What's My Budget As A First-Time Buyer?
If you’re thinking about buying a house for the first time, here's a run down of all the things you'll need to factor into your budget as a first-time buyer.
If you’re thinking about buying a house for the first time, calculating a cash budget and figuring out exactly what you’ll need money for can seem pretty complicated at first. With scary terms like legal fees, interest rates and solicitor’s costs being thrown around, you might feel a little bit confused to begin with!
I’m a mortgage adviser and estate agent based in Worcester and Malvern, so if you’re stuck, you’ve come to the right place. Here’s my run-down of all the things you’ll need to factor into your budget, on top of your deposit, as a first-time buyer.
1. Solicitor’s Fees
As well as your deposit, you’ll need to factor in the fees charged by your solicitor for some of the more boring things like putting the property on the land registry and sorting out local searches.
You’ll need to pay your solicitor some fees so they can make sure there are no environmental or planning issues with the house. It might seem annoying to have to pay for these now on top of all your other bills, but believe me, you don’t want to run into these issues a couple of years down the line after you’ve built a conservatory and a brick BBQ in the back garden.
All of these additional costs are known as disbursements. A lot of the time, even if the property purchase falls through and you haven’t proceeded with actually buying the home, you’ll still have to pay the legal fees, but this depends on the solicitor. If you shop around and find one that offers no fee for no transaction, you can avoid this extra cost just in case.
On top of the legal fees, your solicitor will also charge you for actually using their service. Make sure you’re careful to factor this into your overall budget and double check that the solicitor has included absolutely everything in the total bill, including any extra fees to do with sorting your mortgage out.
Not sure about some of the terms I’ve used here? Read my blog about what you need to know when buying your first home to get an overview of the whole process.
2. Stamp Duty Land Tax
Stamp duty land tax is on holiday at the moment (I wish I was!), meaning the threshold is sat at £250,000 until October. From there, it’ll return back to £125,000, so depending on the cost of your new home and when you’d like to buy, you’ll need to add this to your budget as well.
Your solicitor will collect your stamp duty and calculate it from your estimate. As well as stamp duty, overall solicitor’s fees can come to around £2,000, on a rough figure of £200,000 for the value of your property.
3. Mortgage Fees
On top of your actual mortgage, I’d recommend contacting a broker to help find the best deal for you. Sitting down with a broker will allow you to access the same or even better deals than going directly to the lender, and it means you’ll get the chance to speak to someone that can find the best rates to suit your budget.
If you go to a broker, you’ll need to pay for one. Some charge upfront, but some charge on completion, and this can typically come to around £700-£800.
Remember to be careful here as again, if your mortgage doesn’t go through, you probably won’t get this cost back as the broker will have already done most of the work for you.
Assuming you’ve been approved for a mortgage, your provider will also charge an interest rate as well as an arrangement fee. Sorry – I don’t make the rules!
The arrangement fee is usually factored into the amount of money you borrow from the lender. You can pay your arrangement fee up front to reduce the amount you’ll be borrowing over the course of your mortgage, but if this eats too much into your deposit it’s probably best to leave it as it is.
4. Valuation Fees and Property Costs
With everything else covered, you’ll need to pay a valuation fee. This is where your mortgage provider will assess the value of your new home to figure out how much they’re happy to lend. The cost of this depends on the value of the property.
What I’d recommend here is also getting a full survey conducted on your property. This can help you find out if there are any issues with the house that weren’t stated previously, meaning you have a written record that you can refer to if you find anything dodgy.
Remember, you’ll also need to decide whether you need budget to do up the property, whether that’s before moving in to get it up to a liveable standard or further on down the line - for example that all-important conservatory I mentioned earlier. Every property needs something to personalise it to your taste (especially for a first-time buyer – goodbye magnolia walls!), so even if you’re thinking of neon pink paint and leopard print carpet, you’ll need to factor this into your budget.
If your plans are particularly costly, I’d recommend speaking to a mortgage adviser about making sure you’ve got enough deposit for an affordable monthly payment on the home.
5. Estate Agents Fee
Some estate agents will charge a buyer’s fee, which may join with your overall deposit. Depending on the estate agent you go with and the method you choose, this fee can compromise the amount of deposit you’ve got left, so be careful not to eat too much into it. This fee should be declared in the details of working with your estate agents, so make sure you consider this cost and be aware, as some estate agents charge and others don’t.
So You’ve Got Your Budget – Now What?
Once you’ve got the overall figure of expenses as I’ve listed above, you’ll need to deduct this from the amount you’ve saved for your property so you can find out how much of a deposit you realistically have. This, however, might mean you need to borrow more money in order to actually get back up to the deposit you might have wanted to put down to begin with.
If your savings are short, you might ask a family member to assist. Ideally, this needs to be a gift so as not to add onto your monthly expenses, which could affect your mortgage offer. But this is easier said than done, so if you need to borrow the money, your lender will need to know that the person has no interest in the property in case they decide to pinch your spare room in exchange for helping you out. If you’ve got no other monthly commitments, speak to your mortgage adviser about whether you can borrow from a credit card or another smaller loan.
Another option for smaller deposits might be to look into the government’s Help to Buy scheme, which can allow you to borrow 20% of the cost of the property on an interest-free basis. It’s important to note here that this is only available for new-build properties, so if you’ve got your heart set on a thatched roof, you might need to reconsider.
The Next Steps
Good job! Now you’ve got your expenses and a more accurate deposit, you can then calculate how much you can borrow from a lender as a first-time buyer.
If you’re not sure on how to do this, I can help. Read my blog on calculating how much you can borrow here.
How Can I Help You?
I’m Gareth, but you can call me Big G.
With over 20 years’ experience within the property industry, I’m here to help you get on the property ladder and smooth out that experience of buying your first home. It’s not an easy task, but with support from the right people, you can do it.
If you’ve got a question or would like to know more, give me a call on 01905 426000 and we can chat about your plans for the future.
Written by Gareth Evans, Mortgage Adviser & Director