Buying a home

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How much can you afford

The first thing you need to do is decide how much you can afford. You will need to look at how much money you have available yourself and how much you can borrow.

There are a number of different financial institutions which offer loans to people buying a property, for example, building societies and banks. You should find out if you are able to borrow money and if so, how much (for information on mortgages, see under heading Mortgages).

Some building societies now provide buyers with a certificate that states that a loan will be available provided the property is satisfactory. You may be able to get this certificate before you start looking for a property. Building societies state that this certificate may help you to have your offer accepted by the seller.

Before finally deciding how much to spend on a property, you need to be sure you will have enough money to pay for all the additional costs. These include:-

• survey fees

• valuation fees

• Stamp Duty Land Tax if you’re buying in England

• Land Transaction Tax if you’re buying in Wales

• land registry fee

• local authority searches

• fees, if any, charged by the mortgage lender or someone who arranges the mortgage, for example, a mortgage broker

• the buyer’s solicitor’s costs

• VAT

• removal expenses

• any final bills, for example, gas and electricity, from your present home which will have to be paid when you move.

You can find more information about:

• Stamp Duty Land Tax in England on GOV.UK

• Land Transaction Tax in Wales on the Welsh government website

You should be aware that if you start the process of buying a property and then the sale falls through you may have already paid for a valuation or a survey. If the solicitor has started any legal work you may also have to pay for the work done.

You should also take into account the running expenses of the property you wish to buy. These may include:-

• council tax 

• water rates

• ground rent, if the property is leasehold

• service charges, if the property is a leasehold flat

• insurance costs, including life insurance, buildings and contents insurance

• heating bills. An energy performance certificate can help you work out how energy efficient your property is.

You will have to pay a deposit on exchange of contracts a few weeks before the purchase is completed and the money is received from the mortgage lender. The deposit is often 10% of the purchase price of the home but it can vary.

Help with bills and budgeting

If you'd like help cutting your spending and maximising your income, see our advice on getting help with bills. Use a budgeting tool to see exactly where your money goes each month.

How to find a property

There are a number of ways in which you could find a property to buy:

• using estate agents

• looking at the property pages in local newspapers

• contacting house building companies for details of new properties being built in the area

• looking on the internet.

Deciding on a property

When you find a property you should arrange to look at it to make sure it is what you will need and to get some idea of whether or not you will have to spend any additional money on the property, for example, for repairs or decoration. It is common for a potential buyer to visit a property two or three times before deciding to make an offer.

Energy Performance Certificates

If you are thinking of buying a property, you must receive an Energy Performance Certificate (EPC), free of charge. An EPC gives information on the energy efficiency of a property using A to G ratings, with A being the most energy efficient and G the least efficient. The certificate is produced by an accredited domestic energy assessor.

Trading Standards can issue a notice with a penalty charge of £200 per dwelling, where an EPC is not provided.

• More about reporting a problem to Trading Standards.

Where there is a Green Deal plan on a property for which payments are still to be made, information about this must be included on the EPC. More information on EPCs is available from the GOV.UK website at www.gov.uk.

• More about the Green Deal on www.gov.uk.

A certificate is valid for ten years and can be used multiple times during this period.

Warranties for newly-built properties

If the property is a newly-built property, check whether it has a Buildmark warranty. Buildmark warranties are organised by the National House-Building Council (NHBC) which is an independent organisation with over 20,000 builders of new houses on its register. Before being accepted onto the NHBC register, builders must be able to show that they are technically and financially competent and they must also agree to keep to NHBC Standards.

The Buildmark scheme covers homes built by NHBC registered builders once the NHBC has certified them as finished. The scheme will, for example, protect your money if the builder goes bankrupt after contracts have been exchanged but before completion. It also covers defects which arise because the builder has not kept to NHBC Standards. For more information, go to the NHBC website at: www.nhbc.co.uk.

As well as protection under Buildmark, buyers also have protection under the home-building industry’s independent Consumer Code for Home Builders. More information is available at www.consumercode.co.uk.

