House hunting, part 1: A tale of three houses

We view three properties with an estate agent for the first time, here’s how it went.

As I mentioned last week, we lined up a few viewings last Friday.  We were looking within a town about half an hour drive from my husband’s family.  We quite like this town as it has all the amenities that you need but the town centre still looks delightfully traditional and isn’t too busy to walk around (as much as I love London, the sheer amount of people can occasionally be overwhelming).  My father-in-law came along too for moral and practical support.

It was a beautiful, sunny day, perfect for a day out. We viewed three properties that all cost the same, but were vastly different from each other.

House One

This property had been owned by a couple for nearly 50 years until the husband had passed away and the wife had moved into a care home.  As soon as you walked in, you could tell it had been a cherished family home.

The carpet and wallpaper in every room was dated but in good condition.  There were still a few mementos left behind such as the decorative plates lining the walls and the hand cross-stitched wedding scene hanging proudly as you first walked in.

The downstairs was segmented into a living room, then through a doorway to the dining room, then another door to the kitchen.  Unusually, there was also a large utility room where the washing machine and dryer were kept. The bedrooms were upstairs and all were a good size.  You had to walk through one bedroom in order to get through to the other which felt a bit unusual but was apparently common for properties of the time.

Already fairly impressed with the size of the interior, we were blown away by the garden.  It seemed to stretch on endlessly (well, 150 feet) and was in pretty good condition. The couple had maintained various beds of vegetables however all that was left was a neatly manicured lawn.  There was also a shed and a single garage.

My FIL noticed the neighbour working on the roof of the house next door and shouted out to him.  He gave us a bit more information about the area and how he had extended his own property (which was the same design originally). It was a helpful conversation although I’m not sure if our estate agent approved!

House Two

The next place was further down on the same road and boasted four bedrooms and a huge garden.  It was questionably decorated in the advertised photographs but as I’ve said, we don’t mind spending a few weeks decorating if it means that we get a beautiful home for a good price.

Oh how wrong we were.

We walked in.  The black, glittery, mismatched wallpaper peeling from the walls greeted us. In the living room, glittery decorations, perhaps from a final house party from the outgoing tenants, hung sellotaped to the ceiling.  The light switch was screwed in sideways.  My husband liked that, “It reminds me of when I was at uni”.  The downstairs toilet hadn’t been cleaned in months and that was apparent without lifting the lid.

The house had a huge kitchen (decorated with glittery butterfly wallpaper this time) however there were gaping holes from where the whiteware had been ripped out.  There were more holes in the ceiling, this time from leaks that had gone unchecked for too long.  The sink area, at first appearing tiled, was actually tile wallpaper.

The garden was one of the highlights of the property and although had a lot of rubbish to be cleared, was in reasonable condition.  I stepped in something and my foot couldn’t move.  I asked the estate agent what it was, he just shrugged and laughed.

Upstairs, there were four good sized bedrooms and a bathroom.  There was nothing much to say about them aside from needing redecorating.  There was also a good-sized loft.  The estate agent invited us to go up and look, we declined.

All in all, this place would have been perfect for someone who had money put aside and the expertise to restore the home to a liveable standard.  We however, weren’t in that position so it was a hard no from us.

House Three

We took a break and had lunch at a local pub on the river before going to view the third and final property for the day.  The town is really lovely and I do enjoy spending time here, especially when the weather is so nice.

The third house was in a housing estate built in 2004 so a fairly new build.  The previous owners had owned it since new and were upsizing to a larger property.

The place was really well presented and in great condition.  It had three bedrooms and the master bedroom had it’s own ensuite.

The garden was a bit small but in tidy condition.

There was nothing wrong with this place yet my husband and I weren’t excited about it.  I guess it was just too perfect? My FIL said “This would suit your sister in law perfectly but, and I say this with love, you two are weirdos and are looking for something a bit different.”

His explanation was perfect, we were looking for something a bit different and we would have had no idea that that was what we wanted until we had viewed these properties.  We now have a much better idea of what to look for when viewing listings and organising further viewings.

 

 

Are we ready to buy a house?

