owns a property.

Disbursements

When you hire a conveyancer, they’ll give you a quote for how much their services will cost. However, it’s very likely that you’ll also have to give them extra money now and then to complete vital parts of the conveyancing process. These are called disbursements and are completely normal, but you should make sure your conveyancer outlines how much they’ll cost at the beginning of your relationship.

Stamp Duty Land Tax (SDLT)

This is a tax paid when you buy a property. The amount depends on the value of the property. As a first-time buyer, however, you don’t have to pay SDLT unless you’re buying a home worth more than £500,000.

Surveys

Property surveys are vital. They tell you everything you need to know about the structural state of the property. Is there damp in the property? Is the roof safe? Are there any planning restrictions in place which will stop you being able to extend the property? And so on. Your conveyancer should oversee organising surveys for you.

Vendor

Fancy word for seller.

Christina Melling, CEO of Stipendium, comments:

“First-time buyers are always dropped in at the deep end. But more so today than ever before. The housing market has been so busy and competitive since the pandemic that first-timers can easily feel overwhelmed and frustrated, pushed and pulled in every direction by various property professionals, sellers, and rival buyers."

"However, a little knowledge can be a powerful thing and simply understanding the sometimes confusing industry terms that are frequently used is a massive help."

"We really believe that people should be given a basic education in property from a young age, but this isn’t likely to happen any time soon. That’s why Stipendium was created - we help to simplify the process, clearly explain the most intricate parts, and connect you with professionals who are going to support you as you navigate your way towards your first ever purchase."

stipendium.io

 

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