Beat generation rent – what you’ll need to buy a home
We’re becoming stuck in ‘generation rent’ as more young people are giving up on ever being able to buy a house, according to new research.
House prices are shooting up and wages are staying pretty much the same, meaning just 43% of people aged between 20 and 45 say they’re putting money aside for a deposit.
But don’t despair! If you think it will be too hard to save up for a house, we’ve put together a fool proof guide so you know exactly what you’re up against.
It’s safe to say that one of the biggest hurdles for anyone who wants to get a mortgage is saving up the hefty deposit. According to the Council of Mortgage Lenders, you’ll need £25,500 on average if you’re a first-time buyer. If this sounds completely out of reach, don’t panic! The size of the deposit you need depends on how big a mortgage you want, so if you’re looking at smaller houses, or cheaper areas, you won’t need this much.
You can get a mortgage with a deposit of just 5% of the property’s value but if you can, try to save up for at least a 10% deposit – there will be more, and better, mortgage deals available. So if you’re looking at a house worth £125,000, you’ll need to save up £12,500.
A deposit isn’t the only cost you’ll have to cope with when you’re buying a house. Here’s what else you’ll need to budget for:
Mortgage arrangement fee: around £1,000, but can be up to £2,000
Valuation fee: usually between £300-£400 but this can vary
Legal fees: also known as conveyancing fees, these can be around £500-£1,500
Stamp duty: if you’re buying a house worth over £125,000 but less than £250,000, you’ll have to pay a fee of 2% of the property’s value. This tax is banded, so you’ll only pay 2% on the bit worth more than £125,000 – so if your house costs £126,000, you’ll pay just £20.
Survey fee: between £400-£700 but it will depend on the type of survey you have
Removal costs: this can be £100 if you’re only moving a few things or up to £1,000 to shift a family’s possessions
How much to borrow
You also need to work out how much you can afford to borrow. You can’t just pluck a figure out of the air and guess how big a mortgage you want, as lenders won’t accept you if they think you won’t be able to afford the repayments. It might not be a figure you can come up with on your own either – the old “rules of thumb” such as income multiples are no longer a good guide to affordability – so if you’re struggling to work out how much you can borrow, it’s best to speak to a mortgage provider (like your bank or building society) or a mortgage broker.
Help to Buy
One option you might want to look into is the government’s Help to Buy scheme. This was originally to set up to allow first time buyers access to mortgages with just a 5% deposit, but many people still struggled to save up even that much. In autumn this year, the government will launch a new Help to Buy ISA*, designed to boost the savings of those aiming for their first home. You can find out more about the Help to Buy ISA here.
Lenders and brokers
It can also be a bit tricky trying to find the best mortgage deal for you, especially if you’re a first time buyer. One place to start is with the bank or building society that holds your current account, as they might offer special deals for existing customers. But remember you’ll only be able to get mortgages from their own range though, so you might be able to get a wider choice and possibly a better deal if you go via a broker – they can often access “broker only” products that aren’t always available on the high street.
This can be a lot to handle and you might be intimidated by how much you’ll have to save. However, it’s best to know what you’re up against before you get into it. Next week we’ll cover some tips on how to save up for your deposit and other buying and moving expenses!
*It was reported in August 2016 that the government bonus on Help to Buy ISAs cannot be included in the initial deposit on a home, but is paid once the sale has completed. Find out more here.
Disclaimer: All information and links are correct at the time of publishing.