I was exploring Pinterest the other evening and found a thoughtful article by Kristina a few years ago at Cents + Order about the questions you should ask yourself before buying your first home.  I took some time to ponder them and my answers are below.

Have you saved a deposit?

The short answer is yes, we have.  Is it enough? To be honest I don’t think you can ever save too much.  The article and many other websites recommends a 20% deposit.  There are many benefits to having a larger deposit including better mortgage interest rates, meaning you’ll pay less interest over the life of the loan and better protection in the event of another crash because you’ll own more of the property.

Mrs Frugalwoods says:

The smarter way to go is a 20% downpayment, which ensures good rates on a “conventional” mortgage. If you can’t put 20% down, it’s probably a good idea to keep saving. A solid downpayment signals to a lender that you’re a responsible saver and reduces the chance that the property will be worth less than the loan’s outstanding value in the future.

Although occasionally a 5% deposit will be enough (especially if you use the Help to Buy Scheme and purchase a new build home), the general advice is to save at least 10%

Michelle from Money After Graduation says:

In order to keep extra cash in your monthly budget and protect yourself from volatility in the real estate market, you need to put at least 10% down on your first home. Ideally, you’d put 20% down, but with the average house price in Canada nearly $500,000, there are very few 20- and 30-somethings with a spare six-figures lying around. A 10% down payment is enough to lower your monthly mortgage payment, reduce your mortgage default insurance, and secure enough equity in your home to whether small dips in the real estate market.

So really, saving the deposit is only the first step in deciding if you are ready as there are going to be lots more expenses along the way.

Will you be happy in the same house for many years?

Putting emotion to one side, it’s recommended that generally you keep a house for five years to avoid a financial loss through the closing costs and so you’ve started to make a dent in the principal of your mortgage.

Moneyning says:

Usually, it isn’t until you’re about five years into paying down your mortgage that you’ve made enough progress on the principal to make it a better deal than paying rent each month.

I’ve moved around a lot in my twenties. Aside from my childhood home, our current rental in London is the longest I’ve lived anywhere and it has seen us through some of the highlights of our relationship including getting married and having a baby.

I’ve talked about the emotion behind owning a home but one of the reasons we started looking for our own home is that we feel ready for a larger place.  We have talked about what we want from a new home and been using these criteria when booking viewings.

Ideally we want to buy a house that we would stay in for at least 10 years.

Are you handy (or not handy)?

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Just a splash of paint and she’ll be good as new!

Unfortunately not.  We won’t be building our own studio space a la Mr Money Mustache (although to eventually have a space like that would be awesome!).  Older houses can be beautiful and have character too.  Sometimes they can also be cheaper due to the cost of modernising. For this reason, there are some places that we would skip viewing if it looked like there was too much work to be done.

If we were to consider an old home to do up, we would need to carefully weigh up the cost of the repairs with how much value they would add to the place.  Cosmetic renovations like painting and decorating would be cheaper and we could potentially learn how to do that ourselves (you can learn anything from Youtube these days, right?)  Major structural work would cost a lot and not add very much value to the property (but make the house far safer and comfortable to live in).

Michael Holmes, author of Renovating for Profit says:

 Buyers should be looking for “the worst house you can find on the best street you can afford” and consult a builder or structural engineer when putting a renovation budget together – although project managing the process yourself (ordering materials, liaising with the relevant trades and generally moving the project along) could save you 15-20% of the total cost… Most importantly, he adds: “Leave money in the budget to make structural repairs, and to make sure [the property] is warm, dry and weather tight.”

Since we would almost certainly need to hire contractors to do the work, we will most likely try to find the not-worst house on the best street (not quite as catchy!)

What will it cost to live there?

This includes many upfront costs when purchasing the property such as:

  • stamp duty,
  • valuation fee required by the mortgage provider,
  • surveyor’s fee (to ensure you haven’t bought a place that has hidden problems)
  • solicitors fees,
  • land registry fees
  • electronic transfer fee of £40-£50 that covers the lenders cost of transferring the mortgage money from the lender to the solicitor.

