First time buyers are still struggling to gain a foothold on the property ladder. Annd many risk over-extending themselves financially. There are many hidden costs when it comes to buying your first home, so it’s important to be aware of them – and to factor them into your calculations.
There are all kinds of fees to pay if you’re trying to secure a mortgage and getting ready to move into a property. And if you don’t choose your first home wisely, there can be many unexpected expenses after you’ve picked up the keys too.
Can you afford it?
Affordability is a key issue for first time buyers. Saving up a large deposit usually means that you’ll be able to find more favourable mortgage terms. Paying off a chunk of the house price at the start also means you pay less total interest over the mortgage period. And it may help protect you against negative equity.
As well as saving up as large a deposit as possible, consider the likely size of the monthly mortgage repayments. Check comparison websites, but don’t apply for finance until you’ve found a property as it can have a negative effect on your credit rating.
As a general rule of thumb, it’s recommended that the mortgage payment is 40% or less of your take-home salary. If it’s more than that you might struggle, although you might be in a position to use the tax-free government ‘rent a room’ scheme if there’s a spare bedroom.
The type of mortgage is important too. While the low monthly repayments of an interest-only style mortgage may seem appealing, be aware there’s an additional lump sum that you’ll need to pay off when the mortgage term ends.
Finding the right place
Once you have a reasonable idea of your budget, shop around. Consider size, type, location, amenities and the general state of repair.
The state of the property is crucial. If you’re buying a ‘fixer-upper’ you have to make sure you don’t bite off more than you can chew, as costs can spiral. Look carefully for the following:
- The state of the roof
- Condition of exterior brickwork
- Signs of subsidence
- Signs of rising damp
- General security of the property
- Condition of boiler and heating
If possible, visit the property at different times of day to get a fuller idea of the neighbourhood, and the neighbours. There’s an extensive viewing checklist on the Directgov website that you might find useful as well.
Think how you might add value to the property too, for example:
- Loft or other extension
- New bathroom and kitchen
- New flooring
Also consider whether a property is leasehold, freehold, or share of freehold, as there may be one-off or annual costs involved. In addition, many flats have maintenance fees and other charges, and costs for building work and repairs are not always evenly split between flats.
Buying the house or flat
Remember that as a first time buyer you’re in a good position to haggle/negotiate a better price with the seller, because you can move quickly and aren’t stuck in a chain.
You also need to look out for extra costs, starting with mortgage-related fees, such as:
- Booking (or set-up) fee
- Arrangement fee
- Valuation fee
- Account fee
- Higher lending charge (for smaller deposits)
- Telegraphic transfer fee
- Buildings insurance fee (for alternative providers)
After the mortgage, factor in:
- Stamp duty
- Legal costs (solicitor or conveyancer)
- Local council searches
- Survey for structural defects
- Moving costs, storage rental
- Buildings insurance
- Contents insurance
You may also decide to take out life insurance and payment-protection insurance. Some properties also have service charges or ground rent.
The Money Advice Service has an excellent checklist to help you estimate all these upfront fees, so you don’t go over your budget.