Property Pod: How to buy a house - Part 1

Our house in the middle of our street. Our house that was when we used to sleep. Our house in the middle of our street.

Hello, and welcome to the Property Pod.

With me, Emily Evans, and me, David Blackmore. Now, this is very much a different kind of property podcast, one you'd be used to hearing. I'm very much a novice here, don't know too much about properties. I barely own a property myself.

However, Emily, an estate agent, letting agent, and I've been a property developer for over 10 years now, so you probably.

Know a lot more than me. My job here is going to be purely asking those questions that I hope you listening to would want answers to. This first podcast is all about buying a property. And for me, whenever I think about buying a property, the first thing that crosses my mind is saving up for a deposit. That's the first. That's the thing you're always told, isn't it? But, Emily, you perhaps would disagree. The first thing you think you people should be doing is getting a credit card.

Now, I feel terrible saying that. And again, I'm not someone that likes to spend a lot of money on a credit card, but you need to build up a credit rating before buying a property. So get yourself a credit card, spend a bit of money on it and pay it off every month. I have people coming to me and saying, but I don't need a credit card because I've got money and I don't need to borrow money. But then that also shows that you've never actually had to prove that you can pay money back. So, you know, don't spend too much money on it, pay it back every month and you will build up a credit rating.

Now, the next thing, which is probably quite controversial for me as someone that has a bank account, I've been with that bank since I was 12. I'd have a change I'd never dream of changing because it does what I ask of it. I would just go straight into that branch straight away and ask to speak to their mortgage person. However, you would say, actually your next step then would be to have a chat with an independent mortgage advice advisor.

Absolutely. So you're very right in thinking, I'll go to my bank. You know, we're all very loyal, but ultimately they're not very loyal to us as consumers. So go to an independent mortgage advisor, because an independent mortgage advisor will compare, you know, like, Compare the Meerkat. Comparethemarket.com they will compare whole of market. An independent one will. So an independent one will compare all of market just A mortgage or financial advisor might have a panel that they're restricted to. So make sure it is an independent or they are an independent mortgage advisor.

You've said that a couple of times. But is there a difference between an independent mortgage advisor and non independent? Is.

Yeah.

Are there some that are affiliated with. Yes. Oh right. I just assumed all those kind of. If they're not in the bank they would all be independent. So the next thing then is talking about thinking about deposit. And I think a lot of people try. It's so difficult to save up for a deposit now and I think a lot of people don't really know how much they should be saving for. But there are plenty of options, aren't there? But is the kind of the average one you're looking for about 10%.

Ideally you want to be saving a 10% deposit to buy a house. That's just my personal recommendation. Mortgage rates are better than ones that you can get at 5% with a 5% deposit. Banks and building societies have over the last few years they were really obviously we used to be able to get 100% mortgages but they became a bit tighter and now they're becoming a bit looser again where you can put down a 5% deposit but rates on a 5% deposit are going to be a lot higher. So I would always say save yourself a 10% deposit and your mortgage rates are going to be generally quite good. Buy to let wise. That's completely different. You know you need at least a 20% deposit.

Yeah. And we can. We will cover buy to let in future podcasts as well. Because this is very much for those kind of millennials who perhaps like me, didn't really understand all of it. When it comes to how much you're going to get a mortgage for, you're looking at four to five times your income, isn't it? Is it more towards the 4 now than 5 then? I'm guessing in days gone by it would be five, but perhaps is it more four now?

It's four to five. You know it all depends on your personal circumstances, whether you're employed, self employed. If you're self employed, there are some lenders that would do it on a good like a year's accounts. But generally mortgage advisors say three years accounts.

Would you self employed a good avenue. That must be so tough to get a mortgage as someone self employed.

Yeah.

Three years account.

Absolutely. Yeah. So it's. There are lenders, as I said, that will do a year's accounts but you're gonna have to prove you know, give them so many statements, like a year's worth of statements and there's going to be a lot of work that you're going to have to put in behind proving all of your income. But generally, yeah, it will be, it's normally about three years accounts that you will need. So.

So talk about mortgages now. Now I guess people perhaps like me, you don't really understand the differences between them. So a repayment mortgage, that must be that you're paying a little bit of the mortgage off at the same time as paying off interest.