Once we eventually purchase a property, some of the expenses we would then need to think about would be:

  • moving costs
  • furniture costs (our families have a lot of hand me down furniture in excellent condition and we intend to purchase secondhand off Gumtree but will still need to have some money in the budget for this)
  • mortgage payment
  • home and contents insurance
  • council tax
  • utilities
  • transportation from the new location
  • ground rent if we chose a leasehold property
  • childcare costs

As you can see, quite an extensive list.  I believe once we’re in a new home, we’ll be able to make the monthly expenses work like we always have done.  The closing costs are probably going to eat a bit into our savings which means less money to go towards the deposit so we will need to remain diligent with our savings.

Do you have what you need to furnish and care for a home?

The dream is once you have bought your home, you can let your imagination run wild and have multiple Pinterest mood boards dedicated to every area of the place, all perfectly coordinating.

The reality is, coming from a partially furnished rental property, we are going to need to purchase a few large bits and pieces such as a bed and bedroom furniture and seating for the living area.  We won’t do this all at once, and as I mentioned before, we have very generous extended family who will help us out with some of it.

I’m only thankful that we’re not moving to a homestead from the city like the Frugalwoods did.  Each month Mrs Frugalwoods update us on their monthly expenditure and although they’re doing it frugally, there are some absolutely massive expenses on their lists!

Do you have an emergency fund?

Emphatically, YES! Writing this article has alerted me to the sheer number of additional costs associated with home ownership. As Kristina says in the closing paragraph of her article:

Home ownership is a serious investment that can come with unexpected expenses if you are unprepared. Consider the neighbourhood, your life plan, and whether you can afford all aspects of home ownership before you buy your first home.

We are continuing to work hard to achieve our dream of home ownership and by doing exercises like these and taking time to properly consider our circumstances, we become more prepared to make the leap.

Thanks for reading! What questions did you ask yourself before purchasing your first home? What other questions should we be asking ourselves?

 

 

 

Building up momentum – house viewings and free money!

Before I continue, I should probably explain the ‘free money’ part of my post before people begin to think I’m running some kind of give away!

You may recall in a previous post how we had filled our Lifetime ISA.  This is a special account that you can use for the purchase of your first home or retirement.  You can save up to £4000 in it each financial year and the government will top up the balance by 25%.  Well, we just received the bonus today, it was a good feeling! Even better was that for this first year you could transfer your Help to Buy ISA and receive the bonus on that amount too.  It has given our house deposit fund a good boost.

Another exciting development is that we have booked to view three houses next week! All three are located within 10 miles of my husband’s family.  We’re still not sure where we want to buy but these three places tick a few of our main requirements which are:

  • Be freehold (find out more about that here)
  • Be within our price range (this should be common sense but it is surprising how many people overextend when looking at properties!)
  • Between two to three decent sized bedrooms (one has 4 bedrooms!)
  • Have a good sized garden
  • Have an good sized kitchen

Our criteria are still pretty broad at this stage in the game but I’m certain that once we’ve seen these places we will continue to narrow down our key requirements.

The first house we are seeing has been owned by the same couple for 50 years! The interior will need some updating and it also has a strange bedroom layout where you have to go through one bedroom to reach the other one.  But it looks great outside and has an absolutely massive garden.

The second house is three bedrooms and the garden backs onto a lovely peaceful river.  Unfortunately it is on a main road and doesn’t have central heating but the house looked nice enough to warrant a look.

The final place is 4 bedrooms (that we could even consider looking at a 4 bed place on our budget is a testament to how much cheaper homes are in this area compared to London).  The interior is… interesting.  Very bright and every room has a different patterned wallpaper but aside from this (and let’s face it, we can always redecorate), it seems to tick all of our boxes.

We still have to wait a week until the viewings which isn’t ideal and we may lose out on them for not being quick enough but even if we only end up viewing one, I think it will be a valuable learning experience.  I feel like I’ve been all talk about buying a house but no action and finally the wheels are being set in motion, it’s all very exciting!

What were your criteria when looking at houses? How many did you view before you knew you’d found the right one? Do you have any viewing tips for these real estate newbies?

What is an Agreement in Principle (AIP) and why do I need one when buying a property?

