What is a Property Chain and How Does it Work?

If you’re new to buying a home, you may hear lots of familiar phrases that you don’t fully understand. One of these phrases commonly used is ‘the property chain’. If you’re unsure what this is and why it’s talked about so much, we explain here.

As a first-time buyer, purchasing a new home is relatively straightforward. Once you have your deposit and, perhaps, your government-funded Equity Loan, you just need a valuation for the mortgage and a mortgage offer and your lawyer will do most of the rest. The housebuilder finishes the home and then sells it to you. Simple.

But what about when you are buying a home from someone other than a housebuilder?

Well, in this instance things can get more complicated. In most cases, the person you are buying from is likely to be selling to move to another property and the person they are buying from might be doing the same – and so on. This can sometimes result in a long chain of transactions, each dependent on the completion of the one before.

Most experienced home owners will be wary of long chains, simply because if just one buyer pulls out of their transaction it can cause all the other transactions to stall or even fall through completely. For this reason, buying from a housebuilder or selling to a first-time buyer with no house to sell, can be a very attractive proposition. Cash buyers are also attractive for the same reason, as is selling at auction, although this brings with it its own drawbacks.

For a chain of transactions to work well, it’s important to have a good understanding of everybody else’s needs and desires. For example, one buyer in the chain might be moving conditional upon relocating for a new job, or another might be an investor that must sell before the end of the tax year. If you don’t understand these pinch points, chains can collapse and you may all be left with what is referred to as abortive costs for work undertaken by your conveyancer, solicitor, etc.

In a successful chain, all the people involved in the transaction will understand the needs of each other and will communicate difficulties honestly and promptly. An element of flexibility might also go a long way. Especially on timescale. When everyone is sure they can ‘perform’ as required (in other words, they know they will be in funds for the purchase, etc) they will exchange contracts for the sale or purchase. At this point all the terms are set, including move dates, etc.

It’s unwise to exchange on a contract unless you know you can fulfill its terms, although sometimes it’s necessary to exchange based on the exchange of contracts with another. If at some later stage you cannot fulfill the terms of your contract because of the breach of another contract made with you, there is a route by which you can pursue a claim for damages incurred as a result of these breaches. Hopefully, it never gets to that stage.

Jason and James Mortgage advisers

What is a Second Charge Mortgage?

Most of us know that a mortgage is simply a secured loan, usually secured on a property such as a house or flat. If you fail to keep payments or don’t keep to the terms of the mortgage you may incur penalties, the most severe of which might result in the mortgagee (the lender) applying to the courts for a possession order. 

Your mortgagee will have the first claim on the property in such circumstances and they will hold a charge on the property, registered on the deeds or, in most cases these days, on the registered title kept at the Land Registry. This will prevent the property being sold without any mortgage first being paid off.

second mortgage, as the name suggests, is a second loan that is also secured on a property. However, being the second loan, it is normal that the rights enjoyed by the second mortgagee (lender) are subject to the prioritised rights of the first lender. For this reason, second mortgages will usually be more expensive to the borrower in terms of interest rate, although there are other benefits over other funding options such as a remortgage.

For example, if your first mortgage is subject to a significant early redemption fee, it might be cheaper to take a second mortgage, perhaps for a shorter period of time, rather than incur the redemption charges on the first mortgage. Other borrowers apply for 2nd charges when their existing lender cannot offer any further borrowing, for whatever reason.

Any second mortgage will still need to meet the usual tests in relation to affordability, advice and loan to value/equity. In any event, the borrower should check first with the original lender to make sure that they will allow a second charge to be taken on the property. It’s therefore, important to know the terms of the first loan.

It might be worth taking advice on a second mortgage if you’re struggling to get some form of unsecured borrowing, such as a personal loan or because you’re self-employed. Also, if your credit rating has gone down since taking out your first mortgage, remortgaging could mean you end up paying more interest on your entire mortgage. Here, a second mortgage might be a better option.

