Sadly buying a property costs more than the offer you make and there are a number of parties involved in purchasing your first home including solicitors, lenders, insurers and brokers each with their own costs. These costs need to be carefully considered as they can add a great deal on top of what might be an already stretched budget.
Your deposit will be one of the biggest costs when buying a property. This is the upfront down payment on the property you wish to buy. Saving for a deposit can be a challenge due to existing commitments like rent and other bills. The amount you need will be dependent on the value of the property you are looking to buy. If you have a property in mind you can use our Deposit Calculator to estimate the deposit requirement. Usually 10% of the property value will be required upfront. The more you can put towards the deposit, the better mortgage product you will be able to get so aim for a higher percentage if you can.
If you are lucky enough to be gifted a deposit by a family member there may be additional fees payable to the solicitors to ensure the amount is in fact a gift and not a loan which may have a bearing on the affordability of the property.
Solicitors are appointed by you to deal with the legal process of buying a property. This is called conveyancing and is a complex and often paper-heavy process. Solicitors fees can vary dependant on the complexity of the transaction and the value of the property. Fees that need to be included for in your affordability calculations include Identification Checks, Creation of Interest in Land, Land and Buildings Transaction Tax (Stamp Duty), Telegraphic Transfer Fees as well as any other fees related to the transaction. The total costs vary dependant on the value of the property as the Solicitors will quote the Land and Buildings Transaction Tax within their costs. An additional £1000 at least should be set aside for legal process costs alone and LBTT costs on top of this.
Arrangement fees from lenders can vary dependant on the mortgage products and an appealing lower interest rate that can appeal to appeal to buyers can result in higher initial fees, whilst you may pay less over the course of the mortgage it is often unappealing to pay fees when you don't need to. There are products that don't include upfront fees and lenders will offer these deals to appeal to buyers. Some lenders may even offer cash back during periods of low interest rates and high borrowing to encourage borrowers to take out a mortgage with them.
Booking Fees can also be charged by lenders in the event of you proceeding with the mortgage application and then for whatever reason you no longer wish to take out the mortgage, for example if you find another lender, the purchase falls through or if you later decide against purchasing a property.
Life Insurance - You may already have a life insurance policy in place which will in event of your death pay out to ensure loved ones are not left with financial burdens.
Critical Illness Insurance - There are a number of critical illnesses and other health related problems that could result in your inability to continue working and as result be able to pay your mortgage and other commitments.
Income Protection - If there was a significant drop in your income that meant you would struggle to meet your mortgage commitments income protection insurance can help ensure you can continue to pay until such time as your income recovers.
Building & Contents Insurance - Once you own the property it is your responsibility and bad things can happen including fires, floods and damaging storms. Without buildings insurance you could be left paying a mortgage on a pile of worthless bricks if something bad did happen. Buildings insurance will help you rebuild and replace a damaged property.
Contents insurance will cover you in event of theft, accidental damage of your valuable possessions within the property.
You might choose to use a broker to arrange the mortgage for you to provide you advice on the mortgage market or find a product that suits your needs but perhaps isn't very well advertised. Brokers will usually offer an initial consultation free of charge and then fees for future meetings as well as earning commission from lenders. There are free mortgage advice providers that only earn commission from the lenders and these costs become absorbed into the mortgage and as such aren't noticeable. Brokers can take a lot of the stress of purchasing a property away from you and their experience of the housing market can ensure that your interests are protected.
Brokers also offer arrangement of important insurances that are recommended when buying a property such as life insurance, critical illness cover, income protection and Building & Contents insurance.
Lenders will require assurance around the value of the property you are buying and will require an independent valuation to confirm the value that is stated within the Home Report.
There are lenders that will not include these fees to appeal to borrowers which can save you hundreds or even thousands dependant on the value of the property.
If there area you are concerned about within the home report, where it states improvements will be needed for example, you may wish to instruct your own survey of the property to ensure the value is accurate before proceeding with the purchase. An independent surveyor with knowledge of the local housing market will be able to undertake this work on your behalf to give you piece of mind that the property you are intending to buy is worth it.
If you already have a lot of bulky items to take with you to your first home then you will need to factor in the cost of buying. This might be renting a van and doing it yourself or finding a local moving firm to assist you. Costs for this will vary dependant on the amount you are moving, distance and when you are moving.
Not all properties have factors but flats in particular may have to pay a monthly fee to ensure the maintenance of communal areas and gardens. This cost can vary greatly dependent on a number of things including the age of the property, the factoring company and facilities within the building such as lifts that have high maintenance costs.