Buying, selling and owning a home are not the simplest or cheapest things you will ever do. So it’s hardly surprising that when we embark on anything from saving for a deposit to choosing a mortgage and funding home improvements, we are beset by financial questions.
We answer ten common queries, and reveal our financial fixes...
Q. Is now a good time to buy, or are house prices about to fall? Holly Paul
A. The Royal Institution of Chartered Surveyors has revealed that house price expectations have dipped into negative territory for the first time since 2008. There are concerns over everything from the vote on Europe to new buy-to-let investor rules, a weaker pound, and some fairly impressive price drops in some parts of prime central London.
This, however, doesn’t mean everyone should put any buying plans on hold. The housing market is notoriously hard to predict, so the aim shouldn’t be to try to time your purchase to beat the market, but to try to buy at a time that suits you.
Concerns about the housing market should nevertheless inform your buying decisions. If you are set to overstretch yourself significantly, it’s worth factoring into your sums what would happen if house prices fell (and if interest rates rose), so you are prepared for every eventuality. It may persuade you to reconsider whether now is a good time to spend more than you can strictly afford.
Q. Where are the best value areas of the south of England? Shelly Finney
A. Value is always going to be a subjective call, but for many people in the South of England, it lies in a bearable commute to London at an affordable price. TotallyMoney recently listed the best value commuter spots as High Wycombe, Woking, Staines, Amersham and Gerrards Cross. However, these assume you have deep pockets, as only High Wycombe and Staines have average house prices under £350,000.
Of course, if you value less common things than a commute to London, then the chances are you will be able to get more of what you value for a lower cost. Falmouth, for example, was recently named by the Sunday Times as the best place to live in the South West, with a lovely setting, brilliant amenities and a high quality of life. The average house there costs £277,565, but if you are willing to travel a mile to Penryn, it drops to £204,169.
Q. I am at the very early stages and starting to save for a deposit. Can you explain how the Help to Buy ISA works and if there are any comparable products? Michelle Smith
A. The Help to Buy ISA was introduced to give first-time-buyers a boost when saving for a deposit for a property costing under £250,000 (or £450,000 in London). You can save up to £1,200 in the first month and then up to £200 a month afterwards. You can earn up to 3% interest on your savings, and when you use the money to buy a property, the government will add 25% extra on top of everything in the ISA - up to a bonus of £3,000.
The bonus scheme will run until 2030, so as long as you plan to buy before then, it’s a brilliant way to save. If you contribute to a Help to Buy ISA in any year, however, it’s worth knowing you can’t contribute to a cash ISA in the same year.
The Lifetime ISA was announced at the last Budget, and is expected to eventually replace the Help to Buy ISA. It is similar in that it can be used to save for a deposit, and will give you a 25% bonus on top of your savings.
There are three main differences. First, you can save £4,000 a year in this (compared to £2,400 in the Help-to-Buy ISA), second the bonus is only on what you contribute (and is awarded annually), and third is that it will continue to run after you buy the house and you can use it for retirement savings.
The LISA launches in 2017, but it’s not worth waiting for this in order to start saving, because you can save in the Help to Buy ISA now and then transfer after the launch.
Q. I’m currently saving to buy a house. How much of a deposit do I need? Duncan Foster
A. The basic rule of thumb is that the bigger the deposit you have, the better the mortgage deal you can get - so someone with a 30% deposit will be able to get something more competitive than someone with a 5% deposit.
You will also have lower monthly payments, and you are more likely to be accepted under affordability checks. With a larger deposit you also face less risk that the value of your home will drop below the value of the mortgage - putting you into negative equity
The difficulty is that in a time of rising prices, it can be difficult to save fast enough to increase the deposit as a proportion of your home. For first time buyers, it therefore becomes a question of ‘what’s the minimum required?’
In the current market, unless you have a guarantor, you will usually need a deposit of at least 5% of a property’s value. At this level there are some mortgages on the market. You are also in the right ballpark for the government’s Help to Buy schemes.
Q. I want to help my kids buy a house. What are my options? Malcolm Calne
A. Most adult children get some help from their parents when they buy their first home. But while some make a cash gift to their children, others don’t have this kind of money to spare. Fortunately, there are alternatives.
1) Downsize your home, and pass money on - if your decision to downsize comes at the same time as your offspring want to buy a house, this can make sense. If you can spare the money now, and you live for at least seven years after handing over the cash, it will also be out of your estate for inheritance tax purposes.