Yeah, yes, absolutely. So repayment is you're paying your part of your mortgage off and the interest that that bank's charging you as well. When then you've got an interest only mortgage. Interest only where you're just paying off the interest. So at the end of it you won't be paying any of the actual mortgage. Mainly interest only mortgages are for buy to let landlords. So if you are buying a property for yourself to live in, you'd always want to go down the repayment mortgage side of things.

Okay so. And presumably the benefit of interest only is that you're only paying off the interest but your house is going to go up in value so you know, you're not losing money. It's a cheaper way, a more cost effective way if you're really low on income or.

Yeah, the reason you do an interest only mortgage and the reason landlords do it is to instead of paying money off the property, most landlords will look at a property as in they're going to earn money through capital growth. So by an interest only mortgage they are pocketing the extra bit of money to be able to do something else with that money. For example, save it up in a pot to buy another property. So yeah, that's why landlords will generally do interest only mortgages.

So you've got your credit card, you've got your mortgage advisor, let's call him Larry, you've got your deposit, you know, kind of your income and how much you're going to be getting and you know, kind of what you can get with different mortgage options. The one thing I definitely felt like I didn't know about when I was, when I was younger wasn't explained to me properly. All those other costs that they do really mount up, I mean biggest one is stamp duty.

Yep. So stamp duty land tax is something we all have to pay. Unfortunately if the government ever wants to get the property market moving, they should be abolishing it completely. Recently they've The Chancellor brought out that first time buyers up to 300,000 no longer have to pay stamp duty, but over 300,000 they do have to. So it goes up in increments. And again, I will put this, we'll put this under the podcast so that people have that there's nothing to pay up to 125,000. From 125,000 to 250,000, you have to pay 2%. From 250,000 to 925,000, you have to pay 5%. And if any of you first time buyers are buying a property of 925,000 or above, well, congratulations, you'll have to be paying 10%.

Oh my gosh. And the thing is with the stamp duty is it's just like, yeah, here you go, we'd like the money now, please. And you just, there you go, transfer it over and it's done.

Yep. You can't get a mortgage for it. Well, you shouldn't ever really get a loan for it. But it's one of those things that it's just money for nothing. It's another tax that, that we're paying stamp duty, land tax.

And then of course, on top of that you have your solicitor fees and the moving cost as well, which depending on if you're a first time buyer, you're probably going to be moving out of a room as opposed to have a big house. But you could be in a situation where you're first time buying and you have a whole house with a family saying you're looking to make that plunge. You could have a lot of stuff to move.

Yeah. Or if you are a first time buyer and you haven't, you are moving out of home, you've got a lot of stuff to buy. So you know it's buying stuff for the property. Yes. Solicitors fees, survey, you know, it's, it's a costly, it is a costly thing, buying a property.

Or you could just go to a pretty famous Swedish place that you go around and just pick up stuff, you see the rooms and you stuck it, you stick it in your trolleys and you can just recreate that room in your room.

Oh dear. David, is that what you did?

Yeah, absolutely everything. Talk to me about the one thing I didn't understand when I was buying as well was the help to buy ices. I didn't really see the point. I didn't understand it. You know, everything I read didn't seem to, to make too much sense. But there are bonuses and positives to be had from it.

So people get confused between, between help to buy ISAs and help to buy mortgages. So help to buy mortgages are completely different. Help to buy mortgages, something that you can only get on a new build property. And I'll, I'll come to talk about that in a second. But helped by ISA is basically a savings account that you pay an amount in and the government pay an amount in as well. At the end of the day it's not a massive amount of money and it's probably just going to cover your solicitors fees and your moving costs. Basically it's a 25% bonus that the government give you so you can receive up to £3,000 tax free money from the government if you have saved £12,000. So it's it, you know, it is good, it's better than nothing. But at the same time government, you know, where does three grand get you these days? Not very far.

Yeah. So while this all is going on, would you advise. It does feel a bit like a juggling act, doesn't it? But the actual property element to it or finding the property, are you kind of looking as you're going to kind of get a flavor of what you can actually afford or do you, do you think you have to go so far down the line before you can start looking at properties?

