Buying a home is an expensive business and for most of us it is the single biggest transaction of our lives, using up most of our savings at that point. Here we take a closer look at all the costs that could arise when buying your first home and how you could make your money go further.
The guide below assumes you already know the basics about how mortgages work and buying a home, but if you’re just starting out, you might want to check out the guides below, too.
We’ve compiled the estimates below to give some guidance on how much money you need to buy a house. Note: these are estimates only, so you might need to save up a little more (which couldn’t hurt) or you might even get away with spending a little less.
Property value: £100,000
Help to Buy Equity Loan: £20,000 (20%)
Mortgage size: £95,000 (if buying unassisted); £75,000 (with 20% equity loan)
Annual income needed: £23,750 (if buying unassisted); £18,750 (with 20% equity loan)
5% deposit: £5,000
Mortgage fees: £1,150 (£0 booking fee, £100 account fee, £50 transfer fee, £150 valuation fee, £800 conveyancing fee)
Stamp duty: £0
Insurance: £100 a year
Moving costs: £0 (assuming you move with your own or a borrowed car)
Decorating and home improvements: £100
Total upfront cost: £6,850
Property value: £200,000
Help to Buy Equity Loan: £40,000 (20%) to £80,000 (40% – only available in London boroughs)
Mortgage size: £190,000 (if buying unassisted); £150,000 (with 20% equity loan); £110,000 (with 40% equity loan)
Annual income needed: £47,500 (if buying unassisted); £37,500 (with 20% equity loan); £27,500 (with 40% equity loan)
5% deposit: £10,000
Mortgage fees: £2,950 (£1,000 booking fee, £150 account fee, £50 transfer fee, £250 valuation fee, £1,500 conveyancing fee)
Stamp duty: £0
Insurance: £150 a year
Moving costs: £200
Decorating and home improvements: £500
Total upfront cost: £14,800
Property value: £500,000
Help to Buy Equity Loan: £100,000 (20%) to £200,000 (40% – only available in London boroughs)
Mortgage size: £475,000 (if buying unassisted); £375,000 (with 20% equity loan); £275,000 (with 40% equity loan)
Annual income needed: £118,750 (if buying unassisted); £93,750 (with 20% equity loan; £68,750 (with 40% equity loan)
5% deposit: £25,000
Mortgage fees: £4,550 (£2,000 booking fee, £200 account fee, £50 transfer fee, £300 valuation fee, £2,000 conveyancing fee)
Stamp duty: £10,000
Insurance: £250 a year
Moving costs: £500
Decorating and home improvements: £2,000
Total upfront cost: £43,800
House prices have shot up since the start of the pandemic. As of November 2021, the average UK house price is £270,708, according to HM Land Registry.
Of course, house prices vary greatly depending on location. For example, a typical home would cost an average of £489,000 in London, whereas in Newcastle you could find a home for nearer £132,000. House prices change regularly, too, so if you’re looking to buy, it’s worth keeping an eye on what they are doing.
To further complicate matters, house prices are extremely localised. There are cheaper neighbourhoods (or even just cheaper streets) appearing in expensive regions, and vice versa.
So, you need to do your research to determine what you need to budget for. If you look hard enough, you may find a bargain in your ideal area.
But the adage “you get what you pay for” can often prove true with property, so before you snap up a bargain, think about the following:
Resale value: will the price race up, or could it slide down? Impossible to know, but you can make an educated guess looking at trends; Hometrack’s index is a good place to start
How long you think you’ll live there
Job prospects in the area
Building developments and any limits on work, such as conservation zones
How much work needs to be done on the home (and what it will cost)
You can compare house prices and find out information on the local area with our partner site Zoopla.
You usually need to have a deposit of at least 5% of the value of the home you want to buy. You can get a mortgage without any deposit, but that is a risky and unorthodox method.
It’s also wise to have a larger deposit than 5% (traditionally the standard was 25%), but it’s common for first-time buyers to have small deposits.
The usual way to determine how much you can borrow with a mortgage would be to multiply your income by four. For example, if your salary is £25,000, you could borrow a maximum of £100,000.
However, some lenders may allow you to multiply your income by more than four, so you can get a larger mortgage.
If you are buying with a partner, you can combine your incomes. This is usually done one of two ways:
Add both incomes together and use a lower multiplier (such as multiplying by three, instead of four)
Multiply the higher income and add the lower one on top
Generally, a lender uses whichever method gives the largest figure.
Lenders also undertake affordability checks, which involve looking at your outgoings and credit score to decide whether you can reliably meet your monthly repayments.
If you have a larger deposit, you can enjoy access to better mortgage rates, which means smaller monthly repayments as a consequence.
The best mortgage deals are generally offered to borrowers with at least a 40% deposit, but it’s unusual for first-time buyers to have a deposit this large.
Mortgage deals are split into different loan-to-value (LTV – house value minus deposit) brackets that change by increments of 5%. As a rule, the lower the LTV, the cheaper the mortgage.
