With news reports constantly bemoaning the rise in property prices, it's not easy to escape the doomsday scenario that's portrayed when you think about owning your own home. The hyperbole also creates panic as people often rush out, and over-commit themselves financially in order to secure a property, before they're really ready. If you're thinking of buying a property, there are a number of considerations and associated costs to consider to see the whole picture.
How Much Could You Borrow To Buy Your Home?
The first thing to think about is how much you might be able to borrow from a mortgage lender, as naturally this will determine the size or area of your property. How much you can secure is largely dependant upon your annual income – minus any fixed expenses you have such as existing debts, and living expenses. Different banks have different rules for lending, but most have easy to use calculators online which you can use to get a preliminary idea from each. Generally you may expect to be lent around four times your annual salary, but as mentioned it varies by provider and your personal circumstances.
If you're not comfortable doing the research yourself, you can enlist the help of an independent mortgage broker who will advise as to your likelihood of securing finance, and how much you could borrow. Lot's of brokers offer an initial consultation for free, so you can effectively test the water before shelling out any money, with no obligation on yourself. Simplyfinance can help with this, try searching our site for brokers in your area.
Getting Your Home Purchase Deposit Together
You'll need at least 5% of the property value to lay down as the initial deposit. If you can lay down a higher percentage for a deposit then you should enjoy a better lending rate in terms of APR. If you don't already have savings getting the deposit together can be tough whilst managing your day-to-day finances as well.
However there are a few options available to you. First of all you may be able to get a reduced deposit rate if you can get someone (parents etc.) to act as a guarantor for the mortgage. In practice this means that the guarantor is liable if you're unable to make the payments, so it's quite a large favour to ask.
Alternatively you might be interested in the new Help to Buy Isas, where the government will contribute £3,000 to the account when you've saved a certain amount.
Failing that you could perhaps consider taking out a loan or interest free credit card; although you need to consider that this will affect your credit rating, and probably your mortgage application too.
Other Costs When Buying A House
Obviously the deposit is going to be the biggest single outlay when considering expenses, but there is more to consider than it might seem at first. For a start if you're moving out of furnished rented accommodation, you're going to have to consider having some spare cash to buy what furniture and appliances you need, not to mention the actual cost of moving if you need to hire transport.
If the property costs over £125,000, you'll also need to set aside some money for 'stamp duty'. Stamp duty is a levy applied by the government on qualifying property sales, and currently sits at 2% of the property value for properties between £125,001 - £250,000. The tax rate then increases as the property value rises through the various bandings. If this affects you see our dedicated guide to stamp duty for more details.
Finally there are various fees you're going to be subject to for the actual transaction of purchasing the property. You can expect to pay survey/valuation fees, solicitor fees and land registry fees. All of this doesn't cost as much as it might sound like, and you should get a good idea of this upfront once you've put your initial mortgage application. While it depends on the value of the property, you should expect the fees to cost you in the region of £1k - £3k. For more information, have a read of our First Time Buyer Guide to Mortgages.