All you need to know about budgeting for a house purchase

All you need to know about budgeting for a house purchase

How much does it cost to buy or sell a home? Online estate agent Tepilo looks at the importance of sensible budgeting when it comes to moving.

There are a number of costs associated with buying a home, including upfront costs, mortgage costs and ongoing costs. As such, it’s vital that you have carefully budgeted for these various outlays to ensure you don’t overstretch yourself financially. If you spend more than you have, this will only cause you major problems at a later date.

Having a strict, thorough and clear budgeting plan will help you to keep on top of your finances. So, whether you're a first-time buyer, a second-stepper, part of a chain, a downsizer or a landlord looking to increase the size of your portfolio, a sensible, pragmatic budget is crucial.

The costs of buying and then owning a home can be roughly split into three categories: upfront, mortgage and ongoing. Now let's look at them in more detail…

Upfront fees

These costs will play a key role when it comes to drawing up your budget. Your deposit, of course, will nearly always be your biggest upfront cost, and it's typically 5%-20% of the overall price of the home you're looking to purchase (although it can be more).

Some affordable housing schemes only require a 5% deposit, while more lenders are now starting to offer this kind of package again after being put off by the issues caused by the global financial crisis.

However, 100% mortgages – where a buyer needs no deposit – have become virtually obsolete since 2007-8, deemed too risky by most lenders. Where they do still exist (Barclays, for example, offers a new kind of 100% mortgage), it usually requires heavy financial assistance from the Bank of Mum and Dad or loved ones.

The bigger your deposit is in the first place, the greater your chances of securing a mortgage. Also, the greater share of the house you’ll own and the less you'll be paying back in mortgage repayments each month. What's more, a larger deposit is likely to mean lower interest rates – further keeping costs down over time.

It's not just the deposit you have to consider, though, with other major upfront costs including stamp duty land tax, valuation fees, surveyor’s fees and legal fees (you will need to employ a solicitor or conveyancer to carry out the buying process on your behalf; typically, this costs between £500 and £1,500, with additional fees often tagged on).

Your budget should also allow for an electronic transfer fee. This will only set you back around £40-£50 and will pay for your lender to transfer mortgage money to the seller's solicitor.

Lastly, you should also bear in mind the cost of removals. If you don't have many possessions, or believe you have the means to do it off your own back, you can take the DIY approach. Most, however, will opt for professional help.

If you do call in the experts, you can expect to pay between £300-£600 for their services, although this will vary depending on your circumstances. It's also important to note that prices tend to rise at peak times – in particular weekends – and tend to be cheaper on weekdays, when demand isn't as high. Remember, too, to ensure that the firm you use is a member of the British Association of Removers (BAR) to give you peace of mind that they are reputable, reliable and professional.  

Mortgage costs (and fees)

Once you've purchased and moved into your new home, monthly mortgage repayments will likely be your biggest outlay. As such, you need to make sure you are able to afford these with plenty of room to spare. If you don't keep up with your repayments each month, you could face serious issues further down the line. In the worst-case scenario, your home could even be repossessed.

Your ability to repay will be assessed when you are applying for a mortgage, but life can throw up some unexpected events – a new baby, a redundancy, a death in the family, etc. – which could change your whole situation completely. It's therefore useful to have money set aside to pay for mortgage repayments even in the event of an emergency.

Fixed-rate mortgages offer more stability and certainty than other mortgages, as you pay back the same each month. If you want peace of mind, this type of mortgage may be best for you.

There are, though, a whole range of mortgages to cater towards differing demands. These include tracker, variable and interest-only. We previously outlined the different type of mortgages available to buyers, but if you have any reservations or queries it's best to talk to a mortgage professional for tips and advice.

There are additional mortgage costs that will also need to be factored in, including an arrangement fee (up to £2,000), mortgage valuation fees (typically £150 or more) and a booking fee (likely to be between £99 and £250).

Ongoing costs

Once you've purchased a home, your bank balance isn't quite out of the woods yet. Mortgage payments will be your biggest outgoing, but you'll also need to budget for insurance (buildings insurance will be a requirement by your lender, while contents and life insurance are also recommended to give you complete cover) and any maintenance or repairs that occur over time.

It's unlikely that any major repair or maintenance works will be needed – unless you're very unlucky – but there will be incremental costs, over time, for things like preventative maintenance, DIY tasks and gardening.

In addition, you'll need to make allowances for the running costs of your home (this typically includes bills for TV, broadband, phone, gas, electricity and water), as well as new furniture, paint jobs and maintenance of white goods.

Council tax, too, will need to be included in your post-purchase budget. Remember, this varies from place to place and is calculated on where you live and what council tax band your property falls under. More can be found out about council tax, and how much you will have to pay, on this government page here.

Clearly, then, there is a quite lot to bear in mind and you'll need to make sure you have the financial means to cover all these costs before you commit to buying a home. With careful planning, careful budgeting and a sensible approach to your finances, this is eminently achievable.