Is the property leasehold, freehold or commonhold

Freehold property

If the property is freehold, this means that the land on which the property is built is part of the sale and no ground rent or service charge is payable.

Leasehold property

A property may be leasehold, which means that the land on which the property is built is not part of the sale. You have to pay ground rent to the owner of the land - who is called the freeholder.

The length of a lease can vary and you should check that the length of the lease on the property you are interested in buying is acceptable to the mortgage lender.

In addition to ground rent on a leasehold property, you may have to pay an annual service charge. This usually happens with a flat. The service charge covers such items as maintenance and repairs to the buildings, cleaning of common parts and looking after the grounds.

A group of leaseholders living in the same building may have a right to jointly buy the freehold of the building or take over its management.

You can get further advice about leasehold from:-

The Leasehold Advisory Service (LEASE)

Fleetbank House

2-6 Salisbury Square

London

EC4Y 8JX

Tel: 020 7832 2500

Tel: 02920 782 222 (Wales)

Website: www.lease-advice.org

There is also a useful leaflet on leasehold rights - go to the GOV.UK website at: www.gov.uk.

The Federation of Private Residents' Associations may also be able to help if a group of leaseholders want to set up a residents' association. It can also provide legal advice and other information to its member associations. Its contact details are:

Federation of Private Residents' Associations (FPRA)

PO Box 1027

Epping

CM16 9DB

Tel: 0871 200 3324

Email: info@fpra.org.uk

Website: www.fpra.org.uk

Commonhold property

If the property is commonhold, this means that you can buy the freehold of a flat and own common parts of the building jointly with the owners of other flats in the building (known as a commonhold association).

In commonhold a ground rent or service charge is not payable. However, a share of the commonhold association's expenditure on maintenance, insurance and administration will be payable for the common parts of the building.

Making an offer

When you decide you would like to buy a particular property you do not necessarily have to pay the price being asked for it by the owners. You can offer less if, for example, you thinks there are repairs to be done which will cost money.

If the property is being sold through an estate agent, you should tell the estate agent what you are prepared to pay for the property. The estate agent will then put this offer to the owners.

If the owners do not accept the first offer put to them by you, you can decide to make an increased offer. There is no limit on the number of times you can make offers on a property. If you make a written offer it will always be made subject to contract. This means that you will not be committed to the purchase before finding out more about the state of the property. If you make an oral offer this is never legally binding.

Sale by tender process where the buyer pays the agent's fee

Some estate agents are selling properties by a tender process where you view the property at an open day and make an offer through a sealed bid. You will usually have to enter into an agreement to pay the agent's commission fee as part of the tender process. The seller is only charged a small marketing fee or no fee. You will need to pay the fee on completion of the sale.

It is not against the law for an estate agent to sell a property by a tender process but it can be confusing for the buyer if the agent isn't clear about the process.

If you don't agree to pay the agent's fee, you can still make an offer and the agent must pass it onto the seller.

The disadvantages of buying a property for sale by the tender process where you pay the agent's fee are:-

• it's more expensive than if the seller pays the fee, which is usually the case

• the agent's fee will be part of the purchase price and could increase the Stamp Duty or Land Transaction tax that you have to pay

• the agent's fees are unlikely to be part of the value of the property for the mortgage calculation.

The Property Ombudsman has produced guidance for estate agents on the sale by tender process which says:

• the tender pack should include details of the sale, the agreement to make an offer by tender and pay the agent's fee, the bid form, frequently asked questions and a key features document setting out the pros and cons of the process

• the agent's fee should not be higher than the usual fee charged by the agent

• the buyer must be told at the start that they are agreeing to pay the agent's fee.

You can find the guidance at www.tpos.co.uk. If you think that the agent is not following the guidance, you should contact The Property Ombudsman at www.tpos.co.uk.

When the offer has been accepted

When your offer for the property has been accepted you will have to consider the following:

• whether a holding deposit is payable

• arranging a mortgage

• whether a survey is necessary

• who will do the necessary legal work

• whether you want to buy with someone else

Holding deposits

Once the owners have accepted your offer the buyer may be asked to pay a small deposit to the estate agent. This is usually between £500 and £1000. It is meant to show that you are serious about going ahead with the purchase. It is repayable if the sale does not go ahead.