So I will have done with everything we've just spoken about. I'd do all of that and now at this point I would now go to look to buy property.

So many people would just look at properties first.

Yep. And then they'll go and look and they'll be so disappointed because they'll then find out that the house they've just fallen in love with they can't afford.

Right. Okay. So then you've got to this point then you know what you can afford. Yep. Are there other tick boxes that you would have for someone buying for new property for the first time?

Now with finding a property, I suppose the main thing when you're looking at a property for yourself is area. So what area do you want to be in? Are you going to be living near family? Do you need to live near work areas? Really important. And again some people just know, oh, I don't need help with area because I just know where I want to live. Well that's great. If you don't know where you want to live and you're looking to invest in something because you want to live there but also make money, look at local infrastructure, you know what new jobs are coming to the town or place you're looking to buy in. And also look at schooling. If you are then looking to buy something to live in for a bit and then possibly rent out, look at where tenants are looking to, looking to move. So again it's around where, where there are jobs and where there's infrastructure going in.

And I'm guessing with everything that we've had with like the rail networks and stuff and the investment that goes in there. Yeah, I guess that's another thing to.

Absolutely. So the minute we get information like that from the government or anyone saying oh we've got a new train line going in here, you know, they're the areas that get snapped up really quickly. So yes, luckily a lot of people will look to buy because that's where they live at the moment. So you'll know about your area if you don't do a lot of research areas really, really important.

And I guess if you're thinking longer term as well as short term because as a first time buyer it might be just two of you that buy but that could soon become three and soon could become four. And I guess that you need to be thinking as those things about school but also the size, the size of the property as well.

Yeah, it's. Buying a property is, is really complicated and tricky and I would never say to anyone to buy a property for a year or two years, don't look at it as a short term plan, you need to look at it long term. Especially so many young people are buying new builds at the moment and they're buying new builds because there aren't many other properties around and the government are offering a help to buy mortgage which is, which is what you know, people are thinking, oh this is great. But actually if you're going to buy a new build property you, you've got to look at it long term. It's got to be a five year plus plan for the fact of. And some people might not agree with me here but new build prices are inflated by at least 20%. If you, Mr. First Time Buyer were to walk into a new build office and you needed help to buy mortgage and I went in as a cash buyer, you would be paying 20% more on that value on the price of that property than I would. I'd probably get a 20% discount because I've got cash in the bank. So ultimately our properties are sat next to each other people in the future in a couple of years time and be like well why is that property worth that? It was sold for that much and you paid that much.

I've Seen that loads. I've seen that loads on new builds. And also, I guess the, the other thing that with, with properties, when you look at them the way I looked at it as well, if you've got a property that's of a certain age or different, if it's, if it's been standing 100 years, standing 50 years, it's already stood the test of time. Whereas some of these new builds, some of the stories you hear about them actually are a bit worrying in that you think, like, they almost not fit for. Fit for purpose.

They're put up very quickly. I mean, architecture and, you know, us building properties these days, they're put up so quickly and it's not. They're not built like they used to be. That said that there are still very good properties out there. But for example, where I'm from in Somerset, they have built thousands of properties on what was a floodplain before. So they had to pile all these properties and piling is basically piling land up. So they stand above what the floodplain would be. And because ultimately we're running out of space, you know, we live on this small island and we are running out of space. So we are having to build to give housing to, you know, to all of the people living here now. But yeah, new build, I would really, really watch out for new builds.

Okay? So you've got to the stage where you've worked out what you can afford, the area you want to live in, the size of the property, especially if you're planning on having a big family or just a family. The thing that I then didn't really understand was the difference between a leasehold and a freehold. And I mean, the wonders of Google, you know, I did obviously Google it, but I still didn't quite understand, especially the leasehold, especially with like years running out and stuff. It all got a bit confusing. So I guess I kind of get what the freehold is. But what is a leasehold? And I think a lot of people do get caught up on this, don't they?

