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HOMEBUYING GUIDE

First Step How much can I afford?

You need to know how much you can spend before going out house hunting

Paying off the loan to buy your home will be your largest expense, but it’s not the only thing you have to budget for as a homeowner. The cost of your mortgage is spread over a period of years – usually 25 – but there are a number of upfront, one-off costs you’ll also have to meet to move up the homeowning ladder.

Putting down a deposit
You should aim to put down at least 5 per cent of the cost of the home you plan to buy, preferably more, as deposit. Some lenders charge what is called a mortgage indemnity fee (MIG) on larger loans, of over 95 per cent, for example. Not many lenders now charge MIGs but they are rumoured to be making a comeback. Back in the early 1990s an MIG premium could be as much as £1,200 on 95 per cent mortgage on a £60,000 home.

As well as avoiding an MIG fee, getting together a substantial deposit also means you reduce your monthly repayments in the long run. After all, the smaller the loan, the less interest you pay. Use the table below to help you work out how much your monthly payments are likely to be for the amount you are borrowing. Think about whether the rate you’re using in your calculations is what you’ll be paying for the full term. Bear in mind, also, that rates can go up. How much would you be paying if rates rose by, say, 2 per cent? Rates are unlinkely to reach the 15 per cent mark as they did in the early 1990s, but they will go up.

If you can’t afford to save up for a deposit some lenders will loan you a 100 per cent mortgage. See page 70 for more details.

How much can you borrow?
The amount you can borrow will be based on the size of your deposit and how much you earn. Remember that if you are self-employed you will need to supply proof of your income. Lenders are usually prepared to lend you around three times your annual earnings. If you are buying as a couple this rises to three times the first income plus the second income, or two and a half times your joint income

Other costs
If the price of the property you plan to buy is more than £60,000, then you have to pay a government tax called Stamp Duty. See page 51 for Stamp Duty rates.

The lender will need to carry out a valuation of your prospective home to check it is worth the money it is lending you. This will cost you from around £150, depending on the lender and the property. Lenders may also charge an arrangement or completion fee. Ask your proposed lender for a rundown of the fees attached to the mortgage you want to apply for, including any penalty for paying it off early.

Legal fees are a major expense. Your solicitor or conveyancer will charge a fee for its services, starting at £400. The land registry costs, a local search and other disbursements are also on the solicitor’s bill on which you have to pay VAT. You also need to include the cost of a homebuyers report or survey. See pages 51–53 for more on legal and surveys.

ADVICE TO READERS
While this website is checked for accuracy, we are not liable for any incorrect information included. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions.

The Publishing Group Sites.

www.mortgageintroducer.com

www.investmentinternational.com

www.finance4expats.com

www.homebuying.co.uk

www.shariabanking.net

www.commercialfinanceintroducer.com

www.islamicfinancegazette

www.emiratesinvestor.com

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