Arranging a mortgage

If you have not already begun to arrange a mortgage, you should start to do this now. It should take about three weeks from the application for the mortgage to the formal offer being made by the lender. However, this timescale may vary.

Whoever agrees to lend the money will want to have the property valued. This is to make sure that the lender could get the loan back if for any reason you stopped paying your mortgage and the house had to be sold again. The valuation will be done by a surveyor on behalf of the lender but you will have to pay for this valuation. The fee will be payable in advance, usually when you send a completed mortgage application form to the lender.

If the amount of money to be borrowed is more than a certain percentage of the valuation of the property (usually 75-80%), your lender may make it a condition of the loan that you take out extra insurance to cover the extra amount. You pay a single premium to your lender which is usually added to the loan. This is known as a higher lending charge (or mortgage indemnity guarantee).

Example

I am pregnant and have just applied for a mortgage. It has been turned down because they think I won't be returning to work after the baby is born. Are they allowed to do this?

A mortgage lender doesn't have to give you a mortgage. However, they must not refuse to lend you a mortgage, or treat you less favourably than other people, simply because you are pregnant.

If the mortgage lender has turned down your application because of your pregnancy, this is likely to be discrimination and could be unlawful. Get advice from an experienced adviser about what to do.

Arranging a survey

The valuation which is done for whoever is lending the money is not a survey. You should consider whether or not to have an independent survey carried out in addition to the valuation. The survey would not only consider the value of the property but would also examine the structure of the property and should identify any existing or potential problems.

There are two levels of survey that you can choose between:

• a full structural survey. This is suitable for a property which is large, more than 80/90 years old or in doubtful condition

• an intermediate or ‘house/flat buyers report’ that gives a report on the condition of the parts of the house that are easy to see and to get at and may recommend further tests or investigations, for example, a specialist check for woodworm. This is particularly suitable for properties built this century which appear reasonably sound. It is much cheaper than a full structural survey.

It is possible for you to use the same surveyor who does the valuation to carry out the survey and this may be cheaper. However, you can use a different surveyor if you wish.

If the surveyor reports that there are some problems with the property, you will have to consider whether you still want to go ahead with the purchase or want to negotiate further with the seller about the price. The surveyor will usually advise you as to how any problems they have identified should be dealt with and the likely costs of this. You can find more useful information about property surveys at www.rics.org.

Choosing who is to do the legal work (conveyancing)

The legal process of transferring the ownership of the property from the present owner to the buyer is known as conveyancing. You should decide who you want to do the conveyancing work. You can do it yourself – although this can be complicated – or you can:-

• use a solicitor; or

• use a licensed conveyancer.

Using a solicitor

Most firms of solicitors offer a conveyancing service. Although all solicitors can legally do conveyancing, it is advisable to choose a solicitor who has experience of this work.

Using a licensed conveyancer

A licensed conveyancer is a specialist property lawyer. 

They are regulated by the Council for Licensed Conveyancers (CLC).  

Find your local licensed conveyancer on the CLC website.

Finding out how much it will cost

Before making a choice as to who will do the conveyancing, you should be advised to find out the probable costs of the conveyancing. It is important to contact more than one solicitor or licensed conveyancer as there is no set scale of fees for conveyancing. You should:-

• check whether the figure quoted is a fixed fee or depends on how much work is involved

• check that the figure includes any Stamp Duty or Land Transaction Tax, search fees, land registration fees, expenses and VAT and get a breakdown of these costs

• find out what charges, if any, will be made if the sale falls through before contracts are exchanged.

Buying with someone else

You may choose to buy your property jointly with someone else, such as your husband, wife, civil partner, partner, relative or friend.

If you buy your property with someone else, you can choose to do this in one of two ways, as either:

• beneficial joint tenants, or

• tenants in common.

This is the case whether you own the freehold or leasehold of the property.

If you are thinking about buying a property with someone else, you should get legal advice on the best type of ownership for you.

