Beginners, beware of the costs

The Most important point to bear in mind when buying your first home is how much it is all going to cost.

Unless you fully understand what is involved, it is easy to place an unnecessary strain on your finances. In all the excitement of finding somewhere to live, first-time buyers often forget about some of the irritating incidental costs - such as surveyors' fees, stamp duty and solicitors' costs.

The few hundred pounds involved may seem trivial when set against the size of your mortgage. However, you will have 25 years to pay back your mortgage; the conveyancing and other costs must be paid at the outset. This can be a headache when you are trying to find the money for a sofa, a washing machine and a new fridge-freezer.

The exact costs will vary according to the firms of solicitors and surveyors you use. Solicitors' fees are likely to be close to pounds 300, while your surveyor will charge you another couple of hundred pounds.

If you are buying a property for more than pounds 60,000, you will have to pay stamp duty equal to 1 per cent of the purchase price. Then there is mortgage indemnity insurance (sometimes called "MIG"). This protects the lender should you default on your loan, and you will normally fork out for it if you are borrowing more than 75 per cent of the value of the property. The higher the percentage you borrow, the more you will have to pay. Borrowing 95 per cent of the value of a pounds 50,000 property might cost you about pounds 850 for the MIG.

Finally, if you opt for a special mortgage deal with a fixed or discounted interest rate, you will have to pay your lender an arrangement fee of pounds 200 to pounds 300. Few loans have no fees at all. However, some lenders offer you money towards your legal costs and/or a free valuation as part of the package.

In today's market, borrowers are offered a plethora of mortgage deals, but nearly all of them are either discounted-rate or fixed-rate schemes. With a discounted mortgage, borrowers pay a rate of interest that is less than the market rate for the first few months or years. It is possible to find mortgages that charge interest at less than 1 per cent for the first six months or so. Much more common are deals offering rate savings of between 1 and 2.5 per cent. The cost of a discounted mortgage will still fluctuate in line with the overall level of interest rates.

With a fixed-rate scheme, borrowers have the security of knowing that the cost of their mortgage will not rise for the period of the arrangement. Fixed-rate deals usually last for one to five years, though they are sometimes longer.

Some of the discounted deals around at the moment look seductive - largely because many building societies are so desperate for new borrowers that they are prepared to lend money at rates that will lose them money, at least initially. Many fixed-rate mortgages look less attractive because they charge interest at rates above building society base rates of 6.5 to 7 per cent.

But what first-time buyers must remember is that interest rates are at a 30-year low, and are highly likely to rise again fairly soon. That is why many fixed-rate mortgages are currently more expensive.

Tim Fletcher, marketing manager for lending at Bradford & Bingley Building Society, recommends that first-time buyers on a very tight budget opt for a fixed-rate mortgage. That way, they have absolute certainty about their monthly payments, and will not be hurt by a rise in interest rates.

Home-buyers who plan to move again within a few years must be aware that they will be charged interest penalties if they redeem a fixed- or discounted-rate mortgage within (usually) five years of taking out the loan.

Start your day with The Independent, sign up for daily news emails
News
Keith Fraser says we should give Isis sympathises free flights to join Isis (AFP)
news
Life and Style
Google celebrates the 126th anniversary of the Eiffel Tower opening its doors to the public for the first time
techGoogle celebrates Paris's iconic landmark, which opened to the public 126 years ago today
News
Cleopatra the tortoise suffers from a painful disease that causes her shell to disintegrate; her new prosthetic one has been custom-made for her using 3D printing technology
newsCleopatra had been suffering from 'pyramiding'
News
people
Arts and Entertainment
Coachella and Lollapalooza festivals have both listed the selfie stick devices as “prohibited items”
music
Sport
Nigel Owens was targeted on Twitter because of his sexuality during the Six Nations finale between England and France earlier this month
rugbyReferee Nigel Owens on coming out, and homophobic Twitter abuse
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Client Services Assistant

£18000 - £20000 per annum: Recruitment Genius: A Client Services Assistant is ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor