The Later Stages Of Mortgage Applications – From Making An Offer To Completion

Getting Your Foot On The Property Ladder – A Guide To Mortgages For First-Time Buyers (Chapter Eleven)

Story Highlights:

This chapter looks at the later stages of your home purchase with guidance about:

• How to judge if the vendor’s sale price for the property is fair
• The art of negotiation
• Reasons to put in a lower bid for a house
• Making an Offer – What you do, a sealed bid vs. ‘best and final offer’
• Making an official mortgage application
• What your lender’s valuation report is
• Receiving your mortgage offer
• What should be done before exchanging contracts
• How the exchange of contracts is done
• Arranging your first mortgage payment
• Why mortgage applications are turned down
• What to do if your mortgage application is rejected

Your mortgage application in the later stages

Once you have a DIP, have prepared a mental check-list of which kind of property you wish to live in and been house-hunting, you’ve hopefully found something to your liking which meet (most of) your criteria.

It’s now time to go on to the next stage of buying property – making an offer.

In this chapter, we talk you through the process of putting in an offer with advice about judging whether the sale price is fair; the skills of negotiating with the vendor and the procedure of sealed bids and ‘best and final offer’.

What advantages can you bring to the table which put you ahead of competing buyers? We also give advice about how to prevent yourself from being gazumped.

We then continue this chapter by giving you guidance about applying for the mortgage, exchanging contracts, completion, setting up your mortgage repayments and finally what to do – and not to do – if your mortgage application is rejected.

Is the vendor’s sale price fair?

To be able to answer this question, you really need to do some research into house prices in the area. It might be useful to know what the property down the road went for but you should concentrate on recent sales to get an idea of the going prices in the neighbourhood. Also, remember that the price of property in big towns and cities can vary from street to street and in some cases, from one end of the road to the other.

Throughout this process, try to remain objective. Buying a home is a very personal experience. You may have fallen in love with the house and feel you’d never be happy living anywhere else but if you feel it isn’t worth the asking price, you have two choices: walk away or offer a lower bid.

The art of property price negotiation

You should always bear in mind that the vendor pays the estate agent and is the client, not you! Therefore, you should avoid being too enthusiastic when viewing properties and never reveal how high you’re willing to go. Doing this will give you some leeway when it comes to negotiating a cheaper price. Some people say that estate agents deliberately over-price properties by 10% so they leave a margin for the price to be lowered through haggling. This is something to think about but just trying your luck and getting the price down for the sake of it could back-fire and you risk losing out on the property completely. Having said that, there are some circumstances when putting in a lower bid is justified.

Questions about UK mortgage applications

Reasons to put in a lower bid on a property

The first reason to offer a lower price is if the house needs major renovation. If you estimate that this repair work will cost at least £10,000, then you’d have justification for asking for a reduction in the sales price. Another time when your request for a reduction is more likely to be met is if your research shows that the property has been on the market for a long time.

The individual circumstances of the vendor can also play a role in you deciding to put in a lower offer. For example, if the vendor is desperate for a quick sale for personal reasons, they might be prepared to take your offer even if it’s lower than they wanted. A reason why you’d be attractive to a vendor is that as a first-time buyer, you have no property to sell and aren’t part of a chain. As a result, a sale to you – and especially if you already have a DIP (Decision in Principle) – would be so much quicker and they’d avoid a lot of unnecessary hassles.

Summary:

You need to do market research to know whether a vendor’s asking price is fair but you should also remain objective.

When buying a house, remember the vendor is the estate agent’s client and asking for a reduction could mean you risk losing the property.

If the property for sale needs repairing or has been on the market for a long time, your lower bid is more likely to be accepted.

If the vendor is in a hurry, the fact you aren’t part of a chain means your lower offer stands a better chance of acceptance.

Making an offer

You can make an offer on a property to the estate agent in person or over the phone. You might want to confirm this offer in writing as well. By law, the estate agent is required to pass on all offers to the client.

A sealed bid vs. ‘best and final offer’

In these times of competition for property and when there are multiple buyers, vendors and their estate agents increasingly make use of sealed bids or ‘best and final offer’ to raise prices. A sealed bid is confidential and put inside a sealed envelope whilst your ‘best and final offer’ has to be submitted to the vendor by a set deadline.

In both cases, enclose a letter with the bid explaining why you’d be able to proceed quickly and explain that you’re a first-time buyer, not part of a chain and already possess a DIP. These factors may swing the decision in your favour.

