Costs of buying your first home

Costs of buying your first home

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Buying your first home is an exciting time, but there are a few fees and charges to pay before the process is complete. First-time buyers need to save enough to cover all the costs.

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The process of buying your first home can be a nervous and exciting experience, but it’s also a big commitment. It’s useful to know exactly how much it’ll cost to get your first home, including the deposit you’ll put down and any fees and taxes that pop up along the way.

How much does a first-time buyer need for a deposit?

A first-time buyer needs a deposit that’s 5%-25% of the purchase price. The average on MoneySuperMarket was 20%, or £43,433. You get cheaper mortgage interest rates with 20%+ deposits. In general, you’d be looking for a deposit of at least 10%.

With the cost of the average UK home now at around £227,869 (according to Halifax figures for October 2018), a 10% deposit means saving a total of nearly £23,000.

The higher your deposit, however, the lower your monthly payments are likely to be. To access the cheapest mortgage deals you’ll need a deposit of more like 25%. The average deposit for first time buyers, according MoneySuperMarket figures, is £43,433 – which is 20% of the average purchase value of first-time buyer mortgages (£217,200).

first-time buyers average deposit is £43,433

How much will monthly repayments be for a first-time buyer mortgage?

The average monthly mortgage payments for first-time buyers is £761, according to MoneySuperMarket data.

When you’ve taken out your mortgage, you’ll make monthly repayments until you’ve cleared the debt – then the property will be yours. The amount you pay each month will depend on your deposit as well as factors such as:

  • Your financial history: the information on your credit report will help lenders decide what kind of mortgage they’ll give you, including the interest rate you’ll pay back
  • The economic climate: the current state of the market can also affect the interest rate your lender offers, as well as house prices in general

You might be able to choose between repayments that chip away at the entire loan, from original sum to interest, or interest-only repayments. Interest-only repayments mean you only pay off the interest on the loan you take out, before paying a lump sum at the end to cover the outstanding cost.

If you take out an interest-only mortgage it’s recommended that you have a repayment plan in place, such as investments, savings, or bonds. This is so you have the lump sum ready to pay at the end of your mortgage agreement.

These types of mortgages are becoming rarer, as lenders are increasingly concerned that people who take them out don’t have repayment plans ready. At the very least, you’ll likely need to put down a sizeable deposit and have a good credit history to qualify.

Data collected between January and July 2018 by MoneySuperMarket, accurate as of July 2018

How much will mortgage fees cost for a first-time buyer?

Aside from your deposit and monthly payments, you also need to factor in the various fees and charges that come attached to most mortgage agreements. These could easily run to as much as £5,000 to £10,000. These can include:

Arrangement fee

A mortgage arrangement fee can be a flat sum that costs anything up to £2,000-£3,000. It can also be given as a percentage of the overall mortgage cost – and in this case, it could be even higher.

An arrangement fee is what you pay for the mortgage product itself. You’ll usually be given the option of including the arrangement fee in your mortgage payments. While it does mean you can avoid an initial up-front cost, it’s likely to increase your interest rate and overall payments.

Booking fee

Some lenders combine booking and arrangement fees, and some charge them separately – if it is a separate fee, it’ll usually come somewhere between £50-300.

A booking fee is for the cost of applying for the mortgage. For many lenders this isn’t a refundable payment, which means even if you decide not to go through with the mortgage, you’ll still have to pay the booking fee.

Valuation fee

You’ll pay usually depends on your property’s value, but you can expect it to be somewhere between £100-£2,000.

The valuation fee is for when the mortgage provider assesses the value of your property to make sure it’s worth the sum they’re going to lend you. It generally only includes the property value itself, not any potential future costs you might face.

CHAPS

A CHAPS, or Clearing House Automated Payment System, covers the cost your mortgage provider sending funds to your solicitor. It’s generally also non-refundable, but it’ll normally only cost up to £50.

Mortgage account fee

You also have to pay for the administration cost of your mortgage for your lender, which generally costs up to £300.

Mortgage broker fee

The fee for mortgage brokers generally falls in the region of £500 – however sometimes they take this from the mortgage lender as commission.

Legal fees

You might also have to pay fees directly to your solicitor for their part in the mortgage arrangement – usually between £500 and £1,500. This can also include the cost of the land registry fee and the mortgage lender’s own legal costs.

Survey fees

As your lender’s valuation only covers the value of the property, you’ll also need to pay for your own survey. Depending on how detailed it is, the cost could be anywhere from a few hundred to over £1,000.

It covers the property value as well as any potential issues you might face, such as structural problems or planning problems – for more information, read our guide on how to choose the right survey.

Stamp duty

Stamp duty is the tax you pay on transactions involving property and land and can be as high as 12%. But it’s not payable for everyone. If you’re buying your first home, you won’t have to pay stamp duty for properties costing up to £300,000.

For properties costing up to £500,000, you won’t pay stamp duty on the first £300,000, but if your home costs over £500,000 then you’ll pay the normal amount:

  • For the first £125,000 the rate is 0%
  • From £125,001 to £250,000 the rate is 2%
  • From £250,001 to £925,000 the rate is 5%
  • From £925,001 to £1,500,000 the rate is 10%
  • From £1,500,001 and upwards the rate is 12%

However this only applies to first-time buyers in England and Northern Ireland – the rules are different for Scotland and Wales.

How much will the moving process cost?

The total cost of moving generally depends on how much you need to pack away, and possibly how far you’re going. It could cost anywhere from £250 for a local move for a one-bed flat, to over £1000 for a long-distance haul.

If you’re able to take care of it yourself this could help save a lot of money, but if not you might want to consider a removals company. Costs can vary depending on how much you need to move, but it might be a good idea to put a few hundred quid aside for this.

How much does home insurance cost?

Most lenders require you to have buildings insurance as part of the mortgage agreement, it can also be helpful to include contents insurance – for an extra level of protection. The cost can vary depending on the level of cover you want, as well as the condition of your home, and the area it’s located – find out more with our guide to insuring your first home.

Compare mortgages to find a better deal

If you’re looking to take out your first mortgage, you can find a better deal by comparing options on MoneySuperMarket. All you need to do is tell us a little about how much you want to borrow, as well as the value of the property you’re buying, and how you want to pay the mortgage back.

Then you’ll be given a list of mortgage quotes tailored to your needs, so you can compare them by the type of mortgage they’re offering, how much interest you’ll pay, as well as any fees included. Once you’ve found the deal you want, just click through to the provider and finalise your application – then you’ll be one step closer to buying your first home.

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