We know it is everybody’s dream to have their own home. In your ‘castle’ you are the king or queen, and you can do whatever you like – within reason of course. Way back when we were living in caves or mud huts, you just rolled up with a few of your herd, maybe a couple of goats, a sheep and your favourite club, and negotiated with the existing owners. If they agreed they grabbed their possessions and you walked in as they left. Done deal.
Life with all its marvellous technological advances has not got any easier. In fact, it has got a lot harder and a darn site more complicated. If we looked at the number of steps involved in purchasing a home, be it a newly constructed one or an existing residence, you would be amazed that a sale could actually go through.
The scary part about these steps is that they cost money. You have to pay someone to do something at every step. If you are not paying out a fee for this or that, then it is your time that will cost you. Cost means that if you have to go out and about looking at houses or checking the neighbourhood, then that requires fuel, parking or fares.
House prices in the UK border on the ridiculous and enter the impossible. You need a minimum £77,000 salary in order to buy your first home if you buy in London and £41,000 elsewhere. The average salary is £28,000! (KPMG May 2015)
There have been some impressive figures available comparing buying your house and living under the weight of a mortgage for many years or renting, and, at least, having a life in which you can go out for a drink, watch a football match, buy some clothes and travel occasionally.
The aim of this article is to try and pick out some steps along the tortuous route of home buying that might help you save a bit of dosh so that you can, at least, afford to shout your friends a pint at the local after they’ve helped you move house.
The Mortgage. There’s no way around this one unless you have saved stacks of cash, are blessed with wealthy parents or you’ve just won the lottery. Let’s look at a simple example.
House cost £250,000
Deposit 10% £25,000
Loan £225,000 at 3% interest
Period 25 years
Repayments £1067 / month
Total Paid £320,039 assuming it took you the full term to pay.
Searching for the best interest rate is where the big savings are. A 2.6% interest will save you £14,000 and 2.4% interest rate will save you £21,000.
Hint: Find a good Mortgage Broker who works independently of any bank. One who has no affiliations. They cost you nothing as their fee is paid by the bank that gives you the loan and that charge is not added to your mortgage cost. A loan officer at a bank knows only the terms and rates of his bank and cannot offer you comparisons.
The Cost of the House. Any chance to negotiate with the owners? Maybe the house has been on the market for a while? That is a good sign that they might be open to a lower offer to speed up a sale.
The State of the House. If you’ve looked at the house you are interested in maybe you can see a few problems that need fixing. You can ask for a lower price or ask the current owner to repair the fault.
Private Sale. If you can find a private sale, the house should be cheaper because there will be no estate agent fees. If you can manage a chat with the owners then who knows where the conversation might lead.
Auction Buying. It is possible that a house selling at auction may go cheaper than one being sold through an agency. The only way to find out is to investigate the location and the approximate price for the area and attend the auction and a few others to get the feel of how they work.
First Home Buyers ISA. The government knows only too well how difficult it is to buy a home and they will provide 25% on top of everything you save towards your deposit, tax-free. Your eligibility is to be over 16 and never having applied before. If you and your partner have never had an ISA, then you are in double luck as you are both eligible. There’s lots of info on the web about this and for a first home buyer it is worth reading. There is a potential for £000’s to be saved here.
Leaseholds. The central point of contention in Leaseholds is the service charge the landowner expects you to pay. Find out all the extra charges you will be paying before you buy the apartment and check that there is no bad history of past disputes. Your Leasehold period needs to be at least 83 years. The cost of extending can run into £000’s if you are caught out and want to sell after a few years.
Conveyancing. This is a very necessary evil as they carry out the legal transfer of property from one person to another. They search files, do all the legal paperwork, prepare the contract of sale and it is the conveyancer that handles the money exchange. It is not a job you can do yourself but with quite a few conveyancing businesses you have some competition in the market. Look around and find a firm that can do the job for a fair price.
Solicitor. You need a specialist in the area of property purchase so a company that specialises in criminal defence is not the best choice.Soliciting firms have a range of prices so find a competent one. You might check the internet for reviews.
Fixtures and Fittings. When you buy a house what is exactly included in the price? Curtains, light fittings, TV cable and antenna? It will cost you heaps to replace these items if they are not part of the sale.
Furniture Removal. Nothing beats hiring a van and getting a few mates together to help you move. Van hire and some pizzas and beer should do it. Better still if you have a good friend who owns a removal company, but you will still need pizzas and beer. Seriously, if you need a professional removalist then get a few quotes. Hint: The company that sends a representative around might be more expensive for the move but cheaper in the long run with fewer damages and no hassles.
Home Survey. The basic survey is suitable for a house around the 50-year-old mark and can cost a couple of hundred quid. You need this for a newly built home too just in case the builders have left a few things unfinished which happens. Older houses should be subject to a full engineering review and that can cost around £1,000.
Repairs. Here’s where your do-it-yourself skills come to the fore. If you are a handyman, then no repair will be too much for you. Labour hire is the big cost when you have any moving in repairs to make so savings here can be quite significant.
Mortgage Insurance. There are some insurances involved in house buying. One is mortgage insurance and banks insist on it to cover the loan. The insurance cost is generally tied to the mortgage amount but you can shop around for the cheapest rate.
House Insurance. Again the bank will insist on the house being insured. They do not want to lose their loan money because it rained for 40 days and nights and your house was swept away in a flood. The insurance business is super competitive so looking around for the best rate is worth it.
Life Insurance. If you suddenly drop dead, then you do not want your family burdened with the mortgage repayments. You might find a company that will tie up all your insurances for a cheaper rate.
Utilities. When you move into your new home, it will be connected to gas and electricity companies. Providing these services is competitive business and you can ring around to suppliers that can save you hundreds of pounds a year.
The advice everyone will give you when buying your home is make your choice based on ‘location, location, location’. Do the majority of people buying a house worry about that? If you’re buying for short term or as an investment, yes, consider it strongly. If the wife wants to live near her mum or you can see a great life nearer the sea then your purchase is likely to be very long term. The main point to keep in mind is that you find comfort, peace and satisfaction in the home you buy. Rest assured that if you stay in your £285,000 home for 20 years that it will be worth at least £1,000,000 when you decide to sell it. As sure as your bum is pointing to the ground the value of property is ever on the increase, you cannot lose.
Paying off the mortgage should be the number one priority and if you can follow a few of the tips set out then money saved is money you don’t have to pay back!
Happy house hunting!