| Many buyers tend to think that what they can borrow and what they can afford are one and the same thing. They aren’t. |
| Work out your budget Your lender may be willing to lend you a vast amount of money. But the real question is: could you afford to pay it back every month, no matter what happens to interest rates? And have you taken into account the additional costs involved in owning a property? The best way to work out what you can afford is to add up all the costs associated with home ownership. They break down into two basic components - one-off costs involved in buying the home itself and the ongoing costs of looking after it. |
| How the costs stack up |
| Solicitors fees If you are buying for the first time or re-mortgaging your current property, you will have to pay for a solicitor. Some mortgage deals offer to pay your legal costs, up to a certain limit. You will also have to pay the lender’s costs involved in the mortgage process. The combined cost, including local authority searches, other payments, cash transfers and VAT can be up to £1,000 for an expensive home purchase, less outside London or for simpler transactions. Buying and selling at the same time may cost more. |
| Stamp duty Stamp duty is levied by the Inland Revenue on home purchases, and has to be paid when you complete your purchase. For a property costing up to £60,000, there is no stamp duty. Once the price goes above £60,000, stamp duty is charged at 1 per cent up to £250,000, 3 per cent between £250,000 and £500,000 and 4 per cent thereafter. The charge is payable on the full purchase price. For example, a £700,000 house would involve stamp duty of £28,000. |
| Application fees Many lenders charge application fees of between £200 and £400 per mortgage application. Some charge even more. In many cases, this fee is payable even where the application fails or is withdrawn. |
| Service fees You may have to pay a service fee if you buy a flat. This provides the funds to insure the building, to decorate the interior and exterior common parts of the premises, to repair and maintain the lift, to pay professional fees and to cover other costs. |
| Ongoing vs one-off costs One-off costs refer to the fees you are likely to face when buying a home, including moving in and making it habitable. They can range from a few hundred to many thousands of pounds. Ongoing costs refer to regular maintenance and bills, such as power and council tax or repairs. |
YOUR MONEY