A sealed bid is confidential whilst your ‘best and final offer’ has to be submitted to the vendor by a set deadline.

When it comes to the bid, don’t get carried away in your enthusiasm to buy the property at any cost. Your lender might not agree to extra financing if you exceed your estimated mortgage and if you go too high, will you still be able to afford all the associated costs of buying a house? Also, the NAEA (National Association of Estate Agents) recommend not giving rounded numbers as bids since you may give the same figure as another bidder.

Acceptance of the offer

If your offer is accepted, you should agree on a provisional timetable for the following stages of the purchase and get your mortgage application underway. Apart from in Scotland where the procedure is different, the acceptance of an offer isn’t legally binding on either side. To prevent yourself being gazumped (when another buyer makes a higher offer and the vendor lets you down), you could ask for the property to be taken off the market as a gesture of good will. This means that there should be no more viewings and the ‘For Sale’ sign should have ‘Under offer’ or ‘Sold subject to contract’ added to it. On your side, your offer is made on condition that the property meets certain conditions. Let’s look at the next stages in your home purchase.

Making an official mortgage application

Although you probably already have a ‘Decision in Principle’ (DIP), you now need to make a formal application for a mortgage. The interview will probably last a couple of hours and be along the same lines as your previous meeting for a DIP but with the lender going into your financial affairs more thoroughly.

You will need to take along with you at least two pieces of identity which also show your address, details of your address history and information to prove your income and outgoings. Your mortgage provider will want to see payslips, your last P60 as well as bank statements and credit card statements. With these, they’ll be able to carry out a mortgage affordability check which gives equal weight to your spending habits and your earning potential. You should have prepared all this relevant information beforehand to speed up the application process. It’s crucial that you’re completely accurate and honest about all aspects of your financial situation since your credit file will once again be checked to ensure the lender of your creditworthiness.

What’s your lender’s valuation report?

You should also inform your lender of the details of the property you wish to purchase and give them the contact details of both your estate agent and solicitor. Before they agree to the home purchase, a surveyor will have to carry out a valuation report and submit this to your lender. This could take anything from 18-40 days and you won’t be able to go ahead with the sale unless the property is assessed to be worth its asking price.

You should think about paying for a structural survey as well for your own peace of mind (and save money on them being done separately) because it can identify any repair work which needs to be done and could potentially give you justification for asking the vendor to lower their asking price.

Summary:

You make an offer to the estate agent by phone or in person although there might be a sealed bid or ‘best and final offer’ procedure in case of multiple bidders.

The vendor’s acceptance of your bid isn’t legally binding on either side but you could ask for the property to be taken off the market.

Your official mortgage application is similar to your application for a DIP but your lender will do a more thorough check of your outgoings, income and creditworthiness.

Your lender’s valuation report only confirms the value of your property so you may want to do a structural survey at the same time.

Receiving your mortgage offer

If your affordability and credit check are satisfactory and the surveyor has confirmed that the property is worth the asking price, you’ll receive a mortgage offer from your lender. This is official confirmation that they will lend you the money you asked for.

You’ll have 7 days as a period of reflection to think about whether you wish to go ahead with the mortgage. You might of course get cold feet and change your mind but you’ll be liable for a cancellation fee to your lender (plus lose any money which has been spent on surveys). The offer from a mortgage provider usually lasts 3-6 months depending on the lender and could be counted from the date of your application or the date of the offer itself.

Now that you’ve found the property and have a mortgage offer, you’ll well along the road to becoming a homeowner. Let’s look at the next stage – exchanging contracts.

What should you do before exchanging contracts?

Before you exchange contracts with the vendor, you should have agreed on a completion date and what fixtures and fittings are included in the price of the property. You should also have made arrangements for buildings insurance. As soon as the contracts are exchanged, you’ll be legally liable for the property so this policy should already be set up to be effective from when you officially take ownership of the house.

Your solicitor and conveyancer should have done the local searches on the property and your survey should have shown no major structural defects. They should also have lodged an interest in the property on your behalf so you can pay the seller and apply to the Land Registry for later transfer of ownership.

Finally, all the funding should be in place – both a valid mortgage offer as well as the transfer of the deposit money you’ve saved. Your vendor may ask for a contract or holding deposit. Traditionally, this always used to be 10% of the purchase price although nowadays it can be much less. You should have gone through the contract with your solicitor so that you can check all the details are correct and there are no changes to what you’d previously discussed and agreed with the vendor. Once you have read and understood the contract, you must sign it.