Beneficial joint tenants

If you own your property as a beneficial joint tenant, this means that it belongs to you and the other owner(s) jointly. You can't re-mortgage or sell the property without the agreement of all the other owner(s). However if there is a dispute, an owner can apply for a court order.

As a beneficial joint tenant, you don't own specific shares in the property and you can't give away a share of the property in a will. If you die, your interest in the property passes automatically to the other owner(s).

Tenants in common

If you own your property as tenants in common, this means that it belongs to you and the other owner(s)jointly, but that you all also own a specific share of its value. It is up to you to decide how much each share will be.

You can give away, sell or mortgage your share. If you die, your share of the property does not pass automatically to the other owner(s). You can leave your share to whoever you like in your will.

In England and Wales, for more information about owning your property jointly, see the GOV.UK website at www.gov.uk.

Steps in the legal work of buying a property

Although it is impossible to give a precise idea of how long the legal work involved in buying a property takes, it is possible to offer guidelines. From having an offer accepted to exchange of contracts can take up to seven weeks and from exchange of contracts to completion can take up to four weeks. However, if there are any problems the time taken may be longer.

Enquiries made by the solicitor or licensed conveyancer

Once you have instructed the solicitor or conveyancer, the seller’s solicitor or the licensed conveyancer draws up a contract which will eventually be signed by you and the seller.

However, before the contract can be signed, your solicitor or licensed conveyancer must make sure that there are no problems with the ownership of the property, rights of way, access, or future developments in the area that might affect the property. This is called ‘making enquiries and searches’.

The solicitor or licensed conveyancer makes the enquiries and searches as follows:

• local searches. These are enquiries made to the local authority about any matters which affect the property which involve the local authority, such as whether there is a compulsory purchase order on the property. Local searches also include questions about any proposed changes or development in the area that might affect the property such as roads, housing, shops. During the local search, the local Land Charges Register is also checked. This gives information about any matter which affects the property such as tree preservation orders, if it is a listed building or in a conservation area; and

• enquiries made to the seller by the solicitor or licensed conveyancer. These are a set of standard questions about the property, boundaries, neighbour disputes and fixtures and fittings that will remain in the property. There may also be additional questions that the solicitor or licensed conveyancer thinks are necessary, such as the transferability of guarantees for any work done on the house, for example, a damp proof course; and

• from the Land Registry.

Arranging to pay the deposit

Whilst the solicitor or licensed conveyancer is making the enquiries, you should sort out how you will pay the deposit that has to be made when the contracts are exchanged. This deposit is often 10% of the price of the home but it can vary.

If you are also selling a house, it is usually possible to put the deposit on the property being sold towards the deposit on the property you are buying.

If raising the deposit is a problem, you could consider borrowing the money for the deposit from relatives or you could try to get a bridging loan from a bank. However, the amount of interest you will have to pay for a bridging loan will be high and you should check how much this arrangement will cost. Discuss your options with your solicitor or licensed conveyancer.

Insuring the property

You should make sure that buildings insurance is arranged from the date of exchange, because once contracts have been exchanged you are responsible for the property.

You may be able to get information on buildings insurance from your mortgage lender, solicitor or, in England and Wales, a licensed conveyancer.

To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

Exchange of contracts

The final contract between you and the seller is prepared when:-

• the solicitor (or licensed conveyancer) and you are satisfied with the final outcome of all the enquiries

• any surveyor’s report has been received and any necessary action taken

• the formal mortgage offer has been received

• arrangements about the payment of the 10% deposit have been made

• the date of completion has been agreed.

You and the seller each have a copy of the final contract which you must sign. These signed contracts are then exchanged. At exchange of contracts both you and the seller are legally bound by the contract and the sale of the house has to go ahead. If you drop out, you are likely to lose your deposit.

You should make arrangements for the supply of gas, electricity and telephone service and make sure that the seller is arranging for final meter readings to be made.

Completion

Completion of the purchase usually takes place about four weeks after exchange of contracts, although it can be earlier. On the day agreed for completion:-

• the mortgage lender releases the money

• the deeds to the property are handed over to your solicitor or licensed conveyancer

• the seller must hand over the keys and leave the property by an agreed time.

