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Ask the Expert: Do I have enough money to buy my first property?

Our Ask the Expert series continues, looking at a range of issues and problems people face when it comes to managing their personal finance.

Q: Do I have enough money to buy my first property?

A: It’s important to remember that buying a property requires more than just the deposit and mortgage payments required – there is also stamp duty, a valuation fee, lenders administration fees and solicitor’s fees to contend with.

In fact, a recent survey by Aviva found that almost three-quarters of first time buyers underestimate the cost of buying a house by failing to take into account these additional upfront payments on top of the mortgage deposit.

In terms of the mortgage, you will need to decide how long you want to take out a mortgage for and if you’re going for a fixed rate or variable. Normally, the value of the mortgage you will receive is based on how much you earn: you can expect the amount you can borrow to be up to four times your income, although it can differ depending on mortgage lender. It is important that you take a look around to get the best deal for you, or consider speaking to a whole of mortgage broker to get advice on everything that is available. Most lenders have specially designed ‘First Time Buyers’ mortgage designed to keep the upfront costs to a minimum which any good mortgage adviser will explain to you.

Of course, the amount you will need for your mortgage depends on the cost of the house you are looking for. By searching property websites for what type of property you are looking for in a certain area you will be able to determine an average cost – as well as how much of a deposit you must have. You will need at least five per cent of the cost of the house or flat as a deposit. So, for example, if you wanted to buy a £150,000 house you would need to save up at least £7,500 as a deposit to borrow £142,500.

Stamp duty costs two per cent above the £125,000 mark, so for a £150,000 house, you would pay £500.

Add to this the cost of a homebuyer's house survey, solicitor’s fees and potentially a mortgage fee ,as well as insurance, and the costs can add up to a lot more than you initially expect.

Aviva found that the average total amount needed for a first time buyer is £18,624 – but buyers on average believe £12,143 will do.

£18,000 is not a small amount of money and will take some time to save up depending on your finances  so  if your intention is to buy a house at some time in the future you should start saving at as early a point as you can. The alternative, which many people have to rely on, is to borrow the money from parents or family members. Some parents will give (or lend) their children the deposit as a way of helping them to get on the property ladder.

The most important thing is to do your homework fully before you start down the road of buying a house and check all of the costs required. The Money Advice Service website offers excellent advice for First Time Buyers. 

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