Article 1 – The buying process
When you are moving out for the first time, with so much to consider and such a huge amount of money at stake, it can be a daunting process that comes with lots of doubt. There are many necessary costs that you might not be aware of as a first-time buyer too. This is because you don’t just need a deposit and enough money to repay monthly mortgage payments – some might say there are a lot of ‘hidden’ costs.
In an honest article, Oldrids and Downtown, retailers of bedroom furniture, discuss the costs of buying your first home by offering a guide to aid you through the buying process.
Before you even start looking at properties, you must save a deposit. Just like with other investments, such as a car and a holiday, your home will require a deposit to secure the sale. Buyers need to save at least 5% of the home’s value – however, generally, buyers save between 5% and 20% of the value. The more you save, the less money you will have to loan from the mortgage company. This means you will have access to more options of cheaper mortgages.
The amount you can loan from a mortgage company is calculated based on household income. If the mortgage is in one person’s name, it will be calculated based solely on their salary and monthly outgoings – usually four to five times your income, depending on your credit score, committed outgoings and any debt. If you are buying with a partner or friend, your mortgage is calculated based on your combined NET pay after committed outgoings have been deducted – so the more you are committed to paying each month, the less you can borrow from the mortgage company.
Depending on your age, you can choose how long to take your mortgage loan across. Normally, mortgage repayments are spread across periods between 15-45 years. However, your age is an influencing factor here. As you reach 50, your mortgage options are likely to change. Banks have different mortgage age limits, varying between 70 and 85 years old. Getting a mortgage closer toward the age limit means your monthly repayments are likely to be a lot higher, as the term will be across a shorter time period.
If the property you are buying costs below £125,000, then this is something you won’t need to pay. Stamp duty land tax is what buyers need to pay when they are purchasing a property or land over the set tax-free amount – it is paid to the government. The amount you pay is dependent upon the cost of the property. New rules were introduced in December 2014. The new system means you will pay the rate for the proportion of the property that’s at that rate. There are five rates:
- Up to £125,00, you pay £0.
- From £125,000 to £250,000, you pay 2%.
- From £250,000 to £925,000, you pay 5%.
- From £925,000 to £1,500,000, you pay 10%
- Above £1,500,000, you pay 12%.
These rates are applicable for people owning a single property. The rates significantly change if you buy a second/additional property. Additional stamp duty will be charged to people buying an additional property for more than the value of £40,000.
This cost will vary depending on which company you choose. Generally, you will require a solicitor or licensed conveyor to carry out all the legal work associated with buying your own home – or when you sell a home too. Legal fees are typically around £850-£1,500, including 20% VAT.
You’ll need to pay for a valuation and survey for the benefit of yourself and your mortgage lender. You’ll generally pay on average £300 for a valuation — this is so that your lender is satisfied that your property is worth the money you are paying for it. It’s a security check for them.
Whilst a valuation is a security check for your lender, the survey is like security for yourself to confirm that the property is in good condition or to discover any issues that you will need to rectify. It is optional, but recommended. On average, a survey can cost between £400 and £700, depending on the type of survey you require. The survey often highlights underlying issues, sometimes damp, structural problems, plumbing issues etc. Finding out information in the survey can lead to grounds for a negotiated price.
Unless you have a big car or van, it is likely that you will need to hire a removal van or removal company to help you transfer all your things from your old home to your new home. That is, of course, unless you don’t mind doing trip after trip after trip in your little car. Costs vary depending on the size of the van you require, and how many days you require it for. Generally, removal costs range between £300 and £600.
You’ll need to arrange some home insurance that covers the contents of your home for damage and theft. However, you can opt for three different options of home insurance: buildings insurance, contents insurance or combined. Most people opt for the combined buildings and contents insurance.
You will be asked to give an approximate value of everyone in your home, outlining particular items which might be of more significant value, and then you will be given a quote from the insurance provider. It is likely that there will be a set excess amount with your insurance policy, which is paid when you make a claim on your insurance.
Initial Furniture and Decorating
Finally, this is normally one of the fun bits, but again involves spending money. When it comes to moving out, you’ll need furniture such as a bed, a sofa, dining table etc, and you might want to decorate the rooms to your own personal taste. This is additional cost on top of all the costs above. When you choose what property you buy, you should have an idea of how much decorating the property will need.
You can buy some items of furniture on finance. Sofas, dining tables etc are often offered on an interest free, monthly repayment scheme. This is a good idea if you don’t have the money upfront for furniture after paying all the above fees – however, make sure you can afford the monthly repayments alongside your mortgage repayments.
There are a lot of costs to consider when buying a home, which explains why people save as much as they can to buy their first home, whether that be alone or with a friend or partner – but at the end of the day, when you get to sit down and think ‘this is mine’, it starts to feel worth it.