The more I learn about the home buying process, the more I think it’s all about the acronyms.  In most of the research I’ve done, the first step of the home buying process, before you even begin to view properties, is proving that your lender MIGHT lend you the money to buy a house.  This is called an Agreement in Principle (AIP), but also can be called a Decision in Principle (DIP), Mortgage Promise or Lending Certificate.

What is an Agreement in Principal?

An Agreement in Principal (I will refer to them as AIP for the rest of this post) is a certificate or statement from a lender to say that ‘in principle’ they would lend a certain amount to a particular prospective borrower or borrowers based on some basic information. Most providers will require you to complete a form detailing your income and expenditure and the amount you think you would like to borrow.  They may also conduct a credit check.

Although an AIP doesn’t give any guarantees over what size of mortgage you may be offered once you formally apply, it will give estate agents some peace of mind that you can potentially afford the properties that you are viewing.

That all sounds good, where do I sign up?

Hang on just a minute! Many banks boast that you can get an AIP from them in just a few clicks however if they do a ‘hard’ credit check, it will leave a footprint on your credit file, regardless of whether you go on to borrow from them. Too many credit checks on your file can make it hard for to arrange a loan, and the fact that a lender has checked your file stays on record for six years.  Some lenders will leave a soft footprint but they are few in number and may not be the right one for you.

Why should I get an AIP?

Theoretically you could skip the AIP and speak directly with a mortgage broker as they aren’t compulsory but there are a few benefits to getting one.

  • If you have a poor credit history and aren’t sure if you would be accepted for a mortgage, the AIP can give you reassurance about your borrowing prospects.
  • It can give you more credibility with estate agents as it shows that you can move ahead in the process if the offer you make on a property is accepted.

 

We are looking at mortgage brokers now with the view of starting to look at properties from next month and will probably have a chat with the broker before applying for an AIP.

I’d love to hear your experiences with AIP’s.  Did you find it useful in your house hunt? Were you able to get a mortgage without one?

Leasehold and Freehold, what’s the difference?

The upstairs flat next to us has just been put on the market.  I opened our door the other morning and there it was, the real estate agent’s sign standing tall on the fence.  I let myself get a little excited as I googled the agent’s name and our street but the glimmer of hope was quickly extinguished once I saw the price.  In a previous post I reflected on where we might like to live ultimately but London house prices are starting to make that decision for us.

(update: the flat sold less than two weeks later from when I posted this!)

I brushed off my disappointment at the local cafe where I take our son for my regular dose of caffeine and started checking the houses for sale on Rightmove.

Two of the terms I had to learn the meaning of in the UK when I started looking at houses and flats for sale were freehold and leasehold and I’d like to talk a little more about the difference between the two today.

Freehold means you own the property and the land it stands on and are responsible for all associated costs. Leasehold means you only own the property but not the land, which you ‘lease’ from the freeholder. The lease is usually for quite a long time, about 99 years although 125, 500 and even 999 year leases are common).  If the lease runs out, the property goes back to the freeholder although you can pay to extend the lease.

You have to pay a ground rent to the freeholder and banks tend to not lend to borrowers on properties with less than 75 years of lease left.  Older leases usually refer to a ‘peppercorn ground rent’.

peppercorns

In order to enforce the terms of a lease a ground rent must be set, but in the past many leases had tiny ground rents so in some cases freeholders stipulated that the rent should, instead of money, be a peppercorn (as used in pepper grinders) to save them the trouble of collecting the money.

This is Money

More recently it has become possible for groups of owners of leasehold flats to work together to purchase a share of the freehold.

Most London flats are leasehold however there has been controversy lately with new build homes being sold as leasehold.  The owners have been charged huge amounts of money to renovate or improve their homes or have been set service charges that double every ten years which reduces the resale value of the property.

Taking all things into consideration, we are trying to avoid purchasing a leasehold property as we want to own our home fully, even if it means paying for the upkeep of the place wholly.

There is an excellent article exploring the differences between leasehold and freehold properties on the Moneysaving Expert website.

Is your home leasehold or freehold? Has it affected you in any way?

The emotion behind owning a home

We visited my husband’s friends over weekend.  I had heard a lot about the guy as my husband plays in a band with him so it was one of those situations where you feel like you already know the person despite having never met. He and his wife have a son who’s a little older than our boy. We had a lovely time watching the babies play, eating delicious food and playing board games.

