Press Article
METRO - 24 February, 2011
Budgeting
By Jo Eccles
If you’ve decided to purchase a property, the most important starting point is to establish your budget correctly - a common mistake amongst many buyers is that they do not take all the associated costs into account when deciding how much they can afford to spend, and so do not set a realistic budget. My advice is to work backwards when trying to decide on what you can afford.
Firstly, you need to assess how much cash you will be able to put towards your purchase – the higher your deposit the better; in the current market you typically need to put down approximately 30% of the value of the property in cash in order to access lower interest rates on your repayments.
Secondly, you will need to tally up how much you will need to pay for the property buying process. You will need to factor in solicitor’s fees (which are usually around £1,500), the cost of a thorough survey to check the condition of the property (between £350 - £750, depending on the size of your chosen home), mortgage fees (these include valuation survey fees, arrangement fees and broker fees – they can vary significantly but I would allow between £3,000 and £4,000), and finally, stamp duty (the stamp duty on a property which costs £250,000 or less is 1%, it’s 3% on a property that costs between £250,000 and £500,000 and 4% on a property over £500,000, and soon to be 5% on properties over £1m). After you have subtracted these costs from your initial cash figure, you will be left with a more realistic idea of how much money you can put towards the actual property.
Once you have calculated your cash amount, the next step is to contact a mortgage broker or your bank to discuss your options and find out exactly how much you will be able to borrow. You will need to inform your broker how much you can realistically afford to repay each month and what your gross deposit is i.e. after costs. That will then enable your bank/broker to determine a budget you feel comfortable with and you’ll know exactly where you stand when you begin your property search – avoiding any nasty surprises during the buying process when costs start being incurred.