Most
people who do not own their own homes certainly aspire to do so sometime in the
future; after many years of living in rented accommodation or with their
parents, they may finally decide that the time is right to set out along the
path of home ownership only to be confronted by two alarming discoveries.
Firstly, they are somewhat embarrassed to discover that they don’t actually
know anything about the home buying process or what is involved; secondly, they
realise that buying a house is one of the most important decisions that they
will ever make and that it will affect their lives for the next 25 years.
Here
then, are some of the major points to be aware of when applying for a mortgage;
the list and the advice is by no means exhaustive but is illustrative of some
of the choices that will have to be made and of many of the expenses that you
will be encountered along the way.
What type of Mortgage?
This
subject alone could take up many volumes and it cannot properly be covered in
this brief introduction; there are however a great many different types of
mortgage such as repayment mortgages, interest only mortgages and base rate
tracker mortgages to name but a few. Many of these are complex financial
instruments and the advice of a qualified Independent Financial Advisor should
be sought to pinpoint the right type for you. What can be said is that many of
these different types of mortgage, due to their complexity, dependence on the
financial markets and blatant mis-selling have caused much misery for many
people…except for the traditional repayment mortgage!
The Mortgage Deposit
This
is almost certainly going to be the biggest cost in relation to buying your own
home. The mortgage deposit is the difference between the cost price of a house
and how much you actually borrow (this difference is put down by yourself) and
although it is actually possible to get a 100% mortgage, you will be paying a
much higher rate of interest if you do get one. In fact, the more you put
towards the cost of your house yourself, the better the rate of interest you
will receive on your mortgage. The best piece of advice here is to aim to save
a 10% deposit before you apply for your mortgage.
Conveyancing (legal costs)
After
your mortgage deposit, your legal fees are likely to be your next biggest
expense and because of this it is vital that you shop around to get the best
price; many solicitors offer low cost, fixed price conveyancing. Take our
advice though and note this VERY carefully, as many, many first time buyers
have been caught out by this; conveyancing is only one small part of the legal
fees that you will be presented with. Your final bill will include charges for
Land Registry fees, Search fees, Wire Transfer fees and extras/ incidentals;
your final bill will probably be between £1,300 and £2,000…a shock to many
homebuyers in the past who were only expecting £200 to £300 for conveyancing!
Valuation fees
Getting
your prospective new home valued is compulsory and it is a requirement set out
by mortgage lenders for their own protection. Valuations take place so that the
lender can be assured that the value of the property is really worth the amount
that they are lending out to you. Many mortgage lenders insist that you use
their own valuers, some have a list of several preferred companies that you
must use, whilst a few will let you select your own valuer. The best advice is
to ascertain which of these apply before you take out a mortgage, as part of
your general research on mortgage lenders. The cost of the valuation fees will
be paid for by you.
The Survey
As
you would expect, the survey is carried out to ensure that your potential new
home is structurally sound and that there are no major faults. There are two
types of survey that you can select from; a basic survey and a full structural
survey. The choice of which survey to have is your own, but for the average
home a basic survey will usually suffice, whilst our advice for older and more
expensive houses is to seriously consider a full structural survey.
Stamp Duty
This
is the tax that you pay the Government when you purchase your property. The
amount payable is related to the value of the house that you are buying; the
latest figures (correct as at March 2008) are as follows:
Residential
property - purchase price Rate of
Stamp Duty Land Tax Up
to £125,000 0%
£125,001
- £250,000 1%
£250,001
- £500,000 3%
£500,001
or more 4%
Buildings and contents
insurance
These
items really need no further explanation except that some mortgage providers
attempt to tie you into their own insurers for these insurances; ‘admin fees’
are often payable if you decide not to go with your lender’s insurers and
likewise if you decide to switch insurers in the future; as with everything
else, do prior research. Whatever the case though, although these insurances
are not compulsory and a few people do not take them up, our advice is that it
behoves you to have them. As
mentioned previously, this list is by no means exhaustive but certainly covers
the main body of expenses that you will encounter when buying your house. We
do, however, have one final piece of advice; do not put every last penny into
your house buying venture; keep a good amount back for emergencies…they ALWAYS crop up!
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Mortgage Advice