Owning that Property – Finance Management
In this blog I will be providing tips on the costs you should budget for when planning to buy a newly built house. In the previous blog we looked at how we conducted the initial research.
How much is it actually going to cost?
Do some research to find out how much it will actually cost to buy the property and the maintain it. For instance, in the UK if you buy a leasehold property or flat you have to pay for ground rent and annual service charges over and above the mortgage. In some new developments, you also have to pay a service charge for maintenance of the development. Other costs to consider are legal costs, stamp duty and costs of moving. When buying a new built house, depending on the developer, it will not come with carpets, floors, kitchen accessories or curtain fixtures. So, you either have to pay the developer to add them or find a 3rd party contractor.
Remember not to bite off more than you can chew. The higher the price of the house, the higher some costs will be as they are a percentage of the house price. We were almost tempted to buy a house that was too big and too expensive because the show house looked nice and sparkly. When we then started looking at the numbers, we would have struggled with the repayments if there had been a slight increase to our monthly outgoings. Getting the house ready to live in i.e. buying carpets, flooring, closets etc. would have been a lot more expensive and would have gone above our budgeted amount.
In the UK there are schemes that help first time buyers to get on the property ladder. These include Help to buy equity loan, Help to Buy ISA and Shared ownership. Further information can be found on https://www.helptobuy.gov.uk and https://www.gov.uk/government/publications/stamp-duty-land-tax-relief-for-first-time-buyers-guidance-note
Don’t forget your budget!
Many a times when a product is being sold its shown in such a way that it appeals to the consumer. These principles apply when looking at show homes. Do not be tempted to buy a house that you cannot afford or that has space that you do not need just because it looks pretty. Always remember the amount you can afford. Be aware of the monthly payments and the bills that will also be included. Consider the long-term view in terms of interest changes. It is vital to carry out stress test to see the absolute maximum you are able to pay without stretching yourself too much.
Other costs to consider
Also look into costs that will change due to the change of location. Both my husband and I work in central London and therefore, have to commute. When we were looking at houses, we realised that we needed to strike a balance that worked for us. Houses in and around London were more expensive but the cost of commuting was low. Houses further away from London were cheaper but the cost of commuting would have been more. You have to look at your circumstances and make a decision that best suit you
Considering your finances when looking for a property is very important. It determines what you can comfortably afford and enables you to set effective goals. I have included a checklist below of some of the costs to aide an effective planning.
|Before buying the house|
|Deposit||In order to buy the house, you need to raise about 20% of the value of the property for deposit. In the UK, for first time buyers, the Government has created a scheme which enables first time buyer to only raise 5% of the deposit, then borrow the remaining 15% from the government. This is interest free for the first 5 years. If not paid back, interest is charged on the balance outstanding and if the house is sold before the balance is paid off, 15% of the value of the consideration received for the property is payable to the Government. Other schemes include shared ownership and help to buy ISAs. further information can be found on https://www.helptobuy.gov.uk|
|Costs that will change due to a change in location||Some costs may increase or decrease due to a change in location. These costs include travel, utility bills etc.|
|Mortgage broker fees||Fees that are paid to the agent who will arrange the mortgage and give you advice. Sometimes you may not have to pay them as they will get a commission from the bank.|
|Valuation fee||Valuation fee is charged by the lender when commissioning a mortgage. This is charged because the lender has to inspect the property to insure it is secure enough to lend on. The amount varies with lenders and can be dependent on the price of the property.|
|Mortgage arrangement fee||This a fee the lender charges to set up the mortgage. It needs to be paid before the mortgage begins or can be capitalised. Capitalising the amount means you will pay interest on the fee.|
|Mortgage account fee||The is a fee that is charged by the lender for creating and managing the account.|
|Stamp Duty Land Tax (SDLT)||Stamp duty is payable for houses that cost over £125k in the UK. It must be paid within 30 days of completion. First time buyers purchasing their first home for £300,000 or less will pay no SDLT. Where the purchase price is over £300,000 but does not exceed £500,000 they will pay 5% on the amount above £300,000. For more information go to https://www.gov.uk/stamp-duty-land-tax/residential-property-rates|
|Building insurance||Buildings insurance covers the property against major damage and is a requirement from mortgage lenders|
|Registration of title||When a property is purchased it needs to be registered so that you have proof of ownership and helps protect you from fraud. This process is normally carried out by the solicitors.|
|Legal costs||Costs for solicitors|
|Chaps fee||Costs of transferring the money from the lender to the solicitors|
|Home finishes||Depending on the developer, you will normally have to agree on the home finishes to be done i.e. carpets floors etc. If the developer does this for you, payments normally need to be made by the time you complete. If you a hire a 3rd party, the developer will only allow the work to start after you have completed on the house.|
|After buying the house|
|Moving costs||This is the cost from your old residence to the new house.|
|Ground rents||This is a fee that is paid to the owner of the land and is usually charged for flats.|
|Service charges||This is common charge for flats and is for maintaining communal arears like the hall way.
Some developments or flats require an additional contribution to maintain the parks around the area. This is a charge that is over and above the mortgage repayments.
|Connection of services||Some services like broadband and telephone will charge connection fees when you have moved house.|
|Boiler and gas insurance||In a new build, this will normally be under warranty but you will have to service the boiler within the first year in order for it to remain valid. It is worth while looking at the paper work given and considering insurance as well.|
|Other fixtures and fittings||You will need to budget for additional fixtures and fittings like curtain and blind fixtures.|