Mortgages are expensive. Check, check and double check the costs which you will be facing, and ensure that you can cover them.
Author: Richard Norfolk
Moving to a new job can be a time of great interest, with new workmates and new situations entering your life. It can also be a time of increased stress, especially if it also involves moving house. You will start by looking at areas in which to live, and move on to considering specific properties. You will then find that you also have to consider the costs with which you will be faced, and these are not inconsiderable.
A report suggests that , excluding property costs, over £10 billion was spent in moving house in 2005, so what is all this money being spent on? The removal men will require only a small share, so it will be necessary to look elsewhere. Unless you have tastes in interior décor to rival an 18 century Russian czar it is unlikely that you will find any higher costs than your mortgage.
Property has in recent years moved into the big league of expenditure, and your mortgage has to finance this. Don’t let the need to attend to so many things at once blind you to the variations which can be found in the mortgages market. Take your time and study the detail of what is on offer.
Before you can decide on whether a property is what you want you will need a surveyor’s expertise, and should consider an early meeting with a solicitor. These two items alone will cost you around £1500 and you would be perhaps foolhardy to try to manage without – it could be a very expensive ‘saving’. Earmark the money for this and ensure that it remains untouched.
Look closely at the price of the property, and keep stamp duty in mind. The current threshold which applies first is £125,000; property priced below this will not incur stamp duty, but exceed this figure and you will immediately be facing an increase of 1% in the cost. It may not sound much but these small amounts have a sneaky way of piling up into costs of some consequence.
This particularly applies if you hit the next sector at £250,000, where the on-cost climbs from 1% to 3%. Beware of property which is deliberately priced just over these thresholds. The sellers should be expecting to have the price negotiated to below the increase level, but miss this and your costs are climbing again. The chancellor will without doubt be happy to continue taking £5 million pounds a year in stamp duty.Â
Is your job likely to involve you in moves at fairly short intervals? If so check the level of early repayment charges (ERCs) which you may face if it becomes necessary to take out a new mortgage. There are significant variations in what is applied by different lenders. You may find that a mortgage with ERCs only applying within the early period of the loan appears to be very acceptable, until you find one on which ERCs are not charged.
If you don’t examine the fine detail you may find that you are tied to a mortgage on which ERCs are charged at almost any time before completion. Shop around – you do not have to accept this, as there are a lot of companies competing for your business. Some companies do not make this charge if your new mortgage is with them.
Exit fees are another way of losing out when you change mortgage lender. They are not sufficiently punitive to prevent you from moving to another lender, but at £300 or more they can make you pause and weigh up your options, especially from a short term point of view. However, their real purpose would appear to be as a vehicle for extracting more payment from a departing customer.
Don’t let the name which the lender gives to these payments lull you into a sense of the inevitable. They may call them by a variety of names including finalisation, admin, deeds release or settlements, but whatever the name, resist them. Ask your lender what is on offer to avoid these costs, and then compare with your intended lender. If any offer leaves you out of pocket in the long run if you stay put, then no contest – you move on.
When you do move on, will you be putting up a reasonably high deposit on your new property? If costs have eaten away at your available cash, resulting in any deposit which you can raise being relatively low, are you likely to face higher lending charges? This does not always apply as competition is forcing lenders to take a more lenient attitude towards the impecunious borrower (especially first time buyers) , but you can be seen as a greater risk.
Make your situation clear to your prospective lender so that unpleasant surprises are avoided. Ensure that you are clear about your costs and keep checking to make sure that they are covered.
Your mortgage and your property may have to last you for a long time. Put down good fiscal foundations and both should be sound investments for as long as they are needed.
About the author
Tags: author richard, consequence, many things, money, mortgage, mortgages, new job, removal men, russian czar, solicitor, stress, tastes, threshold, variations, workmates