2016 looks to be a great time for many to apply for a mortgage, with lending continuing to rise with mortgage rates falling, and rents rising.
However, if your mortgage agreement seems slightly too good to be true, take two seconds to step back and make sure that it’s the right deal for you.
Just because you’ve qualified for a loan doesn’t necessarily mean that you can afford the repayments, and even if you can, there are a host of hidden costs to take into account.
We find that when many people see how much they can borrow, they get a bit carried away and sign up for a property that they can’t afford in reality.
We’ve picked out just some of the extra costs that you may or may not know come with a mortgage.
Before You Move In
This is essentially the fee that you pay the lender for granting you a mortgage. It can be paid either up front, or added on to your mortgage, although this will mean that you have to pay interest on it. They usually cost around up to £2,000 but can vary.
Some lenders will also charge a “booking fee” just for applying for a mortgage. This is payable even if your mortgage falls through, and will usually be around a couple of hundred pounds. This may also be added in to your arrangement fee/
Surveys and Valuations
The mortgage provider will also charge to value your property to work out how much you need to borrow, although they may sometimes waive this charge. This depends on the value of the property and can range from a couple of hundred to a couple of thousands of pounds. You can also look into having your own property survey taken out to identify any future work or repairs that may be needed.
Missed payment fees
Hopefully this won’t be an issue for you, but if you do fail to make your monthly payments, you’ll probably face a penalty. You could even have your house repossessed if it become a recurring problem so make sure it doesn’t!
If you’ve used a mortgage broker in the process, you may have to pay a fee for their services. However, many brokers such as ourselves are able to give you advice absolutely free of charge as we receive a commission from the mortgage provider.
If your new home is worth over £125,000, you’ll also have to pay Stamp Duty, with the rate you pay varying based on the value of your property, ranging from 2% up to £250,000 to 12% on anything above £1.5m. See what we mean about all these added costs!?
After You Move In
It’s important that even if you’ve taken into account all of the above costs and still decided that you can comfortably afford your mortgage, you don’t lose sight of all the other costs that come with owning your own property.
Even if the house seems in good nick when you move in, it won’t take long until maintenance issues start to crop up, from bigger jobs such as replacing the carpets to the simple things such as changing the smoke alarms.
You may be surprised at how much you end up having to spend on things such as heating and electricity (and also things such as a TV licence). This is especially likely to be the case if you’ve been renting a property previously, where sometimes a landlord may pay certain utilities. Check out this handy guide from MoneySavingExpert.com for some tips on how to reduce your utilities costs.
Your buildings and contents insurance costs obviously depend on what you’re insuring, but can be as high as a few thousand pounds a year. The main factors affecting your insurance will be the value of your house, how old it is, and what it is built from.
Council tax has to be paid by every property, and depends on the valuation band you live in.
As you can see, there’s a lot to take in, and this is only a start! The point we’re trying to make is that those low monthly repayments aren’t the only thing to take into account when you’re applying for a mortgage.
Just because you get approved doesn’t mean that you can afford a mortgage, so just take a second to assess your situation before jumping into any agreements, or get in touch with one of our advisors!