Second mortgages are regularly used to fund home extensions and home improvements. New kitchens being a favourite! Contact Blue Q about the best course of action for you.

How To Make Your Home More Energy Efficient

With energy prices likely to rise in the long term, it makes sense to consider how you can make your home more efficient. Especially as, under the Government Green Homes Grant scheme, hundreds of thousands of people will be able to access vouchers of up to £5,000 and in some cases £10,000.

The grants, provided in the form of vouchers, can be used to make your home more efficient, thus saving you money in heating and electricity bills.

The Government grant scheme will cover at least two thirds of the cost that homeowners spend on energy efficiency green upgrades, while those on the lowest incomes will not have to pay anything.

So what sort of improvements are worth considering?

INSULATION – A significant proportion of the heat generated to heat your home is lost through drafts and poor insulation. In older properties with solid wall construction, internal dry-lining can help improve insulation in the winter months. Older homes often don’t have under floor insulation either. But the primary and most effective way to stem heat loss and bring down your heating bills is via additional roof space insulation.

DRAUGHT PROOFING – It seems silly, but the addition of some inexpensive draft exclusion strips to doors can make a difference at a relatively small cost.

NEW WINDOWS & DOORS – Single glazing is a great way to lose heat generated in your home! In the winter months, single glazed homes suffer from condensation and dampness, especially in kitchens, bathrooms and laundries where steam and warm air meets cold panes of glass. Replacing windows and doors with double or triple-glazed units can be a very effective way of reducing your heating bills.

NEW BOILERS – Modern boilers are considerably more efficient than older models and it makes sense that if you need to burn less fuel for the same output, you will be doing your bit for the environment. Improving hot water tank insulation, installing smart heating controls and thermostats and thermostatic radiator valves can help you heat different parts of your home only as much as you need. After all, why keep a spare room as warm and toasty as you might your child’s room?

LOW CARBON HEAT SOURCES – Sustainable heat sources such as solar and air and ground pump heat sources are becoming more popular and whilst these options can sometimes be expensive to install, they can save you a lot of money in the longer term.

To qualify for the grant funding, households will need to install at least one ‘primary measure’ Primary measures are defined as; Solid wall, cavity wall, under-floor, loft, flat roof, room in roof, park home or a an air source heat pump, ground source heat pump or solar thermal system.

So long as there is at least one primary measure in the package of works, households will also be able to install secondary measures. Secondary measures can only be subsidised up to the amount of subsidy provided for primary measures. (e.g. if a household receives £1,000 for primary measures, they can only receive a maximum of £1,000 towards secondary measures).

The secondary measures are:

  • Draught proofing
  • Windows and doors: Double/triple glazing (where replacing single glazing), secondary glazing (in addition to single glazing), upgrading to energy efficient doors (where replacing doors installed prior to 2002).
  • Heating controls and insulation: appliance thermostats, hot water tank thermostats, hot water tank insulation, smart heating controls, zone controls, delayed start thermostat, thermostatic radiator valves
    For low-carbon heating to be installed, households will need to have adequate insulation (e.g. wall and loft, where applicable). These can be installed as part of a package – they do not have to already be in situ.

Adding insulation and making your home more energy efficient will add value, as well as reducing your monthly energy bills. When getting your home improved, retain all paperwork as this will be useful when getting your home valued and surveyed, and will mean your EPC is updated too.

Support for Mortgage Interest (SMI) Explained

SMI or Support for Mortgage Interest is a loan paid by the government to your mortgage lender in order to help qualifying applicants to pay all or part of the interest accruing on their mortgage during times when they are unable to do so.

In order to qualify for SMI, applicants will normally already be in receipt of another qualifying benefit. You can eligible to apply for this loan:

  • from the date you start getting Pension Credit
  • after you’ve had 9 consecutive Universal Credit payments
  • after you’ve claimed any other qualifying benefit for 39 consecutive weeks

You might still be able to get SMI if you apply for one of the qualifying benefits but cannot get it because your income is too high. You’ll then be treated as getting the benefit you applied for.

