To work out how much you can spend on a new home you need to know what your total available funds are, then deduct the cost of your house sale and move.
Let's take a closer look at what makes up your available funds. You may find it helpful to print this budget planner and fill it in as we go along.
To work this out you need to know:
1. What you think your house will sell for? [£]
Find this out by using this free property valuation tool.
2. What you owe on your current mortgage? [£________]
Find this out by simply calling your lender and asking them directly.
Once you have both these figures, do this simple sum:
It's important to get a grip on this figure because until completion, all your moving costs will come out of whatever cash and savings you have available.
Traditional financial wisdom recommends your monthly mortgage payments are no more than a third of your monthly net income (i.e. what you take home after tax).
We don't want to sound too evangelical but we can't stress enough how important it is not to overstretch yourself.
Repossession is a real problem (one that I've seen firsthand) and believe me, it's not fun (hopefully you'll never need it but you can find out how to stop repossession fast here)!
Once you've had a mortgage and proved you can make repayments, lenders fall over themselves to give you ever-increasing amounts of cash.
It's up to you to know where your limit is (don't count on the lender to be the responsible one).
Following traditional financial wisdom (that repayments should not exceed a third you monthly income) will give you confidence in your long-term financial health.
Potentially you could borrow anywhere between 3 - 5 times your salary (but if you're buying as a couple it'll be more like 2.5 times your combined incomes).
Each lender is different and with over 150 different lenders and over 8,000 different mortgagesout there it's pays to shop around.
The quickest way to discover exactly how much you can borrow is to speak to a qualified independent mortgage broker.
The best brokers search the whole mortgage market and will clearly give you free quotes and impartial mortgage advice.
Now let's take a look at all the costs involved in your house sale and move:
If you plan on using an estate agent, you'll be charged a fee based on the percentage of your selling house. Typically this can be anywhere between 1.5-2.5% +VAT.
If you sell your house privately expect for it to cost around about £500 to do properly.
If you sell at auction it will cost a minimum of 2.5% +VAT of your sale price. You may also have to pay for a specialist conveyancing solicitor to be present.
Solicitors' fees (like their quality of service) vary enormously.
Some charge a percentage of your homes value. Some charge a fixed fee.
Whether your property is freehold or leasehold will also make a difference.
Most property commentators reckon you should budget for legal fees of between 0.5 - 1% of your properties value.
That may have been true in the "bad old days" when high street firms of solicitors ran a monopoly on their local area.
We think that's way too much to pay!
These days the Internet has encouraged so much competition that you can have some of the best firms serve you for a fraction of that.
Choosing the right solicitor is important stuff and should not be decided just on price.
You should aim to choose someone that works on a "fixed-fee" and "no sale, no fee" basis. This will save you a lot of money if you have any abortive transactions or things don't go quite as smoothly as planned.
Be especially wary of the "cheap-cheap" amateur web companies (there are some of the best conveyancing services available on the web, there are also some of the worst).
If you intend paying off your mortgage early check with your lender to see if a redemption fee is payable.
This fee can be quite hefty (a fee equal to 6 months interest payments is not uncommon) so it's best to find out as early as possible.
Don't forget to talk to your mortgage broker about this. They'll tell you the best course of action for your individual situation.
If you use a professional firm their charges will vary depending on:
You can get free removals quotes here!
If you decide to take the DIY approach to moving don't forget the costs of:
This will undoubtedly be a lot cheaper than using a removal firm but nowhere near as civilized!
A final point to make is about your household contents insurance. Make sure you're policy covers you for the move.
If it doesn't you may have to pay a premium of £20 - £30 to get the extra cover you need.
For a price, removal firms may offer to cover you with their own insurance policy - This is not a great idea!
Many of these policies limit the amount of compensation you can claim.
If you do take their policy cover, make sure you see everything in writing and double-check that the cover they provide is adequate.
Conveyancing Solicitors fees for buying are usually more than they are for selling. This is because there's more for the solicitor to do.
When you do get conveyancing quotes, some firms include the Stamp Duty you'll pay when you buy a house, some don't.
If you're comparing solicitors, take out the Stamp Duty so you can see the real fees payable!
Also check that the following are all itemised and included in their quote:
Stamp Duty is what you have to pay the Inland Revenue when you buy a property in the UK worth more than £125K.
The tax is payable on all land, houses, flats and buildings. For the moment the tax rates are set at:
£125,001 - £250,000
250,001 - £500,000
£500,001 - £1 million
£1 million - £2 million
Over £2 million
So if you're buying a £300,000 home you will actually pay £309,000 (that extra £9k goes to The Inland Revenue).
In some qualifying parts of the country, properties worth less than £150,000 are subject to "Disadvantaged Area Relief".
This could provide a saving of up to £1,500.
You can check which parts of the country qualify and learn more about "Disadvantaged Area Relief" at the HM Revenues & Customs website.
To get the best mortgage you need to search the whole mortgage market.
This is where getting impartial mortgage advice from a "whole of market" broker can really help.
Don't just use the salesman in your estate agent's office as they rarely offer the best advice or are able to source the best deal.
Many people believe that the best advice comes from brokers that charge a fee.
This is not true but non-the-less many feel that the advice from a fee-charging broker is total impartial and not clouded by which lender offers the largest commissions.
Frankly the savings a good mortgage broker can secure you will more than cover any fee they may charge.
