The 3 Reasons Your Mortgage Deposit Is Less Than You Need
If you’re looking to buy your first home, you’ve probably used an online mortgage calculator.
Using a simple formula, these calculators take your income and savings and give you an estimate of what you can afford. Many first time buyers use them to set a target for what they have to save to buy the property they want.
Yet there is a big problem with most of these mortgage calculators that misleads many people.
Most these calculators don’t include the fees and taxes needed to buy a home, which are surprisingly expensive.
In 2017 for example, the average deposit put forward by a first-time buyer was £32,000 to buy a £205,000 property. What this overlooks is that for a property this size, you could expect to pay an extra £5,000 in fees and taxes. So you would actually need to have £37,000 saved to buy!
Hence its best to think about what you put into your home as your “Effective Deposit”. This is your total savings minus these extra fees and taxes.
So what are these costs and how much more do you actually need to save?
The Standard Fees
The fees you are most likely to pay are the:
– Lender’s Arrangement or Booking fee; on average £1,000
– Lender’s Valuation fee; on average £200
– Conveyancer or Solicitor’s Legal services; on average £1,200
These are averages and the fees can be different for a large range of reasons. For example, if you use a solicitor, rather than a conveyancer, your legal fee will be higher. For the arrangement fee, some lenders will let you add it to the mortgage, but its best to have the money in case they don’t.
The Optional Fees
First-time buyers and others often pay for these extras to save themselves both time and money. These optional extras include a:
– Mortgage Broker; on average £500
– Surveyor; on average £250
– Moving company; on average £500
Mortgage broker fees vary but most professionals will charge you around £500. They advise you on the best mortgage for your situation and help manage your application to the lender. Around 70% of people use a mortgage broker to get the cheapest deal possible.
Surveyor costs vary depending on the type of property. For a conventional home it costs around £250. For old or unique buildings, a more in depth survey may be needed, which can cost up to £600.
Roughly one in five people use a surveyor to reveal issues with the property. The main benefit is they can help you negotiate a lower house price if there are problems.
Finally, to hire a moving company will cost around £500. You can however rent a van though and do it yourself to save money.
Stamp Duty Tax
Undoubtedly this is the cost that most first-time buyers forget about. Many believe the property price includes stamp duty, or that you can add it to your mortgage.
It is a tax that needs to be paid within 30 days of the agreed exchange date, so you must have it put aside in your savings. If we use the £205,000 average property as an example, your stamp duty tax bill would be £1,500. Remember though, this tax gets disproportionately higher as your property price increases.
Failing to Prepare is Preparing to Fail
Too often first-time buyers decide on a target deposit after using a basic mortgage calculator. But the fees for buying mean your “Effective Deposit” is more likely to be much lower.
Overall you should expect to pay between £2400 and £3650, plus stamp duty which depends on your property price.
Make sure to save for these fees in addition to your deposit and you won’t face any unpleasant surprises when buying your dream home.
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- The 3 Reasons Your Mortgage Deposit Is Less Than You Need - September 21, 2017