In essence, mortgage deals are available in following brackets (listed in ascending order): 60% LTV, 65% LTV, 70% LTV, 75% LTV, 80% LTV, 85% LTV, 90% LTV, 95% LTV and 100% LTV.
This means if you are on the edge of a bracket, 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.
If you’re struggling to get the money together for a deposit, there are a few ways you could get some help from the government’s Help to Buy scheme.
With the Help to Buy scheme, you can access a government-backed interest-free equity loan that can boost a 5% deposit to 25% (in London, your 5% deposit can be boosted by as much as 40%).
You can only use the equity loan to buy a new-build property as a first-time buyer.
You need to pay £1 each month as long as you have the loan. After five years, you need to start paying an annual interest fee of 1.75% (rising at the rate of inflation). These charges do not contribute to repaying the loan, so you should have a plan to repay the loan as soon as possible after five years.
The loan is held against the value of the property, so the government in effect owns up to a 40% share of the value of your home. When you come to repay the loan, you must repay the equity percentage, not the capital amount, you initially borrowed.
So, if you had a 20% equity loan to buy a house worth £200,000, you would have borrowed £40,000. If the value of your home increases to £250,000 over five years, you need to repay 20% of £250,000, which is £50,000 – £10,000 more than you initially borrowed.
The loan is intended to be repaid by either remortgaging or selling your home, so remember to factor this into your mortgage plans after five years.
The above assumes you bought a house worth £200,000, with a 5% (£10,000) deposit of your own, a 20% (£40,000) equity loan, a £150,000 mortgage on a 2% rate fixed for five years, and a 2% annual growth in the value of your home. It shows how much you would need to remortgage in order to repay the equity loan in year five.
The current scheme runs from 2021 to 2023 and there are price caps set for house prices in different parts of the country. Below is a list of the maximum price cap by region, from highest to lowest:
South East: £437,600
East of England: £407,400
South West: £349,000
East Midlands: £261,900
West Midlands: £255,600
Yorkshire and the Humber: £228,100
North West: £224,400
North East: £186,100
There are two savings accounts designed for first-time buyers in which the government can boost your savings towards a deposit by 25%. These are the Lifetime ISA (LISA) and the Help to Buy ISA.
The Help to Buy ISA is closed to new customers but existing customers are still able to pay into them. Here we outline the key differences between the two savings schemes.
You can deposit up to £4,000 each year, between the ages of 18 and 50.
Cash, as well as stocks and shares.
Anyone over 18 and under 40 years old.
You can receive a 25% bonus each year up to a maximum of £1,000; this is only paid on contributions into the ISA, so interest or stocks and share growth don’t affect the bonus.
You can withdraw your money to pay for both the home deposit and mortgage deposit on your first home; or withdraw it once you’re over 60 or if you’re terminally ill.
If you wish to withdraw at any other time, not only do you not get the bonus, but a 25% charge applies.
You could receive a maximum bonus of £33,000, assuming you deposit the £4,000 maximum every year between the ages of 18 and 50.
It will take you at least three years to get a £3,000 bonus.
You must have the Lifetime ISA for at least 12 months before making a withdrawal.
Couples can each take out their own LISA and use them to buy a home together. LISAs can be transferred to other providers.
LISA holders can also save into a Cash ISA each year, but the £4,000 LISA limit counts towards your annual ISA limit (which is currently £20,000).
The Help to Buy ISA was a government savings scheme to help first-time buyers get on the property ladder. While this scheme closed to new subscribers on 30 November 2019, anyone who had already opened a Help to Buy ISA is able to continue saving into the account until November 2029.
Existing savers can deposit up to £200 a month. You only receive the bonus on savings up to £12,000.
You can receive a 25% bonus on your deposits, this is paid to your mortgage lender via your solicitor when you complete the purchase of your first home.
You can only use the money saved in the ISA, plus the 25% bonus, to pay for the mortgage deposit for buying your first home.
You can withdraw your money at any time, but you won’t receive the bonus.
After you’ve saved at least £1,600, which will take at least three months (£1,200 lump sum plus two monthly deposits of £200).
£250,000 (£450,000 in London).
You cannot combine the bonus from your own Help to Buy and Lifetime ISAs to buy a home.
However, you can combine your bonus with a partner’s when buying a home (provided you’re both first-time buyers). For example, if you and your partner each had £4,000 savings in a Lifetime/Help to Buy ISA, you could enjoy a £2,000 bonus between you.
Shared ownership is part of the government’s Help to Buy programme and it lets you buy part of a property with a housing association. It’s an option if you have a small deposit. You can buy a share worth between 25% and 75%, then pay rent on the remaining share.
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. This means you’d only need to qualify for a £50,000 mortgage.
The amount of rent charged can vary between housing associations, but is usually charged at 2-5% of the value of the housing association’s share and is split up to be paid on a monthly basis. You usually have to pay a service fee on top of the rent to the company that owns the building.
For example, 3% of £150,000 is £4,500, which when divided by 12 is £375, so you would need to pay £375 a month in addition to your mortgage.
