Fookit.co.uk Home Buyers Quick Reference Guide.
Buying a house is one of the biggest financial decisions you will make in you life. It is a lengthy and complicated business, which while exciting is often fraught with stress and worry. But luckily there is a lot of good advice around helping you to make your home-buying experience as easy and problem-free as possible.
Fookit.co.uk has prepared this short introduction to the home-buying process to help you understand how it all works, to give you a better idea of what to expect and how to set out to buy a home feeling prepared and ready to go!
How Much can you afford to spend on a house.
You have decided that you are buying a property, but exactly how much can you afford? On top of the cost of the house itself, there are many one-off expenses involved in buying a home and moving which can add up to anything between £15000 - £5,000. In order to get a good idea of what sort of homes you can realistically hope to buy, you also need to take these extra costs into account.
How much can I borrow.
It's always a good idea before looking at properties, you consult a lender or mortgage adviser as to what your maximum possible loan would be. This will be based on how much you earn and the size of your deposit.
Most if not all buyers need to put down a deposit on the property – a mortgage lender will rarely pay the whole price of the property. Although first-time buyers may get some financial considerations, it's by no means guaranteed. Try to put down a deposit of least 5 per cent of the value of the home, more if possible.
Remember! The smaller the deposit you put down, the more your lender will charge you for the extra risk. Most mortgage lenders charge a 'mortgage indemnity guarantee fee' (MIG), or a fee for loaning a higher percentage of the value, on bigger loans. If you do not have enough money for the deposit, for example if your house is not sold yet, it is possible to get a 'bridging loan' from your bank, which will be repayable on the sale of your house.
Lenders will usually lend up to three times the size of your annual income, though some will lend up to four times your income. If you are buying as a couple, this increases to either three times the first income plus one year of the second income, or two-and-a-half times your joint income. Work out which way would allow you a higher loan and find a mortgage with which you can get a joint income allowance which suits you. Your lender will contact your employer to confirm your income, or if you are self-employed you will have to supply proof of your income.
Unavoidable one off costs.
Arrangement Fee
Charged by lenders to cover the cost of setting up the mortgage. Some lenders waive this fee.
Lender's Valuation (Basic Valuation)
All lenders require a valuation of the property to check that it is worth the price being paid for it. This is commissioned by the mortgage lender but you must cover the cost. The cost of the valuation depends on the value of the property – for example, allow about £125 for a property worth £50,000, £165 for a £100,000 house and so on. Some lenders do not charge this fee, as an incentive for you to take out a mortgage with them.
Survey
It is strongly advised that you have your own independent, more detailed survey carried out to check for any defects. There are two types of survey, the homebuyers report which costs between £250 and £500, and the more comprehensive buildings survey or (structural survey) which can cost anything up to £1,000 plus. VAT, depending on the value of the house. Allow extra if you need more specialist checks, for example on old properties.
Legal/Conveyancing Fees
You will need to instruct a solicitor to deal with the legal aspects of buying a property. There is no standard fee so it is always a good idea to shop around for the best rate. Some solicitors charge a flat rate while others charge a percentage of the property price, normally up to 1 per cent. As well as the price of your house, the fee will take into account factors such as the amount of paperwork involved, how much skill is required and how complicated the transaction is.
You will also have to pay for the legal work done by your lender's solicitor. Again, prices vary so ask your lender how much they charge. If you use the same solicitor as the lender to do your conveyancing this may save you money, but compare charges with other firms.
Stamp Duty
This is a government tax, charged for properties above £120,000. If your new home is priced between £120,000 and £250,000, you will pay 1% of the property price. From £250,000 to £500,000, it will be 3% and over £500,000 it will be 4%. So, for example, if you are paying £200,000 for your home you pay £2,000 in stamp duty.
Land Registry Fee
The Land Registry is a government department which looks after the registers of all registered properties in England and Wales. It charges a fee for transferring the register to the new owner. This fee is charged according to property price.
Price (£) Fee (£)
up to 40,000 40
40,001 – 70,000 60
70,001 – 100,000 100
100,001 – 200,000 200
200,001 – 500,000 300
500,001 – 1,000,000 500
1,000,001 and over 800
Local Authority Search Fees
Local searches will be carried out by your solicitor/conveyancer to ensure that there are no potential problems such as planning permission on neighbouring properties or plans for new roads nearby. Allow at least £60, or more in London boroughs.
Other Search Fees and Disbursements
These include index map, commons, the coal authority, land charge, company searches, bank transfer fees. Allow about £70 to cover an average house purchase.
Estate Agent's Commission
If you're selling your property as well as buying one, the sum charged by your estate agent has to be taken into account. Usually this is charged as a percentage of the property price, around 1.5 – 2 per cent on average. If you are selling it yourself, you will need to pay for advertisements.
House-hunting Expenses
House-hunting itself can be a costly business – allow money for eating out, travel and telephone calls, and hotels if you are buying in a different area. Consider whether you will need time off work.
Removal Fees
Ask for quotes from at least 3 different removal firms, as prices vary. Remember you will need to give tips. You can do the removal yourself, but this is much more time-consuming and inconvenient. If you are DIY-ing it, costs will include van hire (+VAT and insurance), petrol, and return travel from the van hire company when you return it. You will also need about £25 for insurance.
Mortgage Indemnity Guarantee [MIG]
This is an insurance premium charged by some lenders where your loan amount is more than 75% of the price of the property – in other words, where the loan to value (LTV) is greater than 75%. Other lenders do not charge an MIG, while some only charge when the LTV is more than 80 or 90%.
This is charged in case you default on your mortgage repayments and the mortgage lender cannot recover its money. Note that this protects the lender, not you.
Costs vary from lender to lender but typical MIG premiums are:
* 4 per cent of the amount borrowed above 75 on a loan of up to 90 per cent of the purchase price
* 6 per cent of the amount borrowed above 75 per cent on a loan of up to 90-95 per cent of the purchase price
* 8 per cent of the amount borrowed above 75 per cent on a loan of up to 95-100 per cent of the purchase price
Other Costs to bear in mind:
Buildings insurance premiums: Contents insurance premiums: Additional removal insurance:
Disconnection of services (water, gas, electricity, telephone) Reconnection of services:
Mail redirection: Change of address notices.
