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Mortgage

Buying a house isn’t always as straightforward as it may seem and often incurs lots of hidden costs and charges that you may not have considered previously. So in order to avoid any surprises on the way, it is a good idea to understand beforehand how much you are likely to need to secure a mortgage and buy your dream home. Firstly, your deposit is the largest and most important initial outlay. The larger your deposit, the better chance you have of securing a better deal with a mortgage provider. The interest rate you are offered is often determined by the size of your deposit, so if you can put forward 25% of the value for example, you are more likely to gain a low interest rate mortgage with greater flexibility as their loan is secured as they have only lent 75% of the property value. And of course you will own a larger proportion of the property straightaway.

A larger deposit for your home also makes you a lower risk customer, giving you a better chance of securing loans or finance in the future as well as an initial mortgage. However, despite the deals being more attractive with a higher deposit, it can be extremely difficult for first time buyers to save the amount needed to benefit from that. As a first time buyer it may seem tempting to go with a 90% mortgage, where you will only need a 10% deposit to secure the mortgage, just so you can get on the property ladder, but this means you will be likely to be paying higher interest on your loan. The lower the mortgage you need against your property, the best rate you are likely to get.

If your deposit is less than 25% of the property value, it is also likely that your mortgage lender will charge a higher amount as an insurance in the event of any missed payment, which is often referred to as a mortgage indemnity guarantee. This usually equates to around 5% extra charge on the amount over 75% that they have lent you, which is obviously a lot of money. For these reasons it is important to try and gather a larger deposit, and in some cases it could end up being more cost effective getting a loan to cover the extra deposit in order to avoid the extra charges involved.

As well as the deposit to take into consideration, you will also be responsible for stamp duty for any property over £175,000 which can equate to several thousand pounds for the average property. You will also need to pay arrangement fees set by your lender, legal fees for solicitors or conveyancing costs as well as a home survey, and ideally an independent survey also. Then once you have secured your mortgage and completed the process, you will have further costs for removals and other costs associated with moving in – this is when all the fun starts! And don’t forget you are responsible for the building upon completion, whether you have exchanged and moved house or not, so it is important to have insurance in place straight away.

by Cormac Henderson

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