Buying a property will probably be your biggest single investment, so it's important to work out the total cost – not just the mortgage – and how much you can really afford. You also need to plan for increases in your future outgoings, like a rise in interest rates.
'One-off' buying costs
If you're a first time buyer, most lenders insist on a deposit of five or ten per cent of the purchase price. Some will lend 100 per cent of the price, but they'll usually lend less and will charge a higher interest rate or 'higher lending charge'.
Lenders will offer to lend you an amount based on your earnings. They will normally want to see proof of your income and will also look at your regular outgoings.
It's important to give your lender as much detail as you can about your earnings and outgoings so that you're offered a mortgage you can afford. You also need to remember to budget for the one-off costs of buying a property such as administration and solicitor fees and Stamp Duty.
The FSA website has a range of easy-to-use calculators to help you work out what you can afford and the likely monthly cost of a mortgage.
Use the FSA Moneymadeclear budget calculator.
You'll usually need to pay for the lender's basic valuation survey - the cost varies by lender and property value but is usually a few hundred pounds. To check the property's condition you'll need a more detailed survey for which you'll need to compare quotes.
Compare quotes from surveyors in your area.
If the purchase price is over £175,000 you pay Stamp Duty Land Tax of between one and four per cent of the property value. However, if the property's in a designated 'disadvantaged' area, you may not have to pay any Stamp Duty Land Tax at all. With some new builds the developer will pay your Stamp Duty Land Tax for you.
Use the HM Revenue & Customs Stamp Duty calculator.
Solicitor's or conveyancer's fees
These cover searches and legal paperwork. Costs vary by area and/or the property value (or loan amount if it's remortgage) and include:
Your solicitor will confirm the cost of the above fees.
Search the Law Society website for a solicitor.
Land Registry fees
Use the Land Registry online calculator.
Lender's arrangement fees
These vary by lender, but may include:
Lender's insurance premium
If you have a high percentage loan you may need to pay a one-off fee called a 'higher lending charge'. This protects the lender if you can't repay your mortgage. It's worked out as a percentage of what you borrow above the lender's higher lending charge limit, which is usually 80 or 90 per cent of the property value. The premium can be high; ask your lender or mortgage adviser. You can usually add it to the mortgage if it doesn't take you above the lender's maximum loan for the property value, but this will increase your interest charges.
Removals/moving in expenses
These vary according to:
It's best to get several quotes, and always check that your remover's properly insured. Search online for a remover.
Ongoing monthly costs
You'll need to budget for your monthly mortgage repayments and take into account what effect a future change of interest rates would have on these.
If you have an 'interest only' mortgage, you'll usually also need to budget for monthly payments into an investment to pay off the loan at the end of the term.
Life insurance / mortgage protection cover
You might need to take out a life assurance policy such as 'term insurance' or a 'mortgage protection policy'. The monthly payments can be relatively low and the insurance pays off what you owe if you die before you've finished repaying the loan. Ask your mortgage adviser for more details.(If you have a mortgage endowment policy, this includes life cover).
You can also take out insurance that pays your monthly repayments if you're ill or out of work, but this can be expensive.
Buildings and contents insurance
Once you exchange contracts for your property you're responsible for insuring it. Your lender can insist that you have buildings insurance - but they can't make you buy their own. But in some cases, lenders insist that you take out their insurance on completion.
Get more information on buying insurance from the Financial Services Authority (FSA).
Council tax, utility and other regular bills
Don't forget that when you move, your monthly bills might go up. Will you have enough to meet your new monthly outgoings?
You can use the FSA budget calculator to work out whether you'll have enough to meet your monthly payments. They also offer further useful tips on buying a home.
The Moneymadeclear calculator is a very useful way of working out your monthly budget.
Directgov / Expatica
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