The scheme is open to first-time buyers and home movers with an annual income of less than £80,000 (£90,000 in London).
There are a few ways your family could help you get on the property ladder. The most obvious being if they gift you the money for the deposit, but for many, this isn’t an option, and sometimes it’s still not enough to get a mortgage.
There are a few specialist products on the market that could help.
Even with a deposit, first-timer buyers can struggle to meet borrowing criteria; they may be self-employed or have a poor credit score. This is where a guarantor mortgage could help, which effectively enables you to piggyback on someone else’s creditworthiness.
With a guarantor mortgage, the guarantor (normally a close family member) promises to meet the mortgage repayments if the borrower fails to do so. The guarantor is locked into the agreement until the loan to value ratio (LTV) has sufficiently reduced (typically over 80%).
For many guarantor loans, the borrower still needs a deposit, but there are guarantor mortgages of up to 100% available, where the guarantor offers their own property as security. These are very risky, however, because it’s possible the guarantor could lose their home if the borrower defaults. Before signing up to a guarantor mortgage, it’s important to make sure both the guarantor and the person taking out the mortgage fully understand how the process works and the risks involved. For example, if the mortgage terms can’t be met, the guarantor’s house may be at risk.
A family deposit mortgage is a way for your family to help you without them having to gift you any money. A family member can deposit money into an account linked to the borrower’s mortgage; this money is then offset against the mortgage. Often a borrower needs to deposit 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 benefit is that the family member doesn’t lose any money, and helps someone else; however, they may also be missing out on better interest rates compared with other savings accounts.
When considering your budget, it’s not just the mortgage deposit you need to think about – there’s a number of additional fees you might need to pay to get a mortgage.
This is probably the largest of the additional mortgage costs – it can cost up to £2,000. Most mortgages have a mortgage arrangement or booking fee, but there are also many that don’t (though they normally have a higher interest rate), so it’s worth shopping around.
Because this fee can be quite substantial, you can usually add it to your total mortgage debt, but you have to pay interest on it, so in the long term it always works out cheaper to pay upfront.
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 commissioning a mortgage valuation (property inspection), to ensure that the property is worth the mortgage amount. This could cost you anything between £150 and £1,500, depending on the property’s value, but is sometimes offered by lenders for free.
A higher lending charge could be implemented by your mortgage provider if you’re taking out a mortgage that covers more than 80% of the property’s value.
This is likely to be 1.5% of the property’s value, but providers set their own rates, so it’s important to factor in this cost if your deposit can’t cover at least 10% of the property value.
Conveyancing is the legal transfer of ownership of a property from the seller to the buyer. You need to pay a solicitor or conveyancer (a specialist in conveyancing) to handle it.
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 is a lump sum tax that is owed when purchasing a property or land that is valued over a certain amount.
First-time buyers in England and Northern Ireland receive a discount that means they pay no stamp duty when purchasing a property priced at £300,000 or less.
If purchasing a property costing more than £300,000, you pay stamp duty at the normal rate (5%) on anything above £300,000.
So, if you bought a home worth £500,000, you are still liable to pay stamp duty at 5% on the remaining £200,000.
The stamp duty exemption does not apply if a first-time buyer purchases a home worth more than £500,000.
Buildings insurance covers your home if it is damaged or destroyed (but not your possessions within it). Lenders often require you to take out buildings insurance – although people buying flats might find it’s taken care of as part of 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 shopping around for a quote before taking the cover offered by your lender, as you might be able to get a cheaper deal elsewhere.
You should also consider adding contents insurance to your cover. It adds between £50 and a few hundred pounds to your annual premium, but it is worth the peace of mind that your possessions will be covered in the event of fire, theft or flood.
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 in your tank.
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 (in essence a lorry and crew) varies again with your possessions and 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.
It’s common for first-time buyers to have little or no furnishings, having previously been either renting furnished flats or living with parents.
You should check what comes with your new home, but it’s likely you will need to buy your own essential furnishings, such as:
Dining table and chairs
All of the above will probably set you back at least £500-£1,000. You could be inventive and find second-hand furniture online or in charity shops for little money or even free.
Be wary of 0% finance deals offered by retailers; make sure you read all the small print and check that your payments won’t shoot up after a few months.
Fortunately, as your credit score is probably in great condition if you’ve just got a mortgage, you should be eligible for the market-leading credit card deals.
You could consider buying furnishings with a 0% purchase card, which charges no interest on new purchases for a year or two, and gradually pay it off over a couple of years. Just remember that if you don’t pay it off in the 0% period, you’ll start paying interest on anything you owe.
If you’ve bought a home that requires fixing up, you should set aside some budget to at least make the place liveable.
How much you need to spend varies depending on how much work needs doing, and you should have had a full building survey carried out before you formalised your offer. As a rule, you should deduct the cost of any essential building work from your offer price.
We have a guide to the rough cost of home improvements if you want to know more, but here are estimates of a few below:
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 may want to at least do some decorating and gardening. You probably need to set aside anything between £100 and £1,000 to pay for this.