The solicitor or licensed conveyancer (in England and Wales only) will usually send their account to you on, or soon after, the completion date.

Buying a home at auction

If you are thinking about buying a property at auction, it's best to do some research beforehand. There is a helpful guide on buying a property at auction on the RICS website at www.rics.org.uk.

Home buying schemes

There are several schemes in England aimed at helping people who otherwise would not be able to afford to buy a home. These schemes are called Social HomeBuy, Home Ownership for People with Long Term Disabilities (HOLD), and Help to Buy: equity loan.

You can find out more about other home buying schemes on GOV.UK.

Social HomeBuy

Social HomeBuy is a scheme to help local authority and housing association tenants buy a share in their home. To qualify for Social HomeBuy you must have been a local authority or housing association tenant for at least two years (or five years if you first became tenant of a social housing landlord on or after 18 January 2005).

If you are accepted onto the scheme, you will buy at least a 25% share in your home and pay rent to your landlord for the rest. You will be able to increase your share up to 100%. You may also be able to reduce your share or go back to renting as a tenant.

If you are interested in Social HomeBuy, you should contact your landlord to find out if they are taking part in the scheme and whether or not you are eligible. It is up to each local authority and housing association to decide whether or not it will take part in the scheme.

Home Ownership for People with Long Term Disabilities

Home Ownership for People with Long Term Disabilities (HOLD) can help you to buy any home that is for sale on a shared ownership basis if you have a long-term disability.

You can get more information on HOLD by speaking to your local Help to Buy agent. A list of agents is available on the Help to Buy website.

Help to Buy - England

Help to Buy: equity loan is a shared equity scheme for first time buyers and existing homeowners who want to move.

The scheme applies to new build homes with a maximum value of £600,000.

You need a minimum 5% deposit to qualify and the government provides an equity loan of up to 20% of the value of the property. This means that you then need to secure up to a 75% mortgage.

The equity loan is interest free for the first five years. From year six a fee of 1.75 per cent is payable, which rises annually by inflation plus 1%. The loan can be repaid at any time or when the property is sold.

Further information about the scheme is available from the Help to Buy website.

Home buying schemes in Wales

Homes within reach (Wales)

Homeswithinreach is a home ownership scheme that provides help to eligible first-time buyers trying to get onto the housing ladder. It is intended to provide help to those people who otherwise would be unable to buy adequate housing to meet their needs on the open market.

There are two options for those looking to become homeowners:

• HomeBuy Ownership

• New Build Ownership.

HomeBuy Ownership

HomeBuy Ownership is available to local authority and housing association tenants, and to some other people in housing need. Help is limited to people who would not be able to buy a home without help from the scheme.

If you are accepted onto the scheme, you will usually need to get a mortgage for 70% of the purchase price of the property. Homeswithinreach will lend you the remaining 30% of the purchase price (in some rural areas, the percentages are 50% and 50%). You will need to repay the loan when the property is sold. The amount of money you will need to repay is 30% of the value of the property when it is sold. If the property has increased in value, this will mean that the amount that you repay will be larger than the amount that you initially borrowed.

For more information about HomeBuy, go to the Homeswithinreach website at www.homeswithinreach.co.uk.

New Build Ownership

This scheme provides help to eligible first time buyers on middle incomes who cannot afford to purchase a suitable home without help. You must be able to meet the long-term financial commitment of home ownership.

Consideration may be given, on a case by case basis, to first time buyers ‘in their own right’, for example, if you have sold your jointly owned property as a result of divorce.

The properties are for sale on a shared equity basis. You must show that you can afford to purchase approximately 50-70% of the purchase price through a mortgage, savings, or a combination of both. Homeswithinreach will lend you the remaining share of the property price. You will be able to buy further shares from Homeswithinreach if you want to. You don't have to pay rent on the share owned by Homeswithinreach. When the property is sold, Homeswithinreach will get a proportion of the sale price. This will depend on the size of the share they have in the property.

For more details of the scheme, visit the Homeswithinreach website at www.homeswithinreach.co.uk.

