Buying a house is, for most people, the most expensive purchase they’ll ever make in their lives. Over the last 20 years, the price of housing in the UK has trebled – in London, they’ve gone up even more.
Thankfully, mortgage interest costs are at historic lows meaning that, once you’re settled in, your monthly mortgage payments will be manageable if you’ve budgeted properly.
In this article, we’ll look at what costs you’ll meet when you buy a new home together with our top 10 ways to budget so that you can afford to move into your next home.
Before the financial crash, it was possible to obtain a mortgage on a new home with no deposit down. In some cases, particularly with Northern Rock, you could buy a home with no money down and get an additional loan of up to 30% of the value of the home.
Those days are all gone now, and lenders are much more risk-averse. You will now have to raise at least 5% of the cost of your new home as a deposit in order to get a mortgage. As a good rule of thumb, the more deposit you can put down, the lower the interest rate you’ll pay on your mortgage.
The Government have a number of schemes available to help people with the deposit on the property they wish to move into, mainly targeted towards first-time buyers. There’s an online test available where you can find out straight away if you’re entitled to any government assistance and, if you are, what you can take advantage of – please click here.
You’ll need a mortgage to buy your new property. You can either approach a lender directly or go through a broker. If you’ve had money problems in the past, you’re self-employed, or you have a variable income, you may be better to go through a specialist broker who has good relationships with mortgage companies which regularly lend money to people who are not in standard, full-time employment.
If you use a broker, you will likely pay a few hundred pounds to him or her for arranging your mortgage. Some brokers will want payment in advance, others payment after you’ve accepted the mortgage, and others a mixture of the two. Before you choose your broker, it may well be worth seeing what other customers have said about them online to help your decision-making.
There will be other charges that you’ll have to pay to the mortgage company itself. Most charge a booking fee of between £100 and £250. Then there is an arrangement fee of up to £2,000 and a mortgage valuation fee (that’s when a surveyor inspects the home you want to buy and sends back a report about its condition to the mortgage company) of around £150 or higher.
You can choose to add these to the mortgage instead of paying them up front but please be aware that, if you do, you’ll be paying interest on those charges for the next 25-35 years or until you switch mortgage provider.
Stamp duty is a tax you pay to the government when you purchase residential property. A different stamp duty scheme which is more expensive exists for people who are buying a home to rent out as a buy-to-let or as a holiday home but we won’t be covering that in this article.
In England and Northern Ireland, you’ll pay stamp duty on homes that buy for £125,001 and more. If you’re a first-time buyer, you can purchase a home for up to £300,000 without payment stamp duty on it. For homes between £300,001 and £500,000, you’ll pay a reduced rate of stamp duty as a first-time buyer.
In Scotland, you pay the Land and Buildings Transaction Tax. You start paying this tax if you buy a property for more than £145,000. In Wales, Land Transaction Tax does not kick in on properties costing £179,999 or less.
If you’re selling your existing home to purchase a new one, you’ll pay an estate agent up to 3% of the value that your property is sold at as commission. 3% is the very top end of the scale – you’ll more likely have to pay between 1-1.5%. You only pay commission to your high-street estate agent when the person who is buying it from you actually becomes the new owner.
You can also choose one of the new breed of online estate agents, like PurpleBricks and EasyProperty. Their charges are generally much lower than high street estate agents however be aware that many of them will bill you even if your property does not sell.
You could also choose to market the property yourself – become your own estate agent. This is often the cheapest option by far, but it does put a lot of responsibility on you. Bear in mind that a large percentage of the savings you make may be swallowed up by fees to advertise your house and you can’t claim those back if your home does not sell.
Unless you want to rope friends and family in to help you and hire a white van to help you move in, you’ll need to factor in the cost of using a removal company to help you move your possessions to your new home.
If you need to use a removal company, you should expect to pay between £250 and £750 depending on how much you’re taking to your new home and how many trips the van has to make.
Many homes are ready to move into straight away meaning that all you’ll need to budget for to get the place just the way you want it is a lick of paint.
However, others require varying degrees of work to make them liveable in. Once you’ve chosen the home you want to live in, ask the estate agent for another visit so you can make a list of what needs doing. You can then phone around for local quotes for a total and ask the seller to drop their price by that amount.
Most homes are sold without furniture, so you’ll have to put aside a budget for sofas, tables, chairs, beds, wardrobes, and more. If you want to buy them new, expect to pay a premium but it’s always wise to shop around and look for special discounts during sales periods.
Alternatively, you could furnish your new home with second-hand furniture to make some really big savings. Consider using online auction sites, second-hand shops, and local person-to-person selling apps like Shpock to find the furniture that’s just right for you.
Money is always going to be tight when you move home so here are our top ten tips to relieve some of the financial pressure.
Ask for a raise at work – if you don’t ask, you don’t get. An extra £20 or £30 a week will go a long way to building up the deposit for your new home.
Switch suppliers – look around to see if anyone is offering a better deal on supplying you with gas, electricity, broadband, landline telecommunications, and mobile phones. Switching to cheaper alternative could save you £100 a month.
Pay down your debt – when you’re looking for a mortgage, one of the key criteria a lender will look at is how affordable the mortgage repayments are for you. If you pay your debt down, that not only makes you look like a responsible borrower but frees up more cash to meet mortgage payments when you’re in your new home.
Approach the taxman – if you’re an employee, you’re more likely to be overcharged on your tax than anyone else. Ask HMRC to check that the tax you’ve paid in the last few years has been correct to see if you qualify for a refund. Please be aware though that if they find you have underpaid tax, they will ask you for the difference.
Get a flat mate – if there is room in your current home for a flatmate or housemate, HMRC allow you to charge them up to £7,500 a year in rent and other charges and you don’t have to either declare it or pay any tax on it.
Shop smart, cook more – by switching to cheaper supermarkets, you could save £30 a week on the items you’re already buying. And by cooking your own meals instead of relying on ready meals, your savings could be even higher.
Take public transport – if you live in a built-up area, getting a monthly or annual pass for the bus, train, metro, or tram could work out a lot less than what you spend on fuel and parking to drive to work.
Move back in with your parents – probably not what you want to hear but if it’s an option, you’ll be saving on rent and rates – that could be £5-6,000 a year you save (minus whatever board you pay)
Use vouchers on nights out – you still want to go out and meet your friends for drinks and a meal? Find out what special deals are available on local nightspots on sites like Groupon and Wowcher.
Freelance – there are plenty of freelancing sites out there where you can earn extra money in your spare time. If you can write, design, have business knowledge, speak a foreign language, or are good with organisation, a few hours’ extra work a week could add up to £100 more in your pocket.
Moving home is an exciting and nervous time. You can take away a lot of the stress by budgeting for your move and by following our plan, you could save and make thousands to spend on the property of your dreams.