Buying your first home is one of the most exciting experiences of your life, but it's also a whole new world, filled with strange administrative requirements and, of course, expenses. For the uninitiated, buying a home can prove a surprisingly expensive business, at a time when money is at its tightest.
Planning ahead can help you prepare for those expenses, and budget accordingly. Knowing in advance how your costs could add up will help you work out how much you can afford for your first home. A mortgage calculator will show how much you could borrow depending on your income and the size of your deposit, and whether you may need to use some of your savings to pay for those expenses instead of increasing your deposit.
Here are some of the key expenses:
Stamp Duty: This has changed significantly in recent months and years with helping first time buyers at the bottom of the ladder and taxing richer home buyers at the top. At the moment first time buyers only pay Stamp Duty on properties over £250,000 (until 24th March 2012) while, on 6 April this year (2011) homes bought for £1m and over will attract a 5% levy. Below is the full Stamp Duty table:
Home bought worth:
Up to £125,000: 0%
From £125,001 to £250,000: 1% (except first time buyers, who pay nothing)
From £250,001 to £500,000: 3%
From £500,001 to £1m: 4%
Over £1m: 5%
Over £2m: 7%
Mortgage fees: Arrangement fees for mortgages have risen over the past year or so as a result of the turmoil in the UK financial markets, and they could now cost several hundred pounds depending on the product you choose. Some mortgage lenders will allow you to add the fee on to your total mortgage so you don't have to pay it upfront – though of course if you do this, you will be charged interest on the higher amount, while others may offer reduced fees in exchange for higher interest rates.
Higher Lending Charge: Also known as a Mortgage Indemnity Guarantee, a higher lending charge is levied on borrowers who have relatively small deposits. Because their risk is considered greater, the charge is designed to offset any costs caused by default. Some lenders, including Woolwich, no longer charge this fee to first time buyers.
Legal fees: In theory, you could carry out the legal work required for buying a home yourself. But realistically, you're going to need to hire an expert. A solicitor or conveyancer will check all the ownership details, make sure the property is not subject to any planning actions and arrange the transfer of the price and details between the buyer, seller and lender. Legal fees may come to £3-500 normally, but you will also have to pay the additional expenses, such as Land Registry fees and the cost of searches.
Surveys: Broadly speaking, there are three levels of survey you can opt for when buying a home. The first is a valuation report, which simply tells the lender whether the property is suitable for the size of mortgage you have applied for. It doesn't really do much for the buyer, and many lenders don't even show this to their customers. It will cost about £100.
Next up is a Homebuyer's report, which will cost around £400, depending on where you live. This valuable report will tell you about any problems with the property, such as whether it suffers from damp. While the cost may seem an unnecessary expense, it could end up saving you money - if any problems are found, you can renegotiate with the seller to cover the bills for putting them right.
Finally there's the structural survey, which is often carried out on older or more unusual properties. The cost depends on the size and type of the property, and can be expensive, but it's worthwhile if you're buying something out of the ordinary, or that may have witnessed the first Queen Elizabeth pass by.
At the moment first time buyers only pay Stamp Duty on properties over £250,000