what savings i need to buy a home?

Buying your new home is both scary and extremely exciting at the same time. The process can be long and difficult. It is extremely rewarding though once you finally get your hands on the keys to your new property. Below I will cover the main fees you will be expected to splash out on when you decide to buy a home.

I want to cover all the key expenses that you might need to pay in the process. Not all of these will apply to everyone. Some of these fees can be covered by your mortgage provider for example.

If getting a home is a dream of yours however you aren’t sure you can afford it – there are some government help to buy schemes. I have recently covered two schemes that are available in England. You can read about Equity Loan and Shared Ownership by clicking the links.

want to buy a home – start with a mortgage calculator

Before actually looking into any fees I would personally start with understanding if the property you want to buy is actually affordable. If it isn’t – what else you could stretch your budget to. There are plenty of mortgage calculators online. You can search for one online. Alternatively, you can simply follow this link.

Do a quick Google search on what the current mortgage interest rates are likely to be. In the current period I wouldn’t be able to suggest what these are. And the banks are so often reviewing these now. With the current inflation rate and BoE reviewing base rate – mortgage rates are likely to be going further up.

The mortgage calculator will give you an understanding of what the roughly monthly payments are going to be. You should be able to tell if that is affordable to you personally straightaway. At the end of the day, you are the one who knows your personal circumstances the best.

deposits are large when it comes to buy a home

Deposit is going to be one of the first big lump sums that you will need to have in your bank account. This will normally vary between 5% to 20%. This will really depend on your credit history. Banks will review how risky you as a customer likely to be. This will also depend on what sort of future the bank is predicting. First time buyers are more likely to benefit from 5% rates.

This means if the property you are looking to buy costs £300,000 – the deposit you will need is between £15,000 and £60,000. That is definitely a very wide bracket. Do your homework – have a conversation with couple of potential lenders to clarify which end of the spectre you might be.

If the bank thinks that there might be recession and high unemployment rates they will most likely ask for higher deposit to be available. Most banks will have some sort of affordability calculators on their website. The alternative is, you can book an appointment in your local bank branch and they will be able to assist you with this. You can use any bank and not only the one you have your current account with.

legal fees and surveyor costs

Next, I will look into some of the fees that you will be expected to pay in the process. I’ve divided this into two sections. From my personal experience, the first section is the one that you will have to pay. The second however, is something that will depend on your lender – some will offer to cover these for you.

I will start with legal fees. This is something you will have to pay to transfer the property into your name. So this is the fee that you most definitely want to pay. I would suggest shopping around. My estimate for this is anywhere between £1,000 and £2,000.

One thing I would encourage you to do when it comes to legal fees – read the reviews of previous customers. You don’t want to pick someone who will drag the process forever. A lot of solicitors will also offer you things like apps where you get regular updates. It also makes it a lot easier and quicker for you to get in touch with your solicitor.

Next, is surveyor costs. This is a process where they try to understand the condition of your property. You have plenty of options and add-ons depending on how thorough of a search you want to be done on the property.

In the above process they would discover any potential issues with the property. Spending a bit of extra at this stage can save you a lot in the long run. Last thing you want – buying a property that will end up being a disaster and a massive hole in your personal finance.

The very basic will cost you starting with £200 or so. The more options and extras you pick – the higher the cost is going to be obviously. If you were to go for all in survey on the property this could come to over £1,000.

Do also keep in mind – if any bad defects are uncovered you might end up walking away from the property. The fee you have paid however will already be spent. It is better to lose £1,000 but avoid getting a disaster of a property for yourself.

valuation and mortgage fees

These two are the fees that you might be lucky to avoid paying. Some lenders offer these as incentives to take out mortgages with them.

Valuation fee is simply the lender checking that the property you want to buy is actually worth the mortgage you’re trying to get. Any lender wants to be confident that the mortgage they will let you would actually be covered by the property value in case they need to sell it.

Valuation fee is in the region of £200 to £400. I have heard that these can go significantly higher however I have never actually seen the valuation fee being more than that.

Mortgage fees are like admin fees. It is a bit silly – you will be paying interest one time and to get the privilege of this you need to pay another fee on top.

There are loads of mortgage products that different lenders offer. They will always offer you a product with better interest rates however they will ask for a fee for you to get access to it.

I personally wouldn’t walk away from a product with a fee straight away. I would have a look into the difference between the two. You might actually end up saving some money on your monthly payments that would actually offset the mortgage fee itself.

Be careful however, very often the actual saving you would be making is way below the fee that the lender is asking for. It is worth doing your own numbers to make sure you understand which of the options ends up costing you less.

Mortgage fees can be fairly expensive. Your lender might charge you the booking fee as well as the product fee. The booking is simply the paperwork – this will be roughly £100 to £200. 

Product fee might be a lot more expensive. This is the fee that makes the interest rate cheaper. I have seen these going up to £1,000

lastly – stamp duty

Stamp duty is the other fee that can set you back by a significant amount. It will depend on the value of the property you’re buying. This is normally calculated as a percentage of the full property price.

In order to make it shorter and easier to digest I have attached the image below. Depending on the property price apply the percentage and you will get the stamp duty you will be expected to pay at the completion.

have you also considered removal and storage costs?

These I would say are the last costs to bear in mind. If you are moving from one property to the other on the exact same day it will be much easier to do it with a removal company. These guys are really efficient and can speed the process up massively for you. I would suggest roughly £300 to £1,000 as a guide. This will obviously depend on how much stuff needs to be moved. Do shop around to find the best possible deal.

Storage costs will really depend on the length of time you need to use these for. For a normal size flat I would guess around £100 a month should do the trick. However, before booking, make sure the place has reasonable air circulation and controlled temperature. You don’t want all your furniture to be mouldy by the time you come back.

summary

Two major expenses to consider are the deposit and the stamp duty. Between these two you could easily be talking over £50,000 as a minimum. All of this will obviously depend on the property you’re looking to buy.

While the rest of the fees definitely add up, they are paid over a longer period of time and are significantly smaller than the above. You probably need to have access to further £2,500 to £3,000. 

All of the above is definitely worth on the day when you get the keys to your new home. It is a feeling that it’s really hard to describe in words.