So, you’re finally doing it. You’ve made the big decision to buy your own house. It’s an exciting prospect but it can be a long road to collecting your keys and there’s much to think about before you hire your removal company.
Here’s our quick guide on how to get moving.
HOW MUCH MONEY CAN YOU BORROW?
Getting a mortgage is not as simple as it used to be. The government has changed the rules so that banks have to apply tough criteria to new applications. This means lenders will look very carefully at your current income, your spending, and how changes to these might affect your ability to afford payments in the future.
The amount you may be offered isn’t a simple calculation, and will also depend on your credit score. Based on typical bank lending criteria, a couple with a joint income of £50,000 could be given between £125,000 and £175,000.
DEPOSITS
A key factor in a successful mortgage application is to have a decent deposit on hand. Somewhere between 5% and 20% of the price of the property you’re considering should be sufficient but remember, having a significant amount to lay down in a deposit lowers the risk for the lender, and will most likely get you a better deal.
FEES
When budgeting to buy a house there a whole range of additional costs which you need to be aware of.
Mortgage arrangement fees: these are charged by your lender for doing the paperwork and the average is about £1,000. You’re able to either pay them up-front or add them to your mortgage.
Valuation fees: your lender will require a valuation to check your property is suitable to lend money against. Expect to pay a couple of hundred pounds.
Stamp Duty (or Land and Buildings Transaction Tax in Scotland): this is a government tax applied to sales of properties over £125,000. That means the first £125,000 of your sale price isn’t taxed, but any portion of the price that goes over that figure is. You pay 2% on the next portion up to £250,000, 5% up to £925,000, 10% up to £1.5m and 12% on anything above that. So a property bought for £150,000 would create a tax bill of 2% of £25,000 – that’s £500.
Solicitor’s fee: a solicitor or conveyancer will complete all the legal paperwork and make sure your property is bought legally. They will check for any issues and manage the sale – expect to pay somewhere between £500 and £1,500.
Survey cost: these aren’t required by law but are important to understand the condition of any property you are interested in. There are a couple of options to consider depending on what you choose and the price of your house. Budget for somewhere between £500 and £1,000.
Buildings insurance: this is usually a condition by your lender for getting a mortgage and covers the cost of repairing or rebuilding your home if it’s damaged. The average cost is £181 a year.
THE APPLICATION PROCESS
As mentioned earlier, this process is much more in-depth than it used to be. Choose whether you’re going to use a broker who can offer you products from a range of lenders, or whether you approach lenders, like your own bank, directly. There’s also a middle ground where you could use price comparison websites to get a feel for the market then choose a lender you like the look of.
TYPES OF MORTGAGE
There are a number of different types of mortgage and the one you choose will depend on your personal circumstances. The main three are:
Tracker mortgage – the interest rate you pay on these is linked to the national interest rate (or base rate) set by the Bank of England. If the base rate was 0.75%, and you took a tracker mortgage with a rate that is 1.5% above the base rate, your interest rate becomes 2.25%. Trackers are often available for two or five years.
Fixed rate – these offer an interest rate that remains the same for a fixed period, usually one to five years. This means you’ll know exactly what you are paying but won’t feel the benefits of cuts to national interest rates.
Discount mortgage – these are like trackers but the rate is tied to the lender’s own standard variable rate (SVR), rather than the base rate. Lenders can change their SVR at any time.
Once you’ve chosen your preferred provider, you will need to do lots and lots of paperwork. This includes providing personal information about you, your family, your future plans, and details of your earnings and employment. If you are successful, the mortgage company will then complete a valuation of the property you’re interested in before making you an offer.
If everyone is happy at the end of this process, you will need to appoint a solicitor to make sure everything is in order, complete the paperwork and transfer the money to the seller. It seems like a long process, (and it is) but nothing beats the satisfaction of owning your own home. It makes it all worth it!
Be sure to follow these simple steps to make sure your move into your new home goes with minimal fuss.
This article was originally published on www.eratemecularealestate.com and is republished with permission.
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