Preparing yourself for first-time housebuying
Preparing to buy a property as a first time buyer is now harder than ever
Monday, 07, Jun 2010 03:55
By Kate Saines
There was some great news for first-time buyers recently when the government announced it would be suspending stamp duty for anyone making their first property purchase.
Buyers starting their ascent on the property ladder and purchasing their home for less than £250,000 in the next two years are to be free the tax.
The popular move has not been without its critics who like the idea in principle, but feel it is probably of little help to those embarking on the property market in expensive places such as the south east of England.
And others say most first-time buyers are still being scuppered in their bid to buy a home by the difficulty in finding the large deposit still required to get a mortgage.
And that's not all. A new report has found that as many as a quarter of house-buyers do not realise the additional costs involved in buying a house, and as a result have not budgeted for this.
Despite the stamp duty break getting on the property ladder is still an uphill struggle.
Luckily there is lots of help out there, and by preparing yourself in advance for the unexpected obstacles in house buying even the most nervous of first-time buyers can gain some confidence.
House-buying: The unforeseen expenses
According to professional advice website, Unbaised.co.uk, 24% of house-buyers are 'clueless' as to how much buying their home will really cost them.
And one in ten people buying a home think the added extras will cost up to £1,000.
The reality - according to Unbiased - is that that the conveyancing costs alone could set you back this much.
As soon as you start the process of buying a property you will need to arrange a survey. While these cost anywhere between £50 and £1,000 - most buyers are encouraged to go for the more expensive option as these are usually more comprehensive.
Solicitors' fees can cost from £600 to £1,000 for a basic service, says Unbiased, but if the purchase is complicated you will be charged for the extra work.
And expect your solicitor, in the course of their involvement, to approach you with additional costs for searches.
There are a variety of these which could need to be done, including water, local and environmental searches, and you will usually be asked to stump up the cash in addition to the solicitor's fee.
While some searches can cost just £30 there are others which might see you out of pocket to the tune of £300.
And if you are purchasing a property above the £250,000 threshold you will obviously have to pay stamp duty, which is set at a percentage of the cost of your home.
Karen Barrett, chief executive of Unbiased.co.uk, says it is crucial for consumers to factor in all the additional costs involved in home buying so they can accurately calculate what they can afford.
"This involves thinking beyond your deposit and mortgage," she says, "and taking into account stamp duty tax, survey and solicitors fees, and other essential checks. Not to mention how much you may need to spend on your home once you actually move in."
In a bid to cover these additional costs, Unbiased discovered, 41% of house-buyers raided their savings while 18% planned to add the costs to their mortgage.
Ms Barrett adds: "Consumers should ensure they seek advice from a whole-of-market mortgage adviser so they are fully aware of all the costs involved in house-buying before they find themselves out of pocket.
"Especially if they decide to add these extra costs onto their mortgage - as the added interest will be on top of the value of your property - pushing the cost up significantly."
Getting a mortgage
The tremendous task of finding a mortgage in the last couple of years has meant that the numbers of first-time buyers has dwindled severely.
The stamp duty holiday has been imposed to ease this situation.
David Hollingworth, head of communications at mortgage broker London & Country, says: "Suspending stamp duty up to £250,000 will help a considerable proportion of first-time buyers.
"But the question is, are there still many first-time buyers out there? The problem they face in the main is that mortgage availability is restricted because they have to find high deposits."
Mr Hollingworth says to get a decent mortgage the average first-time buyer - in the current environment - would need to find a deposit of between 25% and 30% of the value of their property.
There are solutions for struggling first-time buyers in the mortgage market. These include guarantor mortgages, which allow parents or relatives of the buyers to put their own money up as security to help the buyer secure a loan.
Also there are 'lend a hand' mortgages which allow parents or relatives to help by putting their savings into an account with the mortgage provider as a guarantee.
Another example of a first-time buyer aid is the Co-operative Bank's 'share to buy' scheme which is designed for up to four friends to buy a property together.
And there is also the 'fee free' mortgage option, which reduces initial costs to help make the primary outlay a little less onerous for buyers.
Going fee-free?
According to London & Country a typical fee on some of the mortgages with better rates is £1,000. At the extreme end of the scale, however, there are some mortgages which charg two per cent of the loan as fee.
So fee-free really could save you some serious money in the early days.
Among some of the new fee-free deals to hit the market recently is Chelsea Building Society's new range. Customers can borrow up to 85% of their property's value (which means they need only stump up a 15% deposit).
There are two, three and five year fixed-rate mortgages available as well as a two-year tracker mortgage.
These are being marketed at first-time buyers who have benefited from the stamp duty holiday and who could, by taking out this product, earn themselves more savings.
Tim Taylor, head of customer services at Chelsea, says: "For borrowers in today's market, getting a deposit alone is tough. Hidden extras like fees and charges can hurt."
The problem is the fee-free options usually come with a trade off, which is a higher interest rate.
London & Country's David Hollingworth says whether you decide to go fee-free and risk a higher interest rate or pay up front for a lower monthly outgoing on your repayments depends entirely on your circumstances.
"Someone with a bigger mortgage will be better off getting a lower interest rate. But those with a small mortgage would be better off keeping set-up costs down," he says.
He adds, however, that it is probably worth paying some kind of fee.
This point is highlighted by Britannia and the Co-operative Bank's latest fee-free product. It is offering a three-year fixed-rate deal among its latest range which has a rate of 4.69 per cent for a fee-free 75% loan-to-value (LTV) mortgage.
Opt for the version charging a £999 fee and your interest rate plummets to 4.19 per cent.
There is also a 0.3 per cent interest rate increase on the five year fee-free deals, compared to their fee-charging counterparts.
Interestingly, the two-year option only offers a fee-free product.
Mr Hollingsworth's advice is to seek the help of an adviser or broker if you really want to find the best balance between low fees and affordable interest rates. "It's part of the work brokers do," he says, "finding which mortgage will fit different circumstances."
Instead of just seeing the headline rate offered by a mortgage provider, a broker or adviser will find out what rate the buyer will be charged and look at what fee structure applies to this.
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