Buying your own home is the ambition of millions. But while saving for the deposit, getting a mortgage and paying the monthly instalments are all tough, you could underestimate other costs in getting on the housing ladder.
Many could hit you just as you are purchasing the property. Besides home loan repayments, you’ll need to calculate other spending including moving and insurances.
New research from Which? Mortgage Advisers shows that more than one in five home buyers – 22 per cent – are busting their budget when purchasing a property. This potential leap into the red is driven by a mix of high prices for homes and failing to work out the real costs of home ownership.
The Which? Mortgage Advisers findings are based on talking to 2,000 home buyers.
These show the under 30s are the most vulnerable to pressure to over-spend with a third in this age group – 34 per cent – paying more than they had planned to buy their own home. But those in older age groups are not immune. The research found that almost half - 45 per cent – of all home buyers are pushed to the upper limits of what they had intended to spend.
Going over budget can have serious consequences.
The higher deposit and mortgage repayments needed in today’s housing market, even if many loan interest rates are at a record low, could impact on your ability to meet other financial commitments over both the short and long term.
If you get it seriously wrong, you could find that your home ownership dream turns to dust before you even pick up the keys.
But even pushing yourself to your affordability limits can also have consequences – other financial needs such as pensions or credit card payments could be ignored or downplayed. And you won’t have a cushion against the unexpected – illness or loss of work or a future interest rate rise.
Planning a workable budget, and then sticking to it, are both essential.
You have to consider all the financial components of the home buying process, including survey expenses, legal costs, removal company bills, home loan fees, stamp duty and the insurance your mortgage company will insist upon.
Calculate these even before putting in an offer for a property. Many are upfront – others will hit you every month.
Mortgage advisers should be able to give you an idea of these costs. Having the right information early on in the process will help you budget, and keep you on the path to home ownership.
What to expect
■ Mortgage rates cost less for every 5% deposit you put in.
■ Home loan upfront fees may pay for the lender’s valuation survey and legal costs. Expect to pay around £1,350 on a £250,000 property. Fee-free mortgages may have higher interest rates.
■ The valuation survey doesn’t cover possible structural defects. A thorough building survey will cost around £500 to £1,300 – depending on the property.
■ Stamp duty is levied on all homes over £125,000. On a £300,000 home, you’ll pay £5,000
■ Removal costs vary. If you can’t go DIY, expect to pay around £500 to £1,000 depending on size and distance.
■ Don’t forget council tax and utility (gas, electricity, broadband and phone) bills.