Rent First (Wales)

Rent First aims to help people who cannot afford to pay full market rents. It can also help people who may want to buy in the future. In Rent First schemes, the rent would be around 80% of market rents. Some schemes also aim to help people who are presently renting from a social housing landlord and who may wish to become owner occupiers in the future. The rent in a Rent First scheme will be higher than in an ordinary social housing tenancy.

In some schemes, if the property increases in value after the tenancy began, when the tenants purchase the property, they will be allowed to have half the increase in value to help them to fund a deposit for the purchase.

Help to Buy - Wales

Help to Buy - Wales is a shared equity scheme. Buyers of new build homes under £300,000 can apply for a loan to help with the purchase

Buyers will need to contribute a minimum 5% deposit. The Welsh Government provides an equity loan of up to 20% of the value of the new build property. The government loan is interest free for the first five years.

More Information is available on the scheme's website at  www.helptobuywales.co.uk.

The right to buy and the Statutory House Sales Scheme

Who has the right to buy

You will probably have the right to buy if you are a secure tenant of a social housing landlord, including:

• a local authority

• a non-charitable housing association

If you’re a tenant in Wales, you don’t have the right to buy your home. You can ask your landlord if they’ll sell your home to you, but they don’t have to agree to do it.

In November 2015, the Government extended right to buy to housing associations in a pilot scheme with 5 housing associations. The tenants of those associations can start the process but can't complete the purchase until the right to buy for housing associations is enforced by statute (which is currently unknown).

To qualify, you must also have been a secure tenant of a social housing landlord for at least 3 years.

As a tenant, you will not have the right to buy if you are:

• a tenant of a property owned by a charity, although you may be entitled to a lump sum grant to help you buy on the open market

• a tenant of sheltered housing or housing specifically designated for older people

• an undischarged bankrupt. If you have rent arrears, you can still apply for the right to buy but you need to clear the arrears before the sale can go ahead.

Some assured tenants have what is called the 'preserved right to buy'. You may have the preserved right to buy if the local authority sold your home to another landlord while you were renting it - for example, to a housing association. Your landlord can tell you if you have the preserved right to buy.

If you are not sure whether you have the right to buy, you should check with your landlord which category you fit into.

If you are a secure tenant of a local authority, you should be given written information to help you decide about the right to buy.

You can find out about the right to buy in England on GOV.UK

In England, the government has also set up a call centre and a website to help you work out if you are eligible and to decide if buying your home is the right option for you. The call centre can be contacted on 0300 123 0913 and you can get help of the Right to Buy website.

Discounts

As a tenant with a right to buy, you will get a discount on the price of the property.

In England, if you live in a house the discount will be between 32% and 60%, depending on how long you have lived there. If you live in a flat, the discount will be between 44% and 70%, depending on how long you have lived there. If you live in a flat, the discount will be between 44% and 70%, depending on how long you have lived there. The discount will not exceed national upper limits. From 21 July 2014, the maximum discount is £77,000 except in London, where it is £102,700.

If you exercise the right to buy and then sell the property within a certain period, you may have to repay some or all of the discount – check the rules with your local authority.

How to pay

As a tenant who wants to exercise your right to buy, you should try to obtain a mortgage from a building society or high street bank. You could also contact a mortgage broker to see if they can arrange a mortgage.

However, if you cannot afford to buy the property outright you can still buy under the rent to mortgage scheme. Under this scheme you can buy a share of the property and make mortgage repayments on the amount you have borrowed for this. The landlord will retain ownership of the remaining share of the property.

How to apply

If you want to apply for the right to buy, you should ask your landlord for the Right to Buy application form (form RTB1). You can also get the Right to Application form online from GOV.UK.

The right to acquire

You might be able to buy your home under a different scheme if you’re a secure or assured tenant of a social landlord in England. This scheme is known as the ‘right to acquire’. You might be eligible for the right to acquire if you’re the tenant of a housing association or local housing company. 

If you’re a tenant in Wales, you don’t have the right to acquire your home. You can ask your landlord if they’ll sell your home to you, but they don’t have to agree to do it.

