Buying your first home can be very exciting, but also very expensive! As well as the cost of buying the property, there are many other factors to consider.
First-time buyers must take into account the additional charges that incur when buying a home. In fact, you may require up to an additional £10,000 to cover DIY, furniture, Stamp Duty (if the house is priced over a certain amount), and other legal costs.
Here's a breakdown of the costs that first-time buyers will need to consider - some you may have thought about, some may come as a surprise!
Most mortgage lenders ask for a significant deposit, which proves to them that you are serious about taking on this huge long-term financial obligation. The more money you can save for a deposit the better the mortgage deal. Typically, mortgage lenders will ask for a minimum deposit of 5%.
Mortgage set-up and legal fees
When you are buying your first home, ideally the first step is to find the best mortgage rate to suit your budget. As interest rates are set to rise in the near future, now may be a good time to think about a fixed-rate mortgage.
If you opt for a two-year deal you are likely to get a lower annual percentage rate (APR), but you'll also need to consider the set up costs. Each mortgage lender is different in how they set out their charges. It is worthwhile to use a comparison website to compare the best mortgage rates and work out what each one would cost overall, including the fees.
Five-year fixed rate mortgage deals may also be an attractive option. It will give you the stability of knowing what your payments will be for a decent amount of time, and could help you to avoid any drastic rate rises. However, you'll need to decide whether you want to be tied into a fixed rate for this length of time - if you want to move home or change mortgages you may face significant exit fees.
Solicitors may charge a percentage of the house price, while others charge a set fee. In addition, there will be extra charges added to the solicitor’s invoice, including mining and land registry charges, and searches.
Before you sign for anything, double check that you are satisfied with the rates set by your solicitor. Many people choose a solicitor on the recommendation of others, but there's no harm in getting a few different quotes to see if another firm can do the same job for a lot less money.
If the house is priced over £125,000 you will be billed a Stamp Duty levy, which starts at 1% of the house price. A higher house price equals a higher Stamp Duty bill. The maximum amount you can pay is 12% of the value, but that is for houses over £1.5million. A house with a value below £125,000 will not levy Stamp Duty.
Read more: How much will you need to pay in stamp duty?
Some mortgage lenders include a free valuation survey within the set-up costs, while others may charge for this survey. The lender requires an up-to-date valuation of the property so that they can assess the maximum amount they can lend you. The more expensive surveys include a structural evaluation of the property. This indicates the house value to the lender, should they be forced to repossess the home if mortgage payments are not maintained, but can also prove useful to you as the buyer to make sure you aren't investing in a money pit!
Higher lending charge
A mortgage lender sets the higher lending charge. It is a requirement for the borrower who is taking significant value from the property, and it is solely in place to cover the lender should they be forced to put the house on the market and sell for a loss. The insurance charge is generally 1.5% of the value of the home.
Royal Mail redirection
Finding the time to contact utility companies and debtors can be stressful during a move. The redirection service by Royal Mail is another expense to consider when you are buying your first home. You can generally opt for a six to 12-month redirection service, which will give you more than enough time to contact the utility companies with your new address details during that period.
The mortgage will be paid to the seller’s solicitor via CHAPS, and there is generally a fee of £50 levied. This will often be included on your solicitor's invoice.
A move to your first home will include additional charges like fitting a landline. Some providers may offer a free fitting service on condition that you take out one of their phone and broadband packages in a contract.
Fitting a washing machine and installing a new bathroom suite will require the expertise of a plumber. This could add over £1,000 onto the costs of buying your first home. Adding a Sky dish to your home can add a further £100 onto your bill, and there are also the monthly TV package costs to consider.
You can compare cost of utilities, broadband and house insurance all at sosmartmoney.co.uk.
Comparing rates for all your essentials and non-essentials will help you get the best deal.
In the event of a flood or fire, buildings insurance covers you for these hazards. This compulsory insurance can add hundreds per annum to your financial outgoings.
To make the home your own you must factor in the costs of decorating and adding carpet or laminate/wooden flooring. Do you want to keep the costs down by painting the home, or do you want to add a touch of style with fancy wallpaper and borders? Do you DIY, or hire a painter and decorator?
If you have no furnishings, you may be forced to spend several thousand pounds on a bed, wardrobe, television set, seating, lighting, décor, music system, etc. To save on costs, browse your local charity shop for quality furniture and electrical accessories or see if any of your friends or family have items that they could donate. It's not unusual for first-time buyers to watch their new TV whilst sat on the cardboard box that it came in!
There are many financial factors to consider when you are buying your first home. It’s not just the mortgage set up fees and legal costs that you must take into account, but also furniture costs, stamp duty, insurance, survey fees, and the mortgage deposit.
The more you can save toward your first home, the better your mortgage options will be. However, it is also important that you consider the long-term financial obligations of a mortgage.
A mortgage adviser can assess your circumstances and affordability and help you determine the most suitable mortgage for you.
Our trained expert advisers have access to the UK’s leading lenders and using their knowledge and skills will place you with the most suitable leader and product for your needs.