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Almost all of us aspire to own our own homes one day. Maybe after years of
paying out ‘dead’ rent money, or living with our parents, we finally set out
along the road to make our dreams a reality. Many of us, at this point, are
embarrassed to find that we actually know very little about the process or the
likely costs. Apart from deciding which type of mortgage is best for us (which
is dealt with in a separate article on this site), here are some of the basic
points that we need to know about before we take that important first step:
The Mortgage Deposit
The deposit is the difference between the cost price of your new house and
the size of the mortgage that you are taking out – the difference is the amount
that you put down yourself, normally from your savings. This is probably going
to be the biggest cost you will have when buying your home. Although it is
possible to obtain a 100% mortgage, the rate you will pay for this is far higher
than if you had put down a deposit. A good figure to be aiming for is to put
down at least 10% of the purchase price of the property, so for instance, with a
property costing £150,000 you should ideally be looking to put down a deposit of
£15,000.
Now, this is an ideal scenario. To build up a decent deposit, of
course takes many of us some time. The pressure that many first time buyers
feel, is that whilst saving for their deposit, house prices are rising and they
do not want to ‘miss the boat’. There is a certain playoff here that only each
individual can decide upon, however, it is ALWAYS better to put down something
as a deposit, even if it is not the ‘ideal 10%’. You will get a far better
mortgage rate, and so pay far less interest over the years.
Be aware that
many, but not all mortgage lenders will also charge you an ‘arrangement fee’ for
starting up your mortgage - this can be up to £300.
Legal Costs - (Conveyancing)
Your conveyancing costs are likely to be the next most expensive part of the
house buying process. The fees charged can vary widely from solicitor to
solicitor, so it is IMPREATIVE that you shop around for the best price. Some
solicitors advertise low fixed price conveyancing deals in the local papers and
it is worth watching out for these. On top of the conveyancing fees, you will be
charged for Land Registry fees, search fees, wire transfer fees. Exact costs
will vary depending on the purchase price of your home and which solicitor you
use, but for an ‘average’ home, look to budget for between £1,200 and £2,000.
The Valuation
Having a valuation on the property that you are obtaining a mortgage for
is a compulsory requirement of the mortgage lender. The reason for the valuation
is that the mortgage lender is ensuring that the property is worth the amount
that they are lending. Some mortgage lenders insist that you use their own
preferred valuer or have several preferred firms that you can choose from. It is
worth finding out whether this is, in fact, the case when applying for your
mortgage, as you can make decent savings by being able to shop around. The cost
of a valuation is paid for by the borrower.
The House Survey
As you would expect, the survey is commissioned to ensure that the property
is sound and there are no major faults. There are two types of survey:
• The
basic survey, for which you would be looking to pay £250 to £300.
• The full
structural survey, a far more detailed affair designed to find anything that
would seriously affect the integrity of your property. The older or more
expensive your desired property is, the more it behoves you to have a full
structural survey. Costs are more expensive than a basic survey and you could be
looking at a minimum of £800 to £900 for this to be done.
Stamp Duty
Basically this is a tax that you pay to the government when you purchase
a property. The cost to you is directly proportional to the purchase price of
your property:
Price of property Stamp Duty Rate
Up to £120,000 £0
£120,001 to
£250,000 1%
£250,001 to £500,000 3%
£500,001 plus 4%
Buildings Insurance and Contents Insurance
These insurances are self explanatory and there is a huge variance in prices
between insurers. Be aware that many mortgage lenders operate a ‘tie in’ policy
and will expect you to insure with them. They may charge an admin fee if you
decide not to do so, or change to another insurer along the way.
Final thoughts
This is by no means a comprehensive list and merely covers the most important
costs. There will be other expenses such as removals and the cost of
re-furnishing etc. Which ever way you look at it this is a hugely expensive time
in a persons’ life and pre-budgeting is vital so that you do not run into any
‘nasty surprises’ along the way. Equally vital is not to fully commit your very
last penny into the venture – it is imperative to have an ‘emergency fund’ for
unforeseen expenses. They ALWAYS crop up!
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