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Buying a home is an expensive business and for most of us it is the single biggest transaction of our lives. Below we’ll look at all of the costs you’ll need to consider, from your deposit through to home insurances.
If you need a bit more help with the basics of how mortgages work, you might want to check out the guides below:
Mortgage terminology– explains some of the jargon used in the mortgage industry
Step-by-step guide to buying a home – walks you through the steps you need to take to buy a property
We’ve compiled the estimates below to give some guidance on how much money you need to buy a house. This is based on current market prices and on UK averages, so you may find that houses are more or less expensive than this, depending on when and where you want to buy your home.
Good to know: Loan to Value (LTV) is the amount you can borrow compared to the price of the property, and will dictate the size of deposit you need.
Property value: £100,000
Mortgage size: £95,000 (95% LTV)
5% deposit: £5,000
Mortgage fees: £1,150 (this roughly translates to £100 account fee, £50 transfer fee, £150 valuation fee, £800 conveyancing fee - please note these are not set prices and will vary by provider)
Stamp duty: £0 - not payable on a home of this value
Insurance: average of around £100 a year
Total upfront cost: £6,250*
You may also wish to consider the costs of moving, purchasing new furniture and/or moving your existing furniture.
Property value: £280,000
Mortgage size: £266,000 (if buying unassisted)
5% deposit: £14,000
Mortgage fees: £2,950 (this roughly translates to £1000 arrangement fee, £150 account fee, £50 transfer fee, £250 valuation fee, £1,500 conveyancing fee - please note these are not set prices and will vary by provider)
Stamp duty: £0 - not payable on a home of this value for first-time buyers
Insurance: average of around £180 a year
Total upfront cost: £17,130
Property value: £500,000
Mortgage size: £475,000
5% deposit: £25,000
Mortgage fees: £4,550 (£2,000 arrangement fee, £200 account fee, £50 transfer fee, £300 valuation fee, £2,000 conveyancing fee)
Stamp duty: £3,750 as a first time buyer - (£12,500 if not)
Insurance: average of around £250 a year
Total upfront cost: £33,550 as a first time buyer - (£42,00 if not)
The average UK house price as of August 2022 was £296,000, however, this is expected to fall in the coming years, rather than rise any higher.
As always, mortgage statistics show that house prices vary greatly depending on their location. For example, the national average for England as a whole is £316,000, for Wales around £220,000, £195,000 in Scotland and £169,000 in Northern Ireland
There are also cheaper neighbourhoods (and even individual streets) in some expensive regions, and vice versa. If you look hard enough, you may well find a bargain in your ideal area.
You will typically need to have a deposit of at least 5% of the value of the home that you want to buy to buy any home, although it’s sometimes possible to get 100% of the amount you need through a guarantor mortgage.
Whilst 5% is going to be easier and quicker to achieve, there can be significant value in holding off your purchase until you’ve saved a larger deposit than 5%, as this will not only open up more lenders to you, giving you more choice, the interest rates available to you will reduce as your deposit increases.
Mortgage deals are typically available in following brackets (listed in ascending order): 60% LTV, 65% LTV, 70% LTV, 75% LTV, 80% LTV, 85% LTV, 90% LTV, and 95% LTV.
Those with the largest deposit and therefore, lowest LTV will achieve the best interest rates, but 40% deposit is a huge amount for a first-time buyer to save. If you are on the edge of a bracket, however, it’s worth saving to move into the next bracket. For example, if you have a 9% deposit, you can access cheaper rates by saving slightly more to get a 10% deposit.
A mortgage agreement in principle, sometimes known as a decision in principle, is an indicator of how much a mortgage lender is willing to lend you. It’s not a guarantee, but based on their initial research into your finances and credit history, it’s the loan size they will likely be able to offer so long as you pass the more formal mortgage application checks.
This can be really helpful in helping you decide what properties you can afford to buy, and save you the disappointment of looking at homes that you’re not going to be able to afford. It can also help you appear to be a serious buyer when it comes to booking viewings.
If you’re a first-time buyer and younger than 40 years old, you can use a LISA (Lifetime ISA) to build up your savings more quickly. This is a government initiative whereby they will boost your savings, which can then be used towards a deposit.
You can deposit up to £4,000 each year, between the ages of 18 and 50 and both applicants can have their own LISA account. You can receive a 25% bonus each year up to a maximum of £1,000, helping you grow your deposit savings more quickly.
There are a number of factors that dictate the size of the loan a lender is willing to offer you, but the most important is your affordability. This is determined by looking at your total household income, and deducting and current outgoings to see how much you could dedicate to loan repayments.
Most (but not all) lenders use a multiples of income method to decide how much they will lend you, and the average offered is between four and four and a half times your disposable income. Your personal circumstances can affect the multiple offered, however, for example, you may be offered a slightly lower multiple of your income if you have bad credit, or are newly self-employed.
As a guide, the average income for the UK is just over £38,000, so you could expect to borrow between £152,000 and £171,00 with one average income.
If you are buying jointly with a partner, you can combine your incomes and borrow more, however, it will not usually be four and a half times your income. Lenders usually lend joint borrowers:
Three to three and a half times the combined income of both applicants
Four to four and half times the highest earner’s income, plus the lowest earner’s income
Typically the lender will use whichever of these methods gives you the larger loan size.
