Ideally, the expense of moving into a new house wouldn’t get in the way of all those things that make the process so exciting: scouting out the perfect house, getting your offer accepted, buying loads of cool furniture, exploring your new area, the list goes on! But while the planning stage is quite often very fulfilling, thinking about the financial side of things can leave a bitter taste in the mouth. With some prior planning, however, this doesn’t have to be the case.
By taking a sensible approach to budgeting, you will not only be financially prepared for the numerous costs and fees, but also a lot less stressed throughout the whole process. In this post, we run through the basics of budgeting for a new house with a view to making things a little bit easier during this typically stressful period.
Track your outgoings
Let’s get down to the very basics of budgeting. It might sound obvious, but in order to operate on a functioning budget you need a ballpark figure detailing how much you currently spend. In other words, there’s no point in calculating exact costs and moving forward with the buying process until you know exactly where you stand financially. Of course, this can be a daunting task at first, but working out all your monthly outgoings in relation to your monthly income will give you an idea of the kind of price range you should be looking at when browsing properties, as well as the kind of mortgage you can afford.
Stick the kettle on, sit down with a pen and paper, gather all the relevant paperwork – payslips, utility bills, bank statements, council tax papers, and so on – and start calculating your current income and outgoings. You have to take everything into consideration, and we mean everything: all the way from the bigger payments (energy bills, insurance papers, current rent/mortgage) down to the to smaller ones (school meals, gym memberships, charity donations). Every penny counts when you’re budgeting for a new house, so leave no stone unturned! You should end up with two figures: how much goes into your pocket every month, and how much goes out.
Decide on a mortgage plan
Once you’ve figured your monthly outgoings, you should then have a general idea of how much you can afford to borrow when buying a new house. There are three main costs to consider when budgeting for a mortgage (remember that your budget should also account for rising interest rates and changing circumstances):
- Mortgage loan payments – the monthly repayments to your mortgage lender, often spanning a number of years depending on the value of the property.
- Mortgage deposit – the initial payment you put towards the cost of the property in order to secure the loan, averaging at 17% of the purchase price for first-time buyers in the UK; although a deposit as little as 5% could secure a property purchase with some lenders.
- Mortgage fees – a range of upfront payments in return for the lender’s services, including booking fees, arrangement fees and mortgage valuation fees.
For a more specific idea of the mortgages you can afford to pay, check out this handy calculator. It asks for the same figures taken into account by mortgage lenders as they calculate offers for loans. If you find yourself being unable to afford your mortgage in future, the absolute worst case scenario is the repossession of your property. Just bear in mind that your lender will rigorously check your finances beforehand, and they wouldn’t go ahead with the loan if they didn’t think that you could pay up every month. As such, if you budget incorrectly at this stage the worst that can really happen is that your loan application is rejected. So don’t lose any sleep about setting yourself up for repossession, it’s very unlikely if you get the right loan.
Calculate the major upfront costs
Of course, there’s a lot more to the budgeting process than calculating mortgages. Buying a house involves a whole host of upfront costs for which you should be prepared from the very start. After all, the key to great budgeting is knowing exactly what to expect in the future and rigorously planning for every eventuality. Yes, we know, it’s a little bit boring. But what’s worse: spending a couple of tedious hours going through reams of paperwork with a calculator, or dealing with the negative effects of bad budgeting for months, potentially years?
Start by looking at all those upfront costs involved in the process of buying a house. Since you’ve factored in the one-off mortgage fees (see above) already, you now need to include the following payments in your budget plan:
- Conveyancing fees
- House survey costs
- Estate agent fees
- Stamp duty costs
- Broker fees (if any)
Note: until you know the exact figures relating to these payments it’s fine to use rough estimates in your budget. This can be done either by operating on the basis of national averages or by using a range of online calculators that are able to provide a more accurate guess.
Figure out the ongoing costs
The money doesn’t stop flowing out the minute you get your keys: there are all kinds of pesky one-off moving costs and long-term maintenance costs to factor into your budget. On move-out day, you should be looking at removal costs, travel costs and any necessary costs for childcare or kennel services. You may even want to consider adding first week living costs to your budget: nobody likes an empty fridge!
Don’t forget the payments to consider after you move in, such as monthly energy bills, council tax payments, insurance payments, service charges, and any costs required to furnish, decorate or renovate your new home. It might seem pedantic at a certain point, but being forthright and thinking ahead is of paramount importance here, especially since buying property is such a long-term investment. Consult your current outgoings to remind yourself of the regular spending involved in maintaining and living in a property, then adjust your budget accordingly.
Consult a financial adviser
This is by no means an essential step to budgeting for a new house, but it can certainly help when things get overwhelming. After all, many of you will be very busy people and budgeting can be a time consuming affair. Financial advisers can take some of that load off, allowing you to focus on decisions that are more tangible and immediate. Plus, they are really good at budgeting, as well as completely accustomed to financial territory which may be unfamiliar to you. Buying a house with the financial help of somebody who knows the ins-and-outs of the entire process might just be the stress-relief you need.
If you’re currently looking to purchase a new property, take a quick look at the sales we currently have available throughout South West London.