Buying a house
Buying property is probably the biggest financial commitment you'll ever make, so it makes sense to plan carefully and save money wherever you can.
It's never been more important to have a sizeable deposit if you want to buy a house. The credit crunch put paid to 100% mortgages and anyone wanting to borrow more than 75% of a property's value will face high interest rates and sometimes have to pay a higher lending charge on top(1).
So how do you raise the funds? The best advice is to start saving early. If you are starting from scratch with no other funds, saving £32,600 (2) - that's 20% of the average price of a terraced house in the UK - could take 9 years if you save £300 a month.
The first step to saving for a deposit is working out a budget. This will tell you how much you can afford to put aside each month, and how long a timeframe you'll need to save for.
Once you've started the savings habit, review your plans regularly to make sure that you're still on target.
And it doesn't make sense to pay unnecessary tax on the money you've worked so hard to save. With an ISA you pay no tax on the interest on your savings, and you can save up to £11,880* this tax year (2014-15).
Fiona and Bill Hughes, first-time buyers.
"The costs we hadn't budgeted for after we moved in."
Buying for the first time
Fiona Hughes and her husband Bill bought their first house in May 2010. They live in West Sussex with their two-year-old son Hallam. Fiona talks about the costs of buying and owning a home.
"The sellers initially rejected our offer but they came back to us two months later after two other sales had fallen through. We then became part of a very long chain and the seller kept changing dates. We were lucky that, about a week before we exchanged contracts, the government announced that they were stopping stamp duty for first-time buyers."
"However, that saving was pretty much wiped out by other expenses as soon as we moved in - £1,000 on white goods and another £1,000 on some essential building works."
"After a couple of months, the shower broke and we had to come to terms with the fact that we didn't have a landlord anymore and we had to find our own plumber!”
"When we were house hunting we imagined changing all the rooms to our taste quickly. The reality has been that we're stretched for time and money so we're doing everything gradually. Our next big purchase will be a new carpet and we're saving for a new boiler."
"Before we bought, 50% of our income was going on rent, but now less than 30% of it goes on our mortgage. The end result in our current account is probably about the same - given that we are paying for decorating and repairs and trying to save too - but it feels a lot more satisfying to be paying off your own mortgage instead of someone else's."
In addition to the deposit, you'll need a few thousand pounds to cover the following:
Most buyers also have to pay stamp duty. For properties between £125,000 and £250,000 you pay 1% of the property value. This rises to 3% for properties between £250,000 and £500,000 , 4% for properties between £500,000 and £1,000,000 , 5% between £1,000,000 and £2,000,000 and 7% for properties of £2,000,000 plus. So for a £300,000 house, stamp duty adds an extra £9,000 to your moving bill.
If you're selling as well, you'll have to pay estate agent's fees - typically 1.5% to 2% of a property's price. (The only way to avoid such fees is by selling privately.)
Removal costs vary according to where you live, what you've got and how far you're going. Always get two or three quotes and check that your goods will be insured during the move.
Your new outgoings
It makes sense to work out how your monthly outgoings will change once you've bought a property. For example, you might want to consider a mortgage protection policy to cover your mortgage payments in the event of illness or redundancy. If you have dependents you should also consider life insurance.
You'll also need to budget for buildings and contents insurance - remember to shop around for the best rates. Finally, consider what effect a future change of interest rates would have on your mortgage payments and try putting money aside to cover this.
If you're planning significant alterations, it's worth getting advice from an architect or building surveyor. Depending on the project you might also need to consider planning permission and building regulations. Your local authority can advise.
When you're choosing a builder, try to go with a personal recommendation, ask for references and check their insurance cover. For larger projects, consider using a professionally written contract and agree to a price in advance of the work starting.
Maintaining your home
Get into the habit of making simple checks and regular repairs to prevent costly problems, such as leaks and rot. Tedious jobs, such as clearing gutters and painting window frames, can save a fortune in the long run.
If you make an insurance claim for damage caused by the weather, your insurer might refuse to pay if the roof was damaged or gutters were blocked.
Any profit you make from letting out a second home - excluding certain expenses and allowances - is taxed along with the rest of your income. And be prepared for occasional gaps between tenants as well as letting agents' fees, gas safety checks, and cleaning between tenants.
It's also worth bearing in mind that (under current tax rules) when you come to sell your second home, you may be liable to pay Capital Gains Tax of 18% (or 28% if you’re a higher or additional rate taxpayer) of any profit you make over £11,000, depending on how much of your annual allowance remains available.
If the children have flown the nest - or you've simply had enough of the rat race - you might be considering selling your current home and moving somewhere smaller or easier to maintain.
Downsizing could reduce mortgage payments or release capital to invest in a pension or provide extra income. It could also mean savings on fuel bills and council tax.
Before you move, weigh up the savings against the costs of buying and selling and try to anticipate any changes in outgoings that living in the new property might entail - for example, you might need to spend more on petrol if you're more dependent on your car. Think long term, too - that country cottage might be less appealing if you have to stop driving because of old age or ill health.
*Allowance applies from 6 April 2014 to 30 June 2014. From 1 July 2014 the allowance will be £15,000.
- When you're working out how much you can afford to spend on your house purchase, don't forget to take into account legal fees, moving costs and essential repairs/redecoration.
- Looking after your home will protect its value, so save regularly to pay for maintenance and repairs.
- Consider protecting your mortgage payments in the event of sickness or unemployment.
- When you're employing builders or other workmen, make sure that they have appropriate insurance cover.
- Know the tax rules about second homes - you may have to pay tax on any rental income as well as capital gains tax when you sell the property.