We all want to own our own home, but we are rarely told about how much it actually costs to buy it. Sure you need your deposit if you are buying with a mortgage, but there is so much more to consider.
- Deposit and mortgage
- Mortgage broker
- Surveys and searches
- Moving, furnishing and decorating
Deposit and Mortgage
The first set to buying your own home is to save up your deposit. If you are buying your first home chances are you will need a mortgage from a lender, if not – well lucky you! Before a bank will give you a mortgage they will ask you to have a deposit, this is a percentage value of the property that you put down and the bank will make up the rest.
Typically banks will ask for a minimum of a 10% deposit, but some places will consider 5%. So if the purchase price is £100,000 you will need £10,000 for a 10% deposit. Generally, the more money you put down as a deposit the better interest rate you will be offered. It is important to pay attention to the interest rate, the higher the rate the more you will pay back over the lifetime of the mortgage.
Bellow I have taken some real mortgage deals from Nationwide to illustrate the impact of having a higher deposit.
If you are currently saving your deposit I would strongly suggest looking at a Lifetime ISA (LISA). The LISA is a great way to save for a house deposit and the government will give you a bonus of 25% on your deposits up to £1,000 per year. You can only save up to £4,000 per year into a LISA (effectively £5,000 per year with bonus), and the account must be open a year before using it to buy a house. So if you were saving for a deposit of £20,000 using a LISA, you would only have to save £16,000 over 4 years as you will get £4,000 in bonuses each year.
If you are buying your home with a mortgage it is recommended that you use a mortgage broker to do so. They will be able to give you advice on what mortgages are available, compare interest rates, monthly repayments and affordability. They will also complete and send off the mortgage application on your behalf after you have sent them all the relevant information.
You will need to pay a fee for their services usually around £500, but considering all the information you need to gather to put the mortgage application together it could be worth it. Of cause you could do this all yourself but you may miss things that could delay your application. Brokers could also help you when you are searching for properties and give advice on making offers or even negotiate on your behalf.
Once you have had your offer accepted on a property and worked through your mortgage application, your broker can offer advise on building and contents insurance, life insurance and income protection. Building insurance is a key requirement of having a mortgage and will need to be sorted before exchange of contracts. Life insurance and income protection while not required is recommended should the worse happen, meaning your next of kin doesn’t need to worry about the mortgage.
Surveys and Searches
When buying a property with a mortgage your lender will require that a range of searches be done in order to confirm both the value and condition of the property. There are also a lot of other searches that will be required.
The first two survey that you will need to pay for is the mortgage valuation survey and the building survey. With the valuation survey you are paying for a survey to be done for your mortgage lender to ensure that the property is worth how much you are paying for it. If the survey came back saying the property is less than the purchase price, you may be able to renegotiate your price. The building survey looks into the condition of the property, there are different levels of survey which are summarized below:
- Condition Report – This describes the condition of the property and identifies any potential legal issues and any urgent defects. Costs around £250.
- Home Buyer Report – This is a survey suitable for conventional properties in a reasonable condition. This will help find out if there are any structural problems such as subsidence or damp, as well as any other issues inside or outside the property. This survey, however, does not look behind the walls or under floor boards. Costs around £400.
- Building Survey – This is mainly aimed at larger or older properties, or if you are planning any major works. This will provide you with a detailed report of the condition of the property highlighting any potential issues and provides advice on defects, repairs and maintenance options. Costs around £400 – £500.
- Structural Survey – This is the most comprehensive survey and is suitable for all residential properties. It is particularly good for older homes that might need repairs. This survey typically costs upwards of £600 and will provide detailed advice on repairs.
The next big costs will be your searches that you solicitor will order for you but you will need to pay for. I have listed all of these searches below:
- Local Authority search – £50-£250 (varies by council)
- Sewer and Drainage – £30 – £40
- Environmental Report – £35
- Mining Report – £30
- Land Registry Search – £8
- Bankruptcy Search – £8
- Land Registry Fee – £100
When you are buying your home you will need to have a solicitor to act on your behalf. They will take care of ordering all your searches, communicating with the seller’s solicitors and generally making sure everything goes smoothly. Your solicitor or conveyancer will also be the person you send your house deposit to when it comes to you exchanging contracts.
You will need to pay a fee for their services which can range anywhere between £500 and £1,500. If you are buying with a help to buy ISA or a Lifetime ISA your ISA provider will need to know who your solicitor or conveyancer is in order to send the funds to them. Additionally, your mortgage provider will send the funds for the purchase to them before it is sent to the seller along with your mortgage.
As your solicitor or conveyancer will be dealing with a lot of large money transfers you will need to cover the cost of this. Large sums of money needs to be sent by a CHAPS payment and each transaction will cost around £20.
Your solicitor or conveyancer will also give advice about stamp duty if you need to pay it. Note that there is currently a stamp duty holiday until 1st July 2021 on properties valued at £500,000 or less. Normally, if you are a first time buyer you would be exempt from stamp duty up to £300,000.
Furnishing, Moving and Decorating
This is the final thing you will need to think of when buying your home. If you have made it to this stage and you have the keys to your new home – Congratulations!
As soon as you get the keys to your new home all you will want to do is move in as soon as possible. If you are a first time buyer this part could be the most expensive part of buying a new home other than the deposit. Luckily the most of furnishing and decorating can be spread out. If you already have furniture then you don’t need to worry too much.
Family members may help out with this part as “house warming presents” either buying your a washing machine or a kitchen set. When it comes to furniture the key is to shop around, you can find some great deals on a dinning table set which might cost £600 in one store but £300 in another. Additionally, when decorating try to do as much of it yourself, this will save you a lot of money – FYI a tin of wall paint will cost around £20.
Moving costs can be expensive unless you know someone with a van. Again shop around to get the best deal. Moving costs could set you back anywhere between £300 and £600, so if you can avoid it do it yourself or ask a friend and buy them a takeaway as a thank you!
None of the content in this article should be considered financial advice, I am not a financial adviser and you should always do your own research prior to investing. These are my opinions only.