Shared ownership is the remaining part of the government’s Help to Buy scheme and lets you buy part of, rather than an entire property. You will share ownership with a housing association, who you will pay rent to on the percentage of the home that they own.
You can choose what percentage to buy initially, and this can range between 10% and 75%. This means your loan will only need to cover that percentage of the overall property price, making the affordability easier to meet and deposit requirement much lower.
For example, if a home is worth £200,000, you could buy a £50,000 share of it and pay rent on the remaining £150,000 to the local housing association.
The scheme is open to first-time buyers and home movers with an annual income of less than £80,000 (£90,000 in London).
Even with a decent deposit, first-timer buyers may still struggle to meet the affordability criteria for the home they want, especially in higher-priced areas. A guarantor mortgage allows you to use a willing additional person, often a close family member as additional security against the loan.
This means that if you fail to meet the repayments, the guarantor has agreed to cover them on your behalf. Typically they will either use their own property (if they hold enough equity) or savings to secure your loan. Usually they will be able to be removed from the mortgage once you have repaid an agreed amount back to the lender.
A family assisted mortgage is a way for your family to help you without having to gift you any money. They deposit money into an account linked to the borrower’s mortgage; this money is then offset against the mortgage. Often a borrower needs a deposit of at least 5% themselves, but this varies between lenders.
Once a set period of time has passed, or enough of the mortgage has been repaid, the family member then gets their money returned in full, and often with interest paid.
The deposit will no doubt be the largest cost to consider prior to taking out a mortgage, however, there are a number of additional fees that are payable, and whilst not all lenders charge all of these, you will almost certainly pay some of them:
This is probably the largest of the additional mortgage costs as it can be as much as 2% of your entire loan size. Most mortgages that have no arrangement fee have a higher interest, so ensure you compare mortgage deals fully to find the best rates.
Because this fee can be quite substantial, you can usually add it to your total mortgage debt, but you will have to pay interest on it in this case, so in the long term you would pay more.
A mortgage account fee is often charged to cover the cost of the set-up, maintenance and closing of your account, and is normally somewhere between £100 to £300.
This is the fee charged by the lender for transferring the mortgage money to the seller’s solicitor; this is normally about £50.
This fee is charged by your lender for organising the mortgage valuation - to ensure that the property is worth how much you want to borrow. This could cost you anything between £150 and £1,500, depending on the property’s value, but is sometimes offered as a free incentive.
Conveyancing is the legal transfer of ownership of a property from the seller to the buyer. A solicitor who specialises in conveyancing will need to handle this and the buyer pays their costs.
Conveyancing usually costs somewhere between £800 and £2,000, but this can vary depending on the cost of the property and the amount of additional legal work required.
Stamp duty (in England and Northern Ireland) is a lump sum tax that is owed when purchasing a property or land that is valued over a certain amount. There are similar charges in Wales (LTT - Land Transaction Tax) and Scotland (LBTT - Land and Buildings Transaction Tax).
First-time buyers in England and Northern Ireland receive a discount that means they pay no stamp duty when purchasing a property priced at £425,000 or less.
If purchasing a property costing more than £425,000, you pay stamp duty at the normal rate (5%) on anything between £425,000 and £625,000. The stamp duty exemption does not apply if a first-time buyer purchases a home worth more than £625,000.
A higher lending charge may be implemented by your mortgage provider if you’re taking out a mortgage that covers more than 80% of the property’s value. Not all lenders will apply this type of charge, however, so it’s worth speaking to a broker to ensure you’re getting the best deal all round.
Buildings insurance is usually required by all lenders, unless you’re buying a flat, in which case this may be included within the service charge. The cost varies depending on the value and location of your home, but is typically between £100 and £200 a year.
It’s worth comparing deals before taking the insurance option offered by your lender, as you might be able to get a cheaper deal elsewhere.
Contents insurance is not essential to get a mortgage, but is certainly recommended. This covers loss of and sometimes damage to, your personal possessions. Policies will vary depending on the extent of the cover, but you can usually get basic cover for an additional £50-£100 when taking together with your building insurance.
How much it costs you to move depends on how much you own and how far you need to travel. If you only have a few possessions and own a car, or have friends or family who can lend you one, you could move home for just the cost of the petrol.
If you need to move a few more things, renting a van (or a “man with a van” if you want some help) typically costs between £50 and £300 for a day, depending on how much you have to move and how far you need to go.
The cost of professional removal services (a lorry and crew) also varies based upon your possessions and the distance, but is likely to start from around £300 and could go up to several thousand if you’re moving lots of bulky items hundreds of miles.
If you are buying a property that needs extensive works, here are some of the average costs involved in typical home improvement projects:
Adding a property extension (or major building work): between £10,000 and £40,000
Loft conversion: between £15,000 and £50,000
Conservatory: around £9,000
Kitchen refurbishment: at least £500, but could be well over £10,000
Even if you don’t have any major building work planned, you will probably need to set aside a buffer of
around £1,000 to pay for small fix-up jobs and decorations.