Moving home is exciting, but it can be one of the most stressful times of your life, so getting the finances right is essential. With some certainty returning to the property market on the back of the election of the coalition Government, the bargains there have been across the country may soon disappear. But in the rush to bag a new home, finding the right mortgage is important. That doesn't just mean choosing the best rate or type of mortgage, but ensuring you understand the other costs. Most lenders add a range of fees and charges to their deals which can catch the unwary out.
"For most people, mortgages are a lifetime commitment, so when choosing a loan, borrowers must bear this in mind," says John Hughes, the business leader of retail products at the Britannia. "We would always advise borrowers to look at the range of options available and pick the product which suits their finances and their lifestyle.
"It is also important that borrowers look beyond the headline rate when choosing their mortgage and look closely at the hidden costs – the administration fees, valuation charges, conveyancing costs and exit fees," Hughes says.
The mortgage broker Drew Wotherspoon of John Charcol says homebuyers should spend as long on their financial planning as on choosing their new home. "There are certainly bargains to be had in the property market currently and if you are thinking of moving, now could well be the time. Yet you should never do this without proper planning and a clear knowledge of exactly what it will cost.
"From estate agent fees and removal costs to stamp duty and the plethora of costs that are involved in arranging a mortgage, movers must make sure they know exactly what it will cost," Wotherspoon advises. "Check with all the parties involved in a transaction and make sure they spell out all the costs. You can then make an informed decision about whether moving is right for you."
On top of the mortgage-related costs, movers need to be aware of such expenses as valuation fees, stamp duty, legal costs, estate agents' fees, and the expense of moving. You'll also need to take account of home and contents insurance you'll need to take out on your new property. The sad truth is that buying a home will inevitably cost more than you think, especially with all the unexpected bills that arrive.
One expense that few plan for is a mortgage arrangement fee. Anyone tempted by the best deals is likely to be landed with a bill of £1,000 or more simply to secure the deal with their lender. It means that when comparing rates, you must take account of the arrangement fees, as they could make what looks like a more expensive loan actually work out cheaper than a mortgage with a lower interest rate.
Most lenders will allow borrowers to add the cost of the arrangement fee to the mortgage, but if you do that the cost will rise as it will attract interest over the lifetime of the loan. "The issue with moving home for many has always been the hidden costs that may not have been thought about when a dream home is identified," says Andrew Montlake, a director with mortgage broker the Coreco Group. "Valuation fees, lenders' arrangement fees and application fees have all risen dramatically over the past few years as lenders first sought to top best-buy tables with the fees offsetting the lower rates and, more recently, to boost profits and improve their balance sheets."
There's more to consider when looking at finances. "Stamp duty, solicitors' fees, broker fees and even telegraphic transfer fees can all add up and need to be taken into careful consideration when assessing the relevant merits of a mortgage deal and even the property purchase itself," says Montlake.
Stamp duty has traditionally been the biggest extra expense for homebuyers, with the land tax set to be charged at up to 5 per cent from next April. That can add a considerable amount to a property price, and anyone spending £1m-plus will have to stump up an extra £50,000. The good news is that the rate drops the lower the price, and if you buy somewhere for less than £125,000, there's no stamp duty. From £125,000 to £250,000 it's charged at 1 per cent. However, first-time buyers currently have to pay no stamp duty on properties below £250,000, a move designed to encourage first-time buyers They have until March 2012 to take advantage.
Even if you're not a first-time buyer, it's still a good time to purchase a home, according to the mortgage broker David Hollingworth of advisers London & Country. "The balance of power in the housing market has largely swung in favour of the buyer since the fast-paced market of 2007, when the seller often had the upper hand," he says. "However, during that time, the mortgage market has moved from offering a plentiful supply of cheap money to one of much more restricted availability. Size of deposit has become vital in deciding what deals are available and so it's crucial to know how much cash you can put down after covering all the other costs."
There are 90 per cent deals out there, but you'll find you'll get offered a much cheaper mortgage if you can find a larger deposit. The best deals tend to be offered to those who can raise a 40 per cent deposit. Even then, people should still take account of all the costs before signing up for what seems like a good deal, Hollingworth says. "There are many costs associated with the purchase of property – for example, survey, legal costs and, of course, stamp duty, but the mortgage will bring other costs as well. There are still good deals to be had, but it remains important not to be drawn in by the headline rate, and to factor in any associated fees," he says.
While arrangement fees on the best mortgage deals are around £1,000, it's worth being aware that some lenders may charge twice that on certain mortgages. However, most lenders offer different versions of a deal that carry a smaller or even a no-arrangement fee, Hollingworth says. "The trade-off is a slightly higher interest rate and so the key is to work out what gives the best overall value for your individual circumstances. Those with larger mortgages may find a bigger fee worth paying to snap up a low rate, whereas borrowers with more modest requirements will be better off keeping set-up costs to a minimum. Some deals may even offer help with the cost of valuation and provide a cash-back on completion that can help offset legal fees," he says.
Despite all the complicated charges and hidden fees to take into consideration, Montlake believes it's still a pretty positive time for most home movers. "The good news is that, at present, mortgage rates are competitive, and there are deals to be done on the properties themselves which, when all is said and done, means that now is a good time to buy."