Making the move from renting a property to owning your own home is a huge milestone. Whether you buy a mid-terrace or a plush apartment, you finally have the opportunity to make your home your own and build equity.
However, you also have to take on everyday costs and responsibilities that your landlord handled. By looking beyond the purchase price and mortgage payments, you can build a realistic budget long before you start the buying process.
Understanding the true upfront costs
The deposit is usually the largest upfront cost. A 25% deposit typically gets you a much better rate than you get with a 5% or 10% deposit. However, it usually comes down to how much you can afford and how much deposit is accepted by your mortgage provider as a minimum.
As well as your deposit, you need to be aware of other fees that youโll need to pay in order to complete the sale. Solicitors charge conveyancing fees to handle the legal transfers, while licensed surveyors assess the building structure to check for any damage or defects before you exchange contracts. You must also account for potential mortgage arrangement fees, which lenders often add to your loan or request upfront.
To keep these expenses under control, get written quotes from at least three separate conveyancers and set aside a buffer of around ยฃ2,000 to ยฃ3,000 specifically for these services and removals.
Budgeting for ongoing homeownership expenses
As a homeowner, you take on complete responsibility for the ongoing upkeep of the structure and its contents. Youโll need buildings insurance as this is a non-negotiable requirement from your lender, while council tax bands can impact your monthly running costs compared to your rental flat.
Set up a house maintenance fund as soon as you pick up the keys to your new home. You can automate this with a monthly standing order that transfers 1% of the property value into a high-interest savings account each year to cover routine repairs and unexpected appliance breakdowns.
Knowing how much you can afford
Mortgage lenders evaluate your income alongside your existing debt commitments and general lifestyle spending to calculate how much you can borrow.
Planning your household budget with potential interest rate fluctuations in mind gives you an estimate of how much you can comfortably pay each month. Before viewing properties, review your last three months of bank statements to calculate your uncompromisable living costs. Subtract these expenses from your net household income to give you a realistic figure rather than stretching yourself to the absolute limit of what a bank offers to lend.
Planning for long-term financial stability
When selecting your mortgage product, weigh up the predictability of a fixed-rate deal against the flexibility of a tracker product to ensure your home remains affordable through every life stage.
Once you select your mortgage, itโs important to note that it commits your finances across several decades, making future-proofing essential when you choose a property and a loan structure. ย In those years itโs likely youโll see major life changes. There might be external economic changes, or you might need to make significant updates to the property.
Building and maintaining an emergency fund containing three to six months of essential living expenses can help you. Building and maintaining an emergency fund containing three to six months essential living expenses can help with life changes. But when thatโs not enough, as a homeowner you have the option of using equity in your home. A secured loan could help you buy a new car or renovate your home to accommodate a growing family.
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