The right to acquire only applies to a limited number of properties - for example, homes built with public funds on or after 1 April 1997.

Contact your landlord if you want to find out about the right to acquire your home. You can also find out about applying for the right to acquire on GOV.UK.

Shared ownership

Shared ownership schemes are intended to help people who cannot afford to buy a suitable home in any other way. You usually share ownership of the property with a local authority or housing association. You pay rent to the landlord for part of the property and a mortgage on the rest. You will usually be able to buy further shares in the property at a later date.

To qualify for the scheme you must usually be a first time buyer, and priority is given to local authority or housing association tenants. Other people in housing need may also be considered for the scheme. You must be able to get your own mortgage to meet the purchase costs on a percentage of the property.

When you buy a home through a shared ownership scheme, you’re usually responsible for the repairs in the property you own. You’ll be responsible for repairs unless your lease agreement says your landlord is responsible. 

Your landlord is responsible for repairs in the communal parts of the property - for example, the lifts in a block of flats.

In England, more information on shared ownership accommodation is available from the Help to Buy website at www.helptobuy.org.uk.

In Wales, more information is available from the Community Housing Cymru website at www.chcymru.org.uk.

Mortgages

If you wish to buy a home you may be able to borrow money to do this. This is called a mortgage. The loan is for a fixed period, called a term and you have to pay interest on the loan. If you do not keep up the agreed repayments, the lender can take possession of the property.

Types of mortgages

There are two basic types of mortgages - repayment mortgages and interest-only mortgages.

Repayment mortgage

This is a mortgage in which the capital borrowed is repaid gradually over the period of the loan. The capital is paid in monthly instalments together with an amount of interest. The amount of capital which is repaid gradually increases over the years while the amount of interest goes down.

Interest-only mortgage

With this type of mortgage, you pay interest on the loan in monthly instalments to the lender. Instead of repaying the loan each month, you pay into a long-term investment or savings plan which should grow enough to clear the loan at the end of the mortgage term. However, if it doesn't grow as planned, you will have a shortfall and you will need to think about ways of making this up.

There are several types of interest-only mortgages which include:

• an endowment mortgage. This mortgage is made up of two parts - the loan from the lender and an endowment policy taken out with an insurance company. You pay interest on the loan in monthly instalments to the lender but do not actually pay off any of the loan. The endowment policy is paid monthly to an insurance company. At the end of the mortgage term, the policy matures and produces a lump sum which should pay off the loan to the lender. In some circumstances, an endowment policy may produce an additional lump sum. However, there is also a risk that it will not be worth enough to pay off the loan at the end of the mortgage term. If you have been told by your endowment provider that your policy will not be enough to pay off your loan, you should seek independent financial advice. You can get information about dealing with endowment policies from the Money Advice Service website at www.moneyadviceservice.org.uk

• a pension mortgage. This mortgage is mainly for self-employed people. The monthly payments are made up of interest payments on the loan and contributions to a pension scheme. When the borrower retires, there is a lump sum to pay off the loan and a pension

• an ISA mortgage. With an ISA mortgage, you pay interest to the lender, and contributions to an Individual Savings Account (ISA) which should pay off the loan.

You can find further information about interest-only mortgages, repayment plans and shortfalls on the Money Advice Service website at www.moneyadviceservice.org.uk.

Islamic mortgage

With an Islamic mortgage, none of the monthly payments includes interest. Instead, the lender makes a charge for lending you the capital to buy your property which can be recovered in one of a number of different ways, for example, by charging you rent.

You can find further information on this type of mortgage from the Money Advice Service website at www.moneyadviceservice.org.uk.

Where to get a mortgage from

You can get a mortgage from a number of different sources. Some of the available options are:

• building societies

• banks

• insurance companies. They only provide endowment mortgages (see above)

• large building companies might arrange mortgages on their own new-build homes

• finance houses

• specialised mortgage companies.

For some groups of people, such as first-time buyers and key workers, it may also be possible to borrow some of the money you need to buy a home from other, government-backed sources. You will usually need to borrow the rest of the money from a normal mortgage lender such as a bank or building society.