The interest covered is currently assumed to be 2.61% of the mortgage sum and the interest you will pay on the SMI loan is currently 1.3%. This may vary but will not change more than twice per annum. You’ll need to repay the money you get with interest when you sell or transfer ownership of your home. You can also make voluntary payments beforehand if you wish.

SMI is capped at interest on a sum of £200,000 if you are working or £100,000 for pensioners or you started claiming another qualifying benefit before January 2009.

How to Speed Up Your Buy to Let Mortgage Application

Buying to let requires a specific mortgage product designed for the purpose. But in large part the process is very similar. Mortgage lenders will tend to concentrate on things like the rental income and less on your own earnings, largely because the loan is likely to be supported by the rent generated from the property.

Many buying to let will find themselves competing against buyers with significant cash resources and with cash comes the ability to act swiftly. Something which is appealing to most sellers. Therefore, if you are buying at auction if there is a tight time constraint, arranging an interim bridging loan might be a better short term funding option.

In most cases, the process of obtaining a buy to let loan usually takes between 4 – 6 weeks, although, as with all purchases, there are a variety of steps to the process which will delay or even stall the process.

The Buy to Let Mortgage Process.

  1. First, sit down with us so that we can better understand your situation and be better informed of your needs. We can also give you a general overview of the market, how much you are going to be able to borrow based on property type and rental income and your own circumstances.
  2. Then, we’ll trawl the market and source suitable lenders and rates for your consideration. Each lender has their own strict criteria, so one lender might be perfect for one investment but not be interested in funding another.
  3. Once we have selected the most attractive mortgage lender and product, we will apply for a Decision/Agreement in Principle (AIP) from the chosen lender. This will necessitate us compiling a good deal of information on your behalf.
  4. Once the AIP is agreed, we’ll help you complete the lender application.
  5. Once received, the lender will instruct a valuation on the property. This will confirm the buy to let property’s value, rental income and overall condition of the property.
  6. Once the valuation is complete and satisfactory, the lender can process your application. At this point you will need a solicitor or conveyancer involved to act for you (and probably also the lender) in the conveyance and the mortgage offer.
  7. When the lender is satisfied, they will issue a formal mortgage offer which outlines the terms and conditions of the loan. If happy with the terms, you’ll instruct your solicitors to complete the legal requirements.
  8. Once contracts are exchanged, you can agree on a date for completion and your solicitor will liaise with your lender to arrange for funds to be made available. If you’re remortgaging, your solicitor will request the funds from your lender.
  9. Completion! You are now the legal owner of the property and can get the keys.

For this process to run smoothly, it is important that no problems that might cause delays are ignored. Possible causes of delay include;

  1. Failure to provide all necessary information accurately and promptly, when requested by us. It might seem obvious, but if the lender needs information to make a decision or to issue a mortgage offer, a few days getting information to them can easily cost a week or more.
  2. Inefficient conveyancing! Yes, you heard right. Choosing your advisors wisely will save you time in the long run. Many people stick with who they know. If you don’t know anyone, don’t be afraid to ask friends and family who’ve had good and bad experiences of conveyancers and lawyers. At Mortgage Required we are happy to help.
  3. Poor communication. Especially during the holiday season, it can be very hard juggling between several parties’ diaries. Maintaining good avenues of communication so that delays are not incurred whilst your advisors and perhaps yourself or the seller are away sunning themselves can pay dividends.
  4. Make sure to transfer funds to your solicitor in good time and make sure they have funds for agreed expenses incurred on your behalf.
  5. Make a list of all the information you need to provide and start bringing together the information efficiently. Grabbing P60s, payslips, copies of tenancy agreements, etc can be time consuming and tedious, but it has to be done. We’re here to help you through the process.

To speak to an adviser about buy-to-let mortgages or make an appointment please call us on 01245 218018.

keys to new home

Negotiating Tips When Buying a Property

Surveys have shown that the group of buyers least likely to offer less than the asking price or to enter into negotiations when buying their home are first-time buyers. This is hardly surprising given they have, by definition, no experience in this field.

