How to Save for a Mortgage
If you’ve already been to see one of our advisors, you’ll have a good idea of what you can afford and how much you’re able to borrow. However, the mortgage and repayments are only the beginning – there are many different costs involved in buying a home, and you need to take all of them into account when budgeting for a home purchase. To give you a more complete view of the financial elements, we’ve broken them down into: upfront costs, mortgage costs and maintenance costs.
Upfront costs (what you pay before you move)
Deposit
This is quite possibly the most important payment in the property buying process, as it is your contribution towards the price of the property you are buying. You typically need to put down at least 5% of the purchase price to get a mortgage – but the more you can afford to put down as a deposit, the better. A higher deposit generally provides lenders with more comfort over your borrowing circumstances and can allow them to offer better rates. With deposits of 40% of the property price or more, interest rates for borrowing the rest of the money become much lower.
Stamp Duty / Lands and Building Transaction Tax
If you spend more than £125,000 (£145,000 in Scotland) on a property, then you will be taxed on that purchase. In England and Wales this is called Stamp Duty Land Tax (SDLT), commonly referred to as “stamp duty”. In Scotland, it is called Lands and Building Transaction Tax (LBTT) but is also referred to as stamp duty. You don’t have to pay it before you buy your home, but you do need to know you have enough saved to pay it once you own your property: you have 30 days from the time you’ve bought your property to pay it. The tax is between 2% and 12% of what you paid for your property, so will vary depending on the purchase price.
Surveys
Once you have a Decision in Principle (DIP), your lender will check that the property you’re buying is worth the price you’re paying. They may use the valuation carried out in the Home Report produced by the seller, or, more likely, they will arrange a mortgage valuation (which you will pay for). You can then decide if you want to get your own surveys to find out what sort of condition your future home is in and how much it might cost to repair any areas that aren’t up to scratch. Your options are:
A Home condition survey – the cheapest and most basic survey, suitable for new-build and conventional homes, but not useful for spotting any issues with the property.
A Homebuyer’s report – a more detailed survey looking thoroughly inside and outside a property. It also includes a valuation. You might be able to get the valuation and homebuyer’s report done at the same time to cut costs.
Building or structural survey – the most comprehensive survey suitable for an older building or one that’s not a conventional build – such as a timber construction or a house with a thatched roof.
Legal fees
You will normally need a solicitor or licensed conveyancer to carry out all the legal work when buying and selling your home. In Scotland, you’ll need a solicitor to put in an offer on a property; elsewhere you do this through an estate agent. Solicitors are responsible for negotiating and checking the contract, organising the transfer of the Title and money and conducting searches on your property (which basically means checking for any local plans or problems that might affect your property).
Legal fees are typically £850 – £1,500 including VAT at 20%. You also need to add on fees for searches which cost around £250 – £300.
We recommend using a solicitor from our Property Law Centre (your advisor can provide more information on this).
Electronic transfer fee
The electronic transfer fee covers the lender’s cost of transferring the mortgage money from their account to the account of the seller’s solicitor. It usually costs around £50.
Removal costs
These will vary depending on how much you must move and the location of your new home. As a guide, an average house move costs between £300 and £600. You may be able to get better rates, however, if you move during the week rather than on a weekend.
Mortgage costs (which you can pay up front or over time)
As well as the monthly repayments, there are several costs to consider when arranging a mortgage. These might include a booking fee of £99 – £250, an arrangement fee of up to £2,000 and a mortgage valuation fee (typically £150 or possibly more).
It’s best to pay these upfront rather than adding them to your mortgage, otherwise you’ll be paying interest on them for the life of the mortgage.
Maintenance costs (what you pay to look after a home)
If you’ve been renting before and this is your first home, you will need to budget for additional items that you may not have needed to consider before. Decorating is usually a top priority for first time buyers – the average spend of new homeowners in the first year is £10,000 (Source – Aviva survey 2015).
The first and most important ongoing payment is your mortgage: if you’ve chosen a fixed rate product then you’ll know what to budget for each month. However, if you are on a variable rate it might be wise to put a little extra aside each month in the event that interest rates rise.
Beyond paying your mortgage and regular maintenance and repairs, there’s council tax, utilities, phone and broadband, plus any leasehold fees if these apply.
It is also essential to invest in insurance for both the property and its contents, and protection for you and your income. Life is unpredictable, and it’s better to have peace of mind, knowing that you don’t need to worry should a major change come along.
Money timeline – England and Wales
| Pay a booking fee to secure your Decision in Principle | £0-£250 |
| Budget to pay your solicitor | £500-1,000 plus up to £300 for searches* |
| Valuation survey (to check the property is valued correctly before a mortgage is approved)
|
£150 – £1,500* |
| Property survey (to check on the condition of the property and what need repairing) – could be a simple condition survey, a more detailed homebuyers report or a thorough structural or building survey
|
£250 – £600+ |
| Arrangement fee to set up or maintain mortgage | £0 – £2,000** |
| Holding fee to secure the deal on the property after contracts are exchanged
|
£0 – £1,000 |
| Fees for telegraphic transfer of mortgage on the day you move
|
£25 – £50 |
| Fees to maintain mortgage
|
£100 – £300 |
| Signed deeds to be registered with the Land Registry
|
£60+*** |
| Payment of Stamp Duty
|
2 – 10% of property value. |
| Removal fees | Varies greatly – but generally less expensive on week days. |
* Some solicitors offer a fixed fee so you can budget and know up front how much you need to pay.
** Some mortgages have an arrangement or booking fee, some don’t. Your advisor will talk you through any fees and what they mean. If there is an arrangement fee it is possible to add it to your mortgage so you don’t have to pay a lump sum up front, but you will then pay interest on it.
*** The cost of registering your property varies depending on where it is, how much it cost, and what sort of property it is.
Money timeline – Scotland
| Pay a booking fee to secure your Decision in Principle
|
£0-£250* |
| Budget to pay your solicitor
|
£400-1000** |
| Surveys to check on the condition and value of your property (usually only require if Home Report flags issues)
|
£0 – £4,000 |
| Holding fee to secure the deal on the property after missives are concluded
|
£0 – £1,000 |
| Arrangement fee to set up or maintain mortgage
|
£0 – £1,000** |
| Fees to transfer mortgage on the day you move
|
£40 – £50 |
| Fees to maintain mortgage
|
£100 – £300 |
| Signed deeds to be registered with the Registers of Scotland
|
£60+*** |
| Payment of Lands and Buildings Transactions Tax (LBTT)
|
2 – 12% of property value. |
| Removal fees | Varies greatly – but generally less expensive on week days. |
* Some mortgages have an arrangement or booking fee, some don’t. Your advisor will talk you through any fees and what they mean. If there is an arrangement fee it is possible to add it to your mortgage so you don’t have to pay a lump sum up front, but you will then pay interest on it.
** Some solicitors offer a fixed fee so you can budget and know up front how much you need to pay.
*** The cost of registering your property varies depending on where it is, how much it cost, and what sort of property it is.
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