2)Remortgage your own home - if you have paid off your mortgage, or you have sufficient equity in your home, you can remortgage to free up cash to invest in a property. However, it’s important to understand the costs involved.
3) Guarantee their loan - there are a number of options, including allowing a charge to be placed on your property, or having your income taken into account for affordability checks. However, being a guarantor involves risk, so it’s essential to understand how much risk you are exposed to, and what would happen if your offspring cannot pay the mortgage for some reason.
Q. Are interest rates going to rise? Should I switch to a fixed rate? Steve Thatcher
A. The choice between a variable or fixed rate mortgage is never straightforward. Usually you will pay a premium for a fixed rate, because they offer the certainty that if interest rates rise, you will be protected until the end of your fixed term. Of course, on the flip side, if rates fall or stay low, then you will end up overpaying.
The question many people are now asking, therefore, is whether interest rates are likely to go up over the next couple of years - in which case fixing might pay off - or whether they will stay at rock bottom for the foreseeable future.
The problem is that not even the experts can say with any certainty when rates will rise. Reading into the Overnight Swap Index, back in January, the markets thought rates would rise as early as December this year. Now, they are predicting a rise as late as December 2019.
So instead of starting with a crystal ball, we need to start with our own circumstances. If your finances are stretched, and you are only just able to cover the mortgage, you may not be able to risk a rise in rates, so a fixed rate gives you the certainty you need. If you have plenty of money in the budget, on the other hand, you may have the flexibility to take a gamble on a variable rate mortgage.
Of course, you also need to consider your attitude to risk, and whether you would be able to sleep at night if you opted for a variable rate.
Q. Can people with a low credit rating ever get a mortgage? Christina Marshall
A. A low credit rating can make finding a mortgage more difficult, but it’s not impossible. There are specialist lenders who will consider lending to people who have had credit problems in the past. The trouble is that these lenders tend to charge a higher interest rate, and require a larger deposit in order to protect themselves. You could end up needing a 25% deposit in order to get a mortgage like this.
If this isn’t within reach, your best bet is to work on improving your credit record. This is not a quick fix: lenders will need to see a decent track record of you regularly paying all your debts and bills on time and in full. You should also work to pay down the balance on any credit cards or overdrafts, as mortgage companies don’t like to see you are borrowing to your limit. And you should hold off making too many applications, as lenders see this as a sign of desperation.
If you have no other major issues on your file, then a year of good habits should stand you in reasonable stead. If, however, you have something more serious like bankruptcy or a CCJ, you may have to wait six years for it to clear from your file before mainstream lenders will consider you.
Q.Do I really need to have a survey done before I buy a house? Lyndsey Packham
A. The simple answer is yes, even if you’re buying a brand new property. This will reveal details of the condition of the problem, raise any potential problems, and even give you something to negotiate with on the price.
You will have four types to choose from. The simplest and cheapest is the mortgage valuation. This is not a proper survey: it is done for the lender to check whether the house is worth roughly what you want to pay for it - but it won’t investigate the condition of the house.
The next option is the RICS condition report, which gives a view of the big issues but won’t go into detail. This may be most suitable for newer properties that haven’t faced issues in the past.
Next is the RICS HomeBuyer report, which will go into details and cover issues like damp and subsidence. It will highlight work that needs doing and anything that isn’t up to building regulations. However, it is non-intrusive, so don’t expect the surveyor to lift the carpets. This is the most popular type of survey, and will usually cost between £350 and £1,000.
And finally is the RICS building survey, which is the most comprehensive (and priciest). This will list work that needs doing, as well as major issues. The surveyor will also check behind furniture and under floorboards. It’s the best option if you’re buying an old property, one that’s in poor condition, or where there is an existing problem you want to investigate. You can expect to spend anything from £500 to £1,500 for this sort of survey.
Q. I’m considering downsizing, but don’t know if it’s worth it. How much will the actual move cost me? Patrick Short
There are always variations in the cost of a move - depending on the value of the home you are selling, the one you are buying, the services you employ, and choices you make - such as the type of survey you go for.
However, it’s safe to assume you will spend around £15,000 for the average home, once you have included estate agency fees, stamp duty, surveyor’s costs, conveyancing fees and removals. If you need to do work on the new property, or buy new furniture, you need to add this in too.
It’s also worth checking prices online for the kind of property you’re after – in the area you want to live in. It’s easy to assume that a smaller place will be much cheaper, but if the area is more desirable, or demand is particularly high for smaller properties, you could find your new home costs more than you think.