Most reputable mortgage brokers will charge a fee of around 0.25%-0.5% (i.e. if they arrange a mortgage for you of £150k, you'll pay a fee of £375 - £750+VAT).
If a broker does receive commission from a lender you must be told about this (it will be in their "Key Facts" document). A decent mortgage broker will deduct this commission from their fee.
Make sure that any conveyancing firm you use is on your lender's panel of approved firms.
If they're not, your lender will choose to use their own solicitor.
You'll have to pay for the extra solicitor and there are no statutory fee scales for what the lender's solicitor can charge so watch out!
Make sure your solicitor is on the panel before instructing them.
This is a really good reason to use one of the more reputable and well know conveyancing companies.
Your lender will want to make sure the property you're buying is worth the amount of money you're paying.
They will send round a surveyor to conduct a property valuation and you'll have to pay for this.
Some of the more competitive lenders waive this fee.
Expect to pay 0.15 - 0.2% (+VAT) of the properties value.
Check with your lender or mortgage broker for the exact cost.
This is what your lender will charge you for the pleasure of setting up your mortgage.
Some lenders charge, some don't.
Most charge if you're arranging a "fixed rate" or "capped rate" mortgage.
The fee is usually £300 - £450 but check with your mortgage broker or lender.
Recently there has been a trend for lenders to hike-up the arrangement fee to offset cheap repayment rates.
Watch out for this because we've seen fees rise as high as £1,499 - £2,500.
Also, check whether you have to pay the fee if your purchase falls through.
This is a particularly horrible charge aimed at 1st time buyers that can't put down a decent deposit.
It's basically a high lending fee.
If you're borrowing over 90% of a properties value you will most likely find yourself in MIG territory.
The MIG is an insurance policy that covers your lender's losses if you can't repay your loan - The policy does not cover you!
The charge for this policy can easily be £500 - £1,200 so check with your position with your mortgage broker.
Just to refresh your memory here are the 3 main types of survey to choose from:
If you are arranging a mortgage, your lender will commission a valuation survey.
Mortgage lenders know that is not enough information to base a purchase on so...
They may also offer to carry out a "Homebuyers Report" on your behalf.
This is one time it's worth taking them up on their offer - Using their surveyor will save you money!
The problem with "Homebuyers Reports" is that they tell you very little about the structural condition of the property.
For example, the surveyor will not:
The "Homebuyers Report" should pick up on damp and subsidence though.
It will also provide a valuation and an insurance valuation (i.e. the building's rebuild cost) and to be fair, in many cases it has told buyers enough for them to successfully negotiate price reductions.
[Side Note #1 - If you're buying a property that's over 60 years old, seriously consider spending the extra money on getting a Full Structural Survey.
These properties are high risk and there are many expensive faults that the Homebuyers Report will not pick-up on. You will do well to be forewarned about these types of faults]
[Side Note #2 - Remember that whenever you make an offer on a property make it "Subject to Survey & Contract".
This will allow you to pull out of the deal or re-negotiate if the results of the survey are not satisfactory]
These are the insurance policies that cover you if your house is destroyed in a fire or burgled.
If you're buying a Freehold property you'll need to have insurance in place from the moment you exchange contracts.
Leasehold properties are different. The landlord will make sure the building is insured and you'll pay a contribution through your service charge.
Just in case the deal falls through at the last minute, don't cancel the policy on the house you're selling until the day you move out.
To get the right cover, you'll need to know the general value of your belongings and the rebuild cost of the property (this will be in your survey).
The Association of British Insurers has an excellent introductory guide if you need further guidance on Buildings and Contents insurance.
Your mortgage lender will insist that you have building insurance and they may also encourage you to take it out through them - Don't do it!
Lenders make large commissions from doing this and you very rarely get the best deal - Shop around for the cheapest deal!
Always a good idea to have one! Normally 2 - 3% of the purchase price is a sensible figure to budget for.
With a house sale and purchase any number of things can go wrong. For example, you'll need funds to cover the unexpected cost of:
A little extra money set aside will let you take these sorts of costs in your stride.
Will you put your house up for sale "as is" or will you spend a little making it more presentable to help it sell quicker?
What's your budget going to be?
How much are you prepared to spend on your new home? Will you do the work yourself or will you pay professionals?
You'll need a bridging loan if you're to buy your new house before selling the old one.
Our article, "Should I Sell My House First or Buy First?" shows you how to get around this.
Bridging loans have higher interest repayments than ordinary mortgages.
Unless you're able to pay back the loan quickly they become very expensive to service.
A good mortgage broker will be able to give you a quick idea of the cheapest bridging loan deals.
Do you have a family relying on your income?
Do you feel you need insurance to cover your mortgage payments if (heaven forbid) you fall seriously ill or are made redundant?
If you do, you should start looking into Life assurance and other types of protection policies.
You may notice that while arranging your mortgage your lender starts asking you questions about your health and whether you smoke fags - they are lining you up to sell you life insurance.
Do not get insurance from a mortgage lender - Shop around for a cheaper deal!
It makes sense to take out a policy that at least covers the amount of money you're borrowing.
It also makes sense that the policy covers you for the full term of the mortgage.
If you've followed along and filled out the budget planner you now have the best possible idea of what your house sale and move will cost and how much you can afford to spend on a new home.