Search: Mortgages - how much can I afford?
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There are a number of factors to consider when it comes to choosing a home to buy - some of them practical and some are more subjective than that. You need to be able to trust both your head and your heart. It is after all the biggest purchase that most people make in their lifetime.
Affordability
The main factor is affordability. As a rule of thumb, think of borrowing around three or maybe up to four times your gross annual salary, depending on other outgoings.
Couples can generally borrow three times the larger salary plus one times the smaller, or two and a half times the joint salary. You may be able to borrow more - but there is no point in buying the house of your dreams if you overstretch yourselves. In a falling market you may find yourself in the situation that you have a property that you can't afford and no-one wants to buy.
You might also want to consider your domestic circumstances - for example if you have a family and one person will be staying at home to look after the child can you still afford to pay the mortgage on the salary of just one breadwinner.
Your repayments should not be more than 35-40% of your net monthly income. If it is more, you are in danger of borrowing too much. Also, if a large part of your salary is made up from bonuses you should make sure that you can still afford your mortgage if your bonus is much smaller than in previous years.
Other financial aspects of buying a home
You will also need to have enough cash to pay for all the extras that surround home buying; solicitor's fees, stamp duty, removal costs and so on.
Stamp duty
Stamp duty must be paid on all property transactions over £175,000. Here are the amounts payable:
Property value:
Up to £175,000 nil
£175,000-250,000 1%
Over £250,001 3%
Over £500,000 4%
Please note that the tax does not apply to the balance above the threshold, but to the entire purchase price. So if a house sells for £180,000, the stamp duty is £1800, ie 1% of the price, not £50, which is 1% of the amount over £175,000.
Other costs:
Arrangement fees: These vary hugely - from around £300 up to several thousand
Legal Fees £200 to £400
Land registry fee £100
Search fees £100
Local authority search fee:
In London - £100
Rest of England and Wales - from £60
Mortgage valuation survey - from £150
Homebuyer's survey - from £300 - £400
Full structural survey - from £600 to £1000
So imagine you are buying a £180,000 property outside London it could add up like this:
Mortgage arrangement £499
Stamp duty £1,800
Legal fees £400
Search fees in total £260
Homebuyer's survey £300
Which is grand total of £3259 - and this is based on the lower cost end, and is before paying the deposit, removal men, any extra furniture, decorating and so on. If you went for a full survey or your legal fees were more expensive it could soon be a much higher sum.