Exchanging contracts – How is it done?

The exchange of contracts is usually done by your and the vendor’s solicitor or conveyancer reading out the contracts over the phone and this is recorded. In this way, they’re sure that the contracts are identical so that there will be no reason for later dispute. After they’ve been through the contracts, they will send their copies to each other. Once the contracts have been exchanged, the sale is officially and legally binding on both sides. Your completion date is usually set for 7-28 days after the exchange of contracts.

The final stage of your mortgage application

After the contracts have been exchanged, your solicitor or conveyancer will send a copy of the title deeds to your mortgage provider and register the property under your name with the Land Registry.

You should use the time between the exchange of contracts and completion to arrange your move: packing your belongings, asking family/friends to help, hiring a van or booking a removal company. Organising a move mid-week can be much cheaper if you hire professionals to do it for you. You should also notify banks, utility and phone companies, etc. of your change of address and ought to go to the Post Office and arrange for all mail to be forwarded to your new address. You could also contact the vendor or their estate agent to set up a final viewing of your new home to make sure everything is in order.

Completion is when the money is transferred by your solicitor or conveyancer via electronic CHAPS to the vendor minus the sum for the holding deposit and you’ll receive the keys to your new home. You should also pay the remainder of the money you owe for conveyancing fees (minus any deposit you paid).

For those who have saved with Help to Buy ISAs, this is when you receive your bonus and the funds are released; this can be organised by your solicitor or conveyancer. They will also arrange for the payment of the Stamp Duty Land Tax, which must be paid within 30 days of completion.

Summary:

Your official mortgage offer will last 3-6 months but you have a 7-day period to reconsider.

Before you exchange contracts, you should have read and understood its terms; all your paperwork and legal liabilities should have been dealt with and your funding should be in place.

Once you’ve exchanged contracts, the sale is legally binding on both sides and completion should have been arranged for 7-28 days later.

Before completion you should make all the arrangements for your imminent move.

On completion, the purchase price is transferred electronically and you receive the keys to your new home.

Arranging your first mortgage payment

You will be contacted by your lender within 10-14 days after you move in and they will let you know how much your first mortgage repayment is and when it is due. The first payment might be more expensive than your usual monthly payment since you’ll often be charged interest between the date you moved in and the end of the month.

To make sure you’re on time with your mortgage repayments, you should think about setting up direct debit. If your mortgage repayment doesn’t suit the day when you receive your salary, it’s possible to have the date changed if you contact your lender.

Why are mortgage applications turned down?

You are less likely to be turned down for an official mortgage if you’ve already received a DIP but it does happen. Mortgage providers are extremely reluctant to give reasons why applications are later turned down. However, it most commonly occurs because during their more thorough mortgage affordability check, information has come to light which casts doubt on your creditworthiness in the form of undisclosed adverse credit information.

You are less likely to be turned down for an official mortgage if you’ve already received a DIP but it does happen.

The other reason why you may be rejected is that there have been changes in your circumstances which make you a higher risk of defaulting on your mortgage repayments such as a change of job, an increase in your outgoings or the fact you’ve taken on more credit.

What to do if your mortgage application is rejected

Your first reaction to being turned down for a mortgage might be to appeal. However, you should know that rejections are very rarely overturned. Your next reaction might be to apply immediately to another lender. You should proceed with caution since too many applications on your credit file in a very short period of time will leave a footprint. This can give the impression that you were desperate for credit and can work against you.

Instead, you should view copies of your own credit files at the 3 big companies and check that everything in them is accurate and up-to-date. You should wait 3-6 months before applying for another DIP/mortgage and use this time wisely to make sure you’re punctual with all credit payments and save as much as you can for the deposit.

In view of your rejection, it might be a good idea to hire a mortgage broker for your next mortgage application. They’re experts in the market and will be able to advise you of which lenders are more likely to grant you a mortgage given your circumstances. They may even be able to explain what went wrong the first time to prevent it happening to you again.

Summary:

Your mortgage provider will contact you about your first mortgage repayment and you should set up a direct debit to make sure you’re always on time paying.

Your mortgage application may be rejected because your lender finds unfavourable information about your creditworthiness or your circumstances have changed.

You should wait before applying for another mortgage immediately and think about hiring a mortgage broker when you try again after 3-6 months.

 

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