First-time buyers need all the help they can get, so read our guide to getting a foot on the property ladder and buying your first home (guide first published in May 2009).
Buying a home is most people's biggest financial commitment.
It can be time-consuming, expensive and frustrating. To make matters worse, horror stories abound of gazumping, duff surveys and rogue estate agents.
But don't despair, owning your first home is also a very rewarding experience for most people and you can make the process smoother by ensuring you know all the right information.
How much can I spend?
How much you can spend depends on how much you borrow and that should always depend on how much you can afford.
You could traditionally borrow up to three and-a-half times the main earner's income before tax, plus one times any second earner's income, or alternatively two-and-a-half times their joint incomes if this is larger.
Many lenders threw out these multiples in favour of 'affordability' measures, which grew increasingly large as the property boom peaked in 2006/2007. These also take into account additional costs, such as other debts or whether you have dependents. Childless couples will be offered more by some lenders and so may professionals who they consider to have higher earning power in future years.
Lenders have now trimmed back on affordability, as prices fell and also substantially tightened up borrowing criteria, such as size of deposit and credit history. However, most still use affordability measures and will go for around four times individual or joint salary.
It's important not to get carried away. Remember that interest rates can and will go up, so it's best not to go right up to these limits. The base rate has been cut to a historic low of 0.5 per cent, mortgage rates for those with big deposits are at rock bottom and will rise in the future.
A tracker deal at 4 per cent may sound cheap, but that was base rate plus 3.5 per cent in April 2009, and when rates go up that will soon become expensive.
Even if you opt for a fixed rate for security, this initial deal will come to an end and rates may be higher at that point and you could find it tricky to remortgage.
When comparing deals look at the lenders' standard variable rate, this will be what you typically go on to once your deal has ended. The lower it is, the less likely you are to end up with a big jump in payments.
Working out the costsBuying a home will inevitably cost more than you think. The table below outlines the minimum you can expect to pay, including VAT where applicable. Figures will vary around the country. A rising cost for many homebuyers is that of mortgage arrangement fees.
Lenders offering the best rates can add more than £1,000 worth of fees to deals, or percentage-of-loan charges which can be very expensive. You will generally be offered the chance to add fees to a loan, be aware you will pay much more than the upfront cost of the fees over the life of the mortgage.
You will have to pay for buildings insurance, life insurance if you have a joint mortgage or dependents, contents insurance, gas and electricity bills, council tax and water rates, ground rent and perhaps service charges.
Finding the right place
Once you have located a home you like, ask to see it again, and go round with someone you trust.
On the second visit be methodical and take notes if you like. Don't be sidetracked by colour schemes or furnishings - these are superficial. Instead check what state the kitchen and bathroom are in - a new kitchen or bathroom suite can cost thousands - and if there is central heating. Be aware that a house with no furniture can look deceptively large.
Ask the seller how much council tax bills are, and if there are any service charges.
All houses for sale require a home information pack. This includes information about title deeds, local authority searches, leasehold information if applicable, and a home energy assessment.
Once you are sure, it is time to put in an offer. The opening offer is crucial, so work out where you want to finish before you start. If the house is selling for £150,000 and you can afford to pay £140,000, offer £130,000. Remember that in a tough market first-time buyers with finance in place have a considerable bargaining power. Prices are falling at the moment, so make sure you do not jump the gun and overpay.
If the bid is knocked back, add £1,000 more at a time until you reach an agreed price. If, however, you think the house is a steal or undervalued, or in a housing hotspot where several people could be after the property - act fast.
Say then and there that you want it, on condition that the seller takes the house off the market. This makes gazumping - when another buyer comes in with a higher offer - less likely. Say you'll buy it on condition that a survey is done. But don't let emotion get in the way. If you can't strike a deal at a price you want - walk away.
Buying new build or from a developerDevelopers will use hard sell tactics to get you to sign, but remember you hold the upper hand. Most new build flat and housing developments are struggling to sell and developers need to shift them. Make a low offer and play hard ball.
Be aware that once you sign a contract and hand over a deposit, typically say £1,000, this is normally non-refundable. You have lost considerable bargaining power once this is done, so ensure you have everything you want before signing and that you can get a mortgage for the agreed amount.
Finding a mortgage
Beware of estate agents who offer you financial services or agree to set up a mortgage for you. They are unlikely to get you a good deal.
These days most mortgage lenders can agree a mortgage in principle over the phone. Some can do it over the internet. You supply bank details, employer's details and other documents later, which allows you to agree an offer with the seller and get moving on the next stages. Most lenders will charge on average £500 for setting up a mortgage, with higher fees for better rates and lower or no fees for their higher rate loans.
Depending on the size of your loan, it may be worth choosing a high fee/low rate option, or that may prove more expensive.
Solicitors and surveys
Next you need to find a solicitor to do the conveyancing. This means checking the legal aspects of the sale: that the seller has the legal right to sell the property, that no one has right of way over it and that there are no land disputes.
Your mortgage company will also insist on a basic survey to check the value of the home. But it is advisable to have a more detailed survey conducted.
There are three types of survey, starting with a mortgage valuation, which is the cheapest at around £150. This is a cursory affair and simply tells the lender that if you were to default on the payments it would be able to sell the property and get its money back. It won't spot major faults.
A homebuyer's survey is far more thorough and should reveal any serious defects. It will normally cost around £500. It can even save you money, as one in four people who have a homebuyer's survey go back and renegotiate the price. Nearly half save money.
The third option is a full building survey, which goes into the condition of your property in even greater detail. This is recommended for older properties or unusually designed ones. It costs from £400 to £1,000. Be prepared for a lot of technical jargon in the survey, rather than any hint that you are making a brilliant buy.
If the survey suggests big problems, you could ask for the house price to be cut. But if it is okay, your lender should then be prepared to make you a formal mortgage offer.
You will, however, have a problem if the valuation is less than your offer. The maximum you can borrow may not be the same as what the lender will advance you. This is because the lender's valuation of the property may be less than the asking price. Unless you can persuade the seller to reduce the price, you will have to make up the shortfall.
The final stepsWhen contracts are exchanged between you and the seller - a process carried out by solicitors - both parties are committed to the deal. If you pull out, for whatever reason, you will lose your deposit.
Conversely, the seller cannot accept a higher offer. This is also when the completion date - when you get the keys and can move in - is set. Most completion dates occur around a fortnight after exchange of contracts, if for some reason you need to move swiftly it is possible to exchange and complete on the same day, although solicitors prefer to avoid this.