Buying A Home - How much can I afford?



How much can I afford?
The first thing you need to decide when you’re looking for a new home is how much you can afford. To get an idea of how much you can afford you need to do the following:
  • How much you will get for the sale of your current home, plus
  • What size mortgage you can get, plus
  • The amount you have in savings/investments that you can use, minus
  • The costs of moving home

The Costs

Arrangement fee
This is the cost that the lenders, i.e. your bank or building society will charge you for setting up the mortgage; some lenders will not charge you this fee as an incentive.

Lenders valuation fee
Every lender will require a valuation of the property to make sure it’s worth the money that’s being asked for it. This fee will around £125 for a £60,000 house, and around £160 for a £100,000 house. As you have probably guessed, the higher the properties value the more the valuation cost.

Survey
Surveys will be talked about in more detail in a few pages time. There are two types of survey, a less details one which can cost between £250 - £500, and the more tails one which can cost around £1000 or more.

Legal/Conveyance Fees
You will need to hire a solicitor to handle the legal paperwork of your move. Solicitor’s charges do vary greatly, good advice would be to shop around and find a price your comfortable with. Some solicitors charge a set fee; others charge a percentage of the value of the property, normally up to 1%. It may also be more costly depending on the complexity of the job. You will also need to pay for the legal work of your lenders solicitor. By using the same solicitor as your lender, it may save you money, but shop around any way and compare costs.

Stamp Duty
A government tax, its cost depends on the value of the house. If your house value is between £60,000 and £250,000 you will pay 1% of the property price. If it’s between £250,000 to £500,000, it will be 3% and over £500,000 it will be 4%. A typical example is a house with a value of £100,000 will pay £1000 stamp duty.

Land Registry Fee – A government department, which is known as Land Registry, handle all of the records of the registered property in England and Wales. It charges a fee for transferring the details of the land owner from one person to another. The following table highlights the fees:

Price (£) Fee(£)
up to 40,000 40
40,001 - 70,000 60
70,001 - 100,000 100
100,001 - 200,000 200
200,001 - 500,000 300
500,001 - 1,000,000 500
1,000,001 and over 800


Local authority search fees
Your solicitor will carry out local searches to highlight any problems, such as neighbours planning permission applications or plans for new roads near your home. Typical charge will be at least £60, but most likely more in the London area.

Other search fees and other expenditure

Allow around £60 for other expenditures.

Estate Agent's Commission
Check the estate agents section for information on there fees.

House-hunting Expenses
When out and about, be it in your area or a different area, travelling around looking for houses is a costly business. Will you need time off work? Allow money for petrol, eating out, hotels if in another area, telephone calls.

Removal Fees
Shop around removal firms as prices do vary. Also don’t forget you will need money for tips. Although doing it your self may sound more attractive, remember it is very strenuous work, and may invite unnecessary pressure. Also the cost of hiring a van, getting insurance, petrol etc.

Mortgage Indemnity Guarantee (MIG) Fees
If your loan amount is more than 75% of the property value, this is known as the LTV (loan to value), you will probably have to pay a MIG fee. MIG fees are there to protect the lender, not you, in case you go into default. Some lenders may not charge an LTV where as others may charge it at around 80% or 90% LTV. MIG costs to vary between lenders, but generally:

On a mortgage between 75% and 90% LTV, the charge will be 4%
On a mortgage between 91% and 95% LTV, the charge will be 6%
On a mortgage between 96% and 100% LTV, the charge will be 8%

What size mortgage can I get?
For a more in-depth analysis of mortgages, refer to the mortgage section, however, this will give you an idea of how to calculate the size of the mortgage that you can get. Lenders normally offer anywhere between 2 and 3.5 times you annual basic salary.

Gearing
Lenders often offer to lend you a percentage of the value of your house. Take the following example, if you house is worth £100,000, and you borrow £80,000, then your gearing would be 80%. The remaining 20% would be paid using savings or security. Lenders normally will not led more than 90% of the value of the property, but there are some special case 100% mortgages available, but there will have a higher interest rate.

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