They bought their home approximately two years ago in an area neither of them had heard of approximately one hour’s drive from London. The area seems to have had an influx of new build properties in various states of construction as we drove through. They each commute half an hour to their jobs.  When I asked why they had chosen that particular area, the deciding factor had been the size and quality of the house they could afford.  Indeed, as we sat in their open plan kitchen-dining room and looked out into their large backyard, I could hardly argue.

We are still deciding where we want to live but sometimes I wonder whether we would be better off continuing to rent.  My favourite blogs are asking the same questions and I wanted to share some of the more thought-provoking posts I have read on the topic.

On Monevator, which is one of my favourite UK personal finance blogs, they wrote two articles on either side of the coin:

Reasons to buy a house instead of renting

Reasons to rent a house instead of buying

Some of the reasons to continue renting were:

  • The ongoing cost of repairs, insurance and furnishing your own property
  • The cost of a mortgage and the associated interest
  • Buying a house ties you down to an area which may improve or deteriorate as time passes
  • House prices could crash in the future.

On the other hand, reasons for buying included

  • There will be an eventual end to the mortgage payments
  • Having complete freedom to do what you like with a property and not worrying about landlords
  • Mortgage interest rates are historically low at the moment
  • The house price will potentially increase in the future

Across the pond in Canada, another one of my favourite blogs, Money After Graduation, set Twitter alight with a tweet about home ownership which inspired her own blog post on the Rent vs. Buy debate.  After running the numbers, the final conclusion was that the numbers work out roughly the same however buying one’s own property has it’s own significant emotional benefits.  I particularly liked this quote from the article.

Homes are emotional investments even more than they are financial ones. For most people, buying a home symbolizes adulthood as much as it does a retirement plan.

Ultimately, I think it is a personal decision.  Although we still consider renting a larger home or perhaps trying out a new area, we very much have our heart set on owning our own home.

Did you have your heart set on buying and then change your mind?

 

Where to live? Our predicament

*ugh, this post took far longer to write than I ever intended. Sometimes life just gets in the way!*

Earlier this afternoon we signed a contract with our new childminder who will be looking after our son three days a week starting in May when we both return to work full time.  I will be applying for childcare vouchers and my husband has drafted his application for flexible working to send to his manager tomorrow.

One of our dilemmas with our house hunt has been where we want to eventually settle.  We currently live in Zone 3 London however my husband’s family live about 90 minutes out of the city.

Stay in London

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Oh to live this close to the centre of London!

We love London. It’s where we met.  It’s the only part of the U.K. that I’ve ever lived in.  I love that you can go out any night of the week and you’ll find something to do.  We’ve lived at our current home for nearly four years and have built our lives and our interests around the area so in that respect it would be rather difficult to start again.

However, we couldn’t afford to stay where we are.  Living 25 minutes from the city centre is a great perk but when we sat down and thought about it, we rarely go into the city, we much prefer to stay around our local area so is it really worth paying the premium?

London outskirts

By this I mean staying within the M25 or Zone 6.  Places are a bit cheaper out here and we’ll still be able to commute into London for work and play.  We also have our car so we can get around fairly easily and we’ll both be able to keep the same jobs.

We would have to get used to living in a new area and building up new community links and it is still expensive but this could definitely be an option.

Move closer to family

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Not their actual town, imagine a town just like it

We have a great relationship with my husband’s parents.  They are amazing with our son and have not kept it secret that they would like us to move closer to them.  Having just paid the deposit for our childminder, not having that huge expense over our heads would be tempting.  Properties around here are a lot cheaper and we would be more likely to get a 3 bedroom property under the stamp duty limit for first time buyers.

My husband grew up in the area and many of his childhood friends who he grew up with are still in the area.  They have welcomed me into the group with open arms and they are great people but I haven’t got a network of my own in the area.  Also more likely than not I would need to find a new job as the distance isn’t easily commutable.  This would be the option most like starting again.

It feels like a really tricky decision to make, especially since buying will tie us in for several years.  What would you do in our situation?

Thanks for reading!