So most flats are leasehold. So leasehold means that you just have a lease from the freeholder to use that property for a number of years. The years could be anything from 99 years to 125 years to 999 years. Most mortgage lenders won't lend on a property that has less than, I think about 90 years on it because it can be very costly to renew that lease with the freeholder. So that's leasehold and then freehold is, well, basically you do own the land. You own the land and you own the property. I would always like to try and own a freehold property because it's the safest option. Um, but sometimes, you know, especially living in cities, we're not lucky enough to be able to have freehold properties. We have to have leasehold. Most purpose built flats that new developers have built are going to be leasehold. You're going to pay ground rent on them and you're going to pay management costs as well. You can also buy flats if you look at more like Victorian properties that are split into multiple flats, where you own a share of the freehold. So it's leasehold, but you own a share of the freehold. So that's also quite good because you do own part of the freehold as. So if there are four flats in one property, you own a quarter of that. I would always try and stay away from leasehold, but, you know, sometimes we're not lucky enough to be able to do that. So when buying a leasehold property, just make sure you do your homework, make sure you know exactly what your ground rent is, make sure you know exactly what your management charges are. And I know people that have been caught out. Previously on Management costs rising as well. So just, just be really over that.

Okay, so when you're now looking to go and view a property, I think the one bit of advice that my parents certainly gave me was when you're walking around that house, do not start looking at, oh, this is going to be our front room and already picturing your property, all your stuff in there, because you might be missing out on stuff that you otherwise wouldn't see. So what are kind of the things that you would say you need to be looking out for when you look, viewing a property, do you know what.

When I'm viewing a property, I'll always be a property twice. So I'll go and have a look at it. And then when I'm trying to make a decision whether I do want it or not and trying to think of what I'm going to, what I'm going to, what am I going to offer on the property, I would go back again and have a more thorough look. On that second viewing, I would always take back a builder. It's all, you know, at the end of the day, if you're buying your first home, you get caught up in it. Don't you get caught up in, oh, I can see my sofa there and it's all, you know, lovely. But on that second Viewing, make sure you take back a builder with you or someone that knows what they're looking at if you are worried about a few of the things you've seen. So things to look out for are, you know, damp. And I think, you know, a lot of people say to me, emily, what happened? What is, you know, if I'm looking at a house and there's damp in the corners of the rooms, you know, you know, that could be just something as easy as block guttering. You know, it could be the guttering's blocked and it's overflowing and it's causing damp in the corner of rooms, but then it could be more serious, it could be roofing issues. So I would always recommend if you can take someone like a builder that knows what they're looking at. Other things to look out for are cracks. So you can get hairline cracks that are basically just, is this plaster cracking? But then you can get more serious cracks. And if you see a crack that has obviously come down from like a bedroom upstairs and is downstairs, that's going to be a lot more serious and is probably more like subsidence.

Yeah, yeah.

So definitely get that looked into. One thing again, I always recommend people to look at is, you know, the boiler and the electric. So look at the boiler open, you know, the airing cupboard and find out the age of the boiler. There's generally always a sticker on the boiler of when it was last serviced or when it was installed. Again, I'm no plumber, but boilers generally last for about 12, 10, between 10 and 15 years. So if it's nearer 10 to 15 years old, you're going to be looking at spending another 2, £3,000 on a boiler. Same with the electric. So find the consumer board. A newer style consumer unit will have switches for every generous, nearly every room at the cooker, the lighting, when old consumer units are very, very simple and will have like four switches. Again, that's going to probably need replacing. If you've also, if you look in the consumer board as well, and there's a green and yellow wire, that's a good sign that the electrics have been updated more recently. That's called an earth wire. And yeah, that means that the electrics have been. Oh, look, I'm an electrician but, you know, I've developed a lot of properties. So when. And also being a letting agent as well, it's things like this that we need to keep an eye out for. You know, it's very important keeping your electrical electric safe.

Do you know what I don't think, I mean, the damp I certainly looked out for, but it was a Victorian property so, you know, it was almost one of the course. But all those other bits I certainly didn't ask questions of or check. But actually there's a lot of information out there on different websites is what I found quite useful actually. You can do a bit of, bit of research.

Yeah.

Suddenly you, you know, a lot more answers to questions, especially if properties have been on market for a long time or, you know, all of that kind of stuff. It's all, it's all on there.

