How Much Do I Need To Buy A House – Guide to mortgages> The ultimate guide for first-time buyers: how much money do you need to buy a house?
You need to save between £5,000-10,000 to buy a cheap house, £10,000-20,000 for the average UK and around £40,000-50,000 if buying in London or another expensive area.
How Much Do I Need To Buy A House
Buying a home is an expensive business, and for most of us, it’s the biggest transaction of our lives, with most of our savings being spent at the time. Here we take a closer look at all the costs that can be incurred when buying a first apartment and how you can earn even more money.
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The guide below assumes you already know the basics of how mortgages work and buying a home, but if you’re just starting out, you can also check out the guides below.
We’ve put together the estimates below to give you a guide to how much you’ll need to buy a home. Note: These are just estimates, so you might need to save a little more (it doesn’t matter) or you might even get away with spending a little less.
Housing prices have skyrocketed since the start of the pandemic. In November 2021, the median house price in the UK was £270,708, according to HM Property Register.
Of course, as mortgage statistics show, this varies greatly by location. For example, a typical home for first-time buyers will cost an average of £459,000 in London, while the national average for all of England is £250,000 and in Wales it is around £180,000 for first time buyers. first buyers.
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To complicate matters further, housing prices are highly localized. There are cheaper neighborhoods (or even cheaper streets) that appear in expensive areas and vice versa.
So you need to do your research to figure out what you need to budget for. If you do your research, you can find a lot in your ideal area.
But the saying “you get what you pay for” can often be true with a property, so before you buy consider the following:
You can compare accommodation prices and find information in your area with our partner site Zoopla.
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Usually, you must have a down payment of at least 5% of the value of the house you want to buy. You can get a mortgage without a deposit, but it’s a risky and unconventional approach.
A down payment of more than 5% is also recommended (traditionally the norm is 25%), but first-time buyers often have to deposit a small amount.
The usual way to determine how much mortgage you can afford is to multiply your income by four. For example, if your salary is £25,000, you can borrow up to £100,000.
However, some lenders may allow you to multiply your income by more than four times, so you can get a bigger mortgage.
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If you buy with a partner, you can combine your earnings. This is usually done in one of two ways:
Lenders also do a feasibility check, which includes looking at your spending and credit score to determine if you can reliably meet your monthly payments.
If you have a larger down payment, you may qualify for better mortgage rates, which means lower monthly payments.
The best mortgage deals are usually offered to borrowers with a down payment of at least 40%, but first-time buyers with such a large down payment are unusual.
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Home loans are broken down into different credit categories (LTV – home value minus deposit) which vary in 5% increments. Generally, the lower the LTV, the cheaper the mortgage.
Basically, mortgages are available in the following bands (listed in ascending order): 60% LTV, 65% LTV, 70% LTV, 75% LTV, 80% LTV, 85% LTV, 90% LTV, 95% LTV and 100% LTV.
This means that if you are at the edge of a slice, you must save to move on to the next slice. For example, if you have a 9% deposit, you can access cheaper interest rates by saving a little more to get a 10% deposit.
If you are having difficulty raising funds for a deposit, there are several ways to get help from government procurement assistance.
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With the Help to Buy scheme, you have access to a government-guaranteed interest-free loan that can increase your deposit by 5% to 25% (in London, your 5% deposit can be increased by 5%). %).
You have to pay £1 per month as long as you have a loan. After five years, you’ll start paying 1.75% annual interest (which increases with inflation). These fees do not contribute to the repayment of the loan, so you should plan to repay the loan as soon as possible after five years.
The loan is held against the value of the property, so the government effectively owns up to 40% of the value of your home. When the loan matures, you must repay a percentage of your principal, not the amount you originally borrowed.
So if you had a 20% equity loan to buy a house worth £200,000, you would need to borrow £40,000. If the value of your home reaches £250,000 within 5 years, you will need to repay 20% of the £250,000, which is £50,000 – £10,000 more than the original loan.
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The loan is intended to be paid off through the mortgage or the sale of your home, so be sure to factor this into your mortgage plan after five years.
The above assumes you have bought a house for £200,000, with your own deposit of 5% (£10,000), an equity loan of 20% (£40,000), a mortgage of £150,000 at a rate of 2% fixed interest for five years and 2% annual growth. the value of your home. It shows how much mortgage you need to pay off your home equity loan in the fifth year.
The current plan is valid from 2021 to 2023 and price caps are set for housing prices in different parts of the country. Here is a list of maximum price limits by region, from highest to lowest:
There are two savings accounts designed for first-time buyers, where the government can increase your savings by 25% on deposit. Here is the Lifetime ISA (LISA) and help to buy an ISA.
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ISA Purchase Assistance is not available to new customers, but existing customers can still pay for it. Here we describe the main differences between the two savings plans.
You can get a 25% bonus each year up to a maximum of £1,000; this is only paid for contributions to the ISA, so interest or stock growth and stock growth will not affect the bonus.
You can withdraw your money to pay both your home insurance and your first mortgage; or stop when you are over 60 or terminally ill.
If you want to withdraw at any time, not only will you get the bonus, but you will also be charged 25%.
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You can get a maximum bonus of £33,000, provided you deposit up to £4,000 per year between the ages of 18 and 50.
Each couple can get their own LISA and use it to buy a house together. LISA can be transferred to other providers.
LISA holders can also save in a cash ISA each year, but the LISA limit of £4,000 counts towards your annual ISA limit (currently £20,000).
ISA Home Buyer’s Aid is the government’s savings program to help first-time buyers become homeowners. Although this program is closed to new applicants on November 30, 2019, anyone who has opened a Help to Buy ISA can continue to save in the account until November 2029.
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Existing savers can deposit up to £200 per month. You only receive the bonus when you save up to £12,000.
You can get a 25% bonus on your deposits, which will be paid to your mortgage lender through your lawyer when buying your first home.
You can simply use your ISA savings, plus the 25% bonus, to pay your first mortgage.
Once you have saved at least £1,600, it will take at least three months (£1,200 one plus two monthly deposits of £200).
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You cannot combine the bonuses of purchase assistance and a lifetime ISA to buy a house.
However, you can combine your bonus with your partner’s bonus when buying a house (provided both are first-time buyers). For example, if you and your partner save £4,000 each in an ISA/Help to Buy, you can enjoy a £2,000 bonus between the two of you.
Co-ownership is part of the government’s purchase assistance program and allows you to buy a share of a property with a housing association. This is an option if you have a small deposit. You can buy shares worth 25% to 75% and then pay
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