In contrast, the estate agent is selling property for clients all day, every day. They do this for a living. They also have another huge advantage. It’s not their money, it’s not their decision and it’s not their dream home!

This puts a motivated buyer at a significant disadvantage. This is where being organised, having a plan of attack and doing your best Meryl Streep or Kenneth Brannah-style acting performance can help you!

As with other things in life, being spoilt for choice will enable you to approach the negotiation in a stronger position. If you have three properties that you like you’re going to be a lot better placed to be a tough negotiator. And even if you don’t, if the seller’s agent thinks you do, that can’t hurt!

What can you do to improve your negotiating position? Here are a few simple tips that too many people ignore;

  1. Remember, the agent is acting in the best interests of the seller and the seller pays his fees. The agent is not your friend, and certainly not your confidant. Don’t disclose your budget or your circumstances, unless doing so will benefit your attractiveness as a buyer.
  2. Whilst the agent is not on your side, it does no harm to foster an amicable relationship. Whilst she’s not acting for you, she is keen to make a sale, so sometimes making a good case can help the agent pitch it favourably to her client. An agent is a ‘deal-maker’ after all.
  3. Be prepared. Make sure you can ‘perform’ if your offer is accepted and illustrate this to the agent and to the seller. Offering more than anyone else is one thing, but being a credible buyer is more important. Have your mortgage offer agreed in principle and, if at all possible, have your own property sold or sold subject to contract.
  4. Visit the property several times at different times of the day and on weekdays and weekends so as to properly understand the neighbourhood.
  5. Don’t be afraid to ask searching questions of the seller. “What are your neighbours like?” “Is broadband good?” “have you had any structural problems with the roof?” Especially if you have suspicions.
  6. Take time to understand what motivates the seller and his agent. This will enable you to put forward the best offer for their needs. Offering an extra £5,000 might seem sensible, but if the seller is more interested in selling quickly, a few thousand pounds will make little difference. What do they want?
  7. Keep in contact. Between viewings, make sure you keep the agent appraised of your interest. But stay cool. Don’t gush about how much you love the place. But make sure the agent knows you might be in the running. That way, he should contact you if he receives other offers, meaning you won’t miss opportunities.
  8. Make your offer clear and unambiguous. If it is conditional upon anything then state it in the offer (i.e. subject to your house sale) and if you are worried about defects, like the property’s wiring or damp, etc then make sure to mention this. That way, if a home survey highlights a need to do work, you have a credible case for reducing the price later. After all, other buyers will incur the same costs, so you are only reflecting the condition of the property.
  9. Try to circumvent the agent. This is a little controversial. After all, the agent is tasked with selling the property and she’s probably better at negotiating than her client. But, either way, the agent will be paid, so if you are able to build a good relationship with the seller directly, it should pay dividends.
  10. Don’t get too personal. Many people will take a low offer as a personal slight. But that doesn’t mean you shouldn’t try. Just remember, if you are too cheeky and clearly ‘trying it on’, you might blot your copybook when it comes to later offers. If you are offering low, make sure to have a good case as to why. You’re a cash buyer that can act fast. Whilst you like their home, it has several problems, like no garage, one too few bedrooms, it needs re-wiring. You get the drift. Try to keep things civil and be straight-talking, but considerate of the seller’s pride. It’s their home you’re criticising!
  11. Keep things in perspective. Yes, you might love this place, but there will be plenty more fish in the proverbial sea.
  12. Remember, if you can save £5,000 in a phone call, that’s probably £7,000 to £10,000 you haven’t had to earn. Keep your eye on the prize. And be creative. If you need carpets and curtains, maybe ask for them once you are in the final stages of agreeing on a deal. Or maybe lobby for that fantastic garden shed that was excluded from the sale to be ‘thrown in’. Sometimes the savings to you will exceed the cost to the seller.

Last but not least, remember the old adage, ‘don’t ask and you don’t get’. You’d be amazed at what’s negotiable. Happy house-hunting!