Yeah. So obviously that what we're talking about then was kind of like the condition of the property. One more thing that I'd like to mention about that is, you know, stand outside the property, look at the property. If any brickwork is kind of out of place, if there are any slip tiles on the roof, that's going to be more of an indicator as well as that there are issues. So, but, but just please, you know, take a build around to have a look with you if you are serious on making an offer. So we're at offer stage now and you don't know, you know, you've been looking at properties, you know, it's on the market for, let's say 200,000, but you know, how much is that property actually worth? So websites like Zoopla, rightmove and Net House Prices are great because these days we can see what that person paid for that property. So if you go on to Zoopla, I think it's under Current House Values and then I think on right Move, it's also under Current Values. You click on that section so it says for sale to Rent and then Current Values, click on that, put the property address in and it will bring up the history, the sales history of that property. So if it says, well, Mr. And Mrs. Smith bought that property last year for 170,000, well, the market's not changed that much in a year. So what have they done? Have they like done an extension on the back? Have they put a new kitchen, new bathroom in? If they haven't, then, you know, that's a good indicator of actually that, you know, the price is, it's been overvalued. So and if it's not on Zoopla or rightmove, because rightmove have only just started doing that, putting that on the website. Net House Price is also another good one.

Okay, so yeah, that's really useful about Net House prices. That's certainly one I didn't know so you've got all your ducks in a row now you know exactly what the value is worth you ticking all these boxes and you've got everything in place. Now it comes to sort of making an offer which I'm assuming the estate agent is going to be asking you or harassing you about as soon as you leave that door. What are the top tips for? What is your number one top tip for making?

My number one top tip is do not give away the amount you can go up to. So the amount of people that have made the mistake of and I've had offer through me that have said, right, so Emily, we can afford up to 200,000 but we want to try and you know, cheeky offer 190, I'll have obviously said, yep, of course I'll try that. But you've got to remember that I am paid or an estate agent is paid by the vendor, the seller. So we earn our commission from them and it is our job to get as much money for them as possible. So if you've said to me already that you can afford 200,000, I know that you can afford 200,000. So do not give away. The end of the day, every offer that you make should be your best offer. Remember, your first offer is never really going to be taken. So if you're thinking you'd like to get the property for one night, well, offer 188 because that offer is just going to be, that's just like, oh, these people are interested in your property. It's the second third offer that's going to be taken more seriously. So always say when making an offer, I am making this offer and you know, this is our best offer. That's a great term to use. And then also really sell yourself as well. So it's not just about the offer and the amount you can afford. But let's say for example, you viewed the property and someone else has also viewed the property. You are you first time buyers. Great. That means you've got no chain.

Yeah, yeah, of course.

Have you got a mortgage all in place? Well, great. That means you've done all, you know, we've already told you to get your mortgage in place so you've got that. Because a lot of people, amazingly you wouldn't believe the amount of people that do view properties and they make an offer and they've never spoken to a financial advisor.

I have to say I'm not surprised going through all these steps and I'm thinking that I would have done things I certainly did do things in different ways. It doesn't make sense because you know, you've got to this stage and you have everything ready to go.

Yeah.

And I guess you're kind of saying, yeah, it's selling yourself, isn't it? So that the person that's selling at the vendor is going, do you know what? It's almost like, I want to sell to these people because it's the right thing to do. It's ticking all the boxes.

Yeah. And also, even if there's a bit of, oh, we're first time buyers, it's our first home together, you know, really, you know, really sell yourself. And it's amazing how much some sellers will be tied up in emotion. They'll be like, oh, we bought this as our first house. We'd love to sell it to you as first time buyers, as your first house. Also, when making your offer as well, if it is under the asking price, why is it under the asking price? So does it need a new kitchen? Does it need a new bathroom? So, Mr. Estate Agent, we are making this offer because. And it's five grand below asking price because it needs a new kitchen and it needs a new bathroom or the consumer unit needs updating. So really kind of state the facts of why you're making your offer and who you are and why you should have your offer accepted.

Okay, so we have gone from the very early stages of the credit card and thinking about that all the way through to view the property. And now you're making an offer and you're really selling yourself. We will leave it there, but next.

Time we'll be telling you after you've had your offer accepted what the next steps of the process are. And trust me, it can be complicated. But stay tuned. You've been listening to the property podcast.