As well as standard mortgage deals, lenders might also offer deals which are especially designed for people who don't qualify for a standard mortgage.

This type of deal is known as a 'sub prime' or 'adverse credit' mortgage. They are aimed at people who have had financial difficulties or credit problems in the past. For example, you might have had a previous home repossessed, have a County Court Judgment (CCJ) or have been declared bankrupt. You might also have difficulty in proving that you have a regular or reliable income.

Sub prime and adverse credit mortgages usually charge a higher rate of interest than standard mortgages. Lenders may also limit the amount of money they are prepared to lend you.

Before taking out a sub prime or adverse credit mortgage, you should get some independent financial advice.

If you're thinking about taking out a mortgage you should make sure you look into all the different options available, and that you only borrow what you can afford to pay back. If you do not keep up the agreed repayments, the lender can take possession of the property.

More information about mortgages is available from the Money Advice Service website at www.moneyadviceservice.org.uk.

If in doubt, you may want to consult an independent financial adviser. For help with finding a financial adviser, visit the Money Advice Service website at www.moneyadviceservice.org.uk.

Can you afford a mortgage

Changes to mortgage rules from 26 April 2014, mean that lenders must make sure you only take out a mortgage you can afford. This means that they'll ask you for lots of information and proof of your income, outgoings and spending habits.

Lenders will check to see if you can meet the initial mortgage repayments and other household costs. They will also consider how you would manage if interest rates were to go up in the future, or if there was a change in your income because, for example, you wanted to start a family or retire.

More information on what a lender will do to check if you can afford a mortgage is available from the Financial Conduct Authority's website at www.fca.org.uk.

Using a broker to get a mortgage

Instead of going directly to a lender such as a bank or building society for a mortgage, you could use a broker. A broker may be an estate agent, or a mortgage or insurance broker. They will act as an agent to introduce people to a source of mortgage loan to help them buy a home.

You may want to use a broker because it can save you time shopping around. However, some lenders offer products direct to customers which a broker may not be in a position to offer. So, it may be best to shop around to see what else is available.

A broker must tell you if there are limits on the range of mortgages that they can recommend. For example, that they only consider mortgages from particular lenders rather than the whole mortgage market.

The broker must tell you how much they charge for their services and when you have to pay.

To help a broker find and recommend a mortgage product that is right for you, they will ask you questions about your personal circumstances and needs, income and spending, and future plans.

Brokers must not discriminate against you because of your age, disability, gender reassignment, pregnancy and maternity, race, religion or belief, sex or sexual orientation when they are offering you their services.

For more information about mortgage brokers, go to the Money Advice Service website at www.moneyadviceservice.org.uk.

There is also information on getting mortgage advice on the Financial Conduct Authority's website at www.fca.org.uk.

Making a complaint about a mortgage lender

If you want to complain about a mortgage lender or broker, you should first discuss the problem with them, and then consider making a formal complaint. If you think the mortgage lender or broker has discriminated against you, you can complain about this as well. Each lender or broker should have its own internal complaints procedure. If you have followed this procedure and are still not satisfied, you can take your complaint to the Financial Ombudsman Service. The contact details are:-

Financial Ombudsman Service

Exchange Tower

London

E14 9SR

Consumer helpline: 0800 023 4567 (free for people phoning from a landline) or 0300 123 9123 (free for mobile-phone users who pay a monthly charge for calls to numbers starting 01 or 02) (Monday to Friday from 8.00am to 8.00pm; Saturday from 9.00am to 1.00pm)

Email: complaint.info@financial-ombudsman.org.uk

Website: www.financial-ombudsman.org.uk

First-time buyers

Buying a home for the first time can often be a daunting experience, but there's lots of useful information available to help you through the process.

The Money Advice Service website covers information on costs, how much can you afford as well as providing useful money tips for first-time buyers. Go to www.moneyadviceservice.org.uk.

Get help with bills and budgeting

If you're trying to cut your spending, you could get help with bills. You could also use a budgeting tool to see exactly where your money goes each month.