What is a mortgage?
Let’s start with the basics... what actually is a mortgage?
If you don’t have enough money to buy a house outright with cash (which most people don’t), then you’ll have to take out a mortgage. A mortgage is a loan that enables you to buy your property. The money you borrow will need to be paid back over a set period of time, usually at least 25 years, and is repaid via monthly payments. The lender will take into consideration your income and your outgoings in order to determine how much money you’re able to borrow. You’ll need to put down a deposit, which is usually a minimum of 5% of the cost of the property. Your mortgage is taken out against the property, therefore your home will be repossessed if you don’t meet your mortgage repayments.
What fees will I need to pay? There are certain costs involved with buying a house, aside from the usual deposit and mortgage repayments. It’s important to take these extra costs into account when planning out what money you’ll need to have readily available from the outset.
Product/arrangement fees Some mortgages come with a product fee that can either be paid upfront or tagged on to the cost of your mortgage. There’s often also an administration charge made by the lender for arranging the credit of your mortgage.
Mortgage adviser fee This is a separate fee charged by the mortgage broker for their specialist knowledge in searching the market for your mortgage deal, and ultimately for getting your mortgage to the finishing post and moving you into your new home.
Legal fees You’ll need to use a solicitor in order to complete on your mortgage. The solicitor deals with all the contracts, documentation and searches amongst other things. To see a simple breakdown of the costs, check out our conveyancing page There are other additional costs that may also need to be accounted for:
Stamp duty If you buy a property over a certain price, you’ll have to pay stamp duty. In England this is called Stamp Duty Land Tax (SDLT), in Wales it’s called Land Transaction Tax (LTT) and in Scotland it’s known as Land and Buildings Transaction Tax (LBTT). The amount of stamp duty you pay will depend on the purchase price of the property. Valuation fee If you choose to have a structural survey or a homebuyers survey report, then these come with an additional cost to the standard mortgage valuation. The type of valuation you choose will determine the cost (the more in-depth the survey, the higher the fee). Insurance You have to take out buildings insurance with your mortgage. This will cover you against damage to your home caused by fire, flooding etc. Many people also choose to take out contents insurance alongside this to protect their belongings. There are also other types of insurance available, such as income protection, life insurance and Critical Illness Cover (CIC), which financially protects you, should something unexpected happen. Removal costs Not a necessity but something you might want to consider if you’re unable to carry out the move yourself. Removal costs tend to be higher during the busier months (peak moving time tends to be during the spring/summer months).