Buying a residential property is a huge step for many people. Find out everything you need to know about purchasing a property and some common FAQs, here:
What is the Minimum Deposit I Need to Buy a Property?
Purchasing a home has had a stigma for a number of years that it is impossible to achieve unless you have a large amount of money to put down as a deposit. This is not the case, the minimum deposit that you will need to put towards the purchase is 5.00% of the property value/purchase price; the remaining 95.00% would be provided by a Bank or Building Society in the form of a mortgage. The loan amount is dictated by a number of factors; the main points are the income you earn and the maximum income multiple which a lender will allow. However, the Bank or Building Society take in to account any debt you have; which can impact the loan amount you can achieve.
Can My Family Help Me Buy a Property?
When you are exploring the world of purchasing your own home, I can almost guarantee you will hear someone mention “Bank of Mum & Dad”. What this refers to is family members helping their Sons, Daughters, Grandchildren, Nieces & Nephews get on the property ladder. Some people are fortunate enough to have family members willing to “Gift” a deposit to their relations in order for them to get on the property ladder and purchase a property which would not be obtainable based on their income and original deposit. For example, John is looking to buy a property on his own; he is 28, debt free, employed full time earning £30,000.00 per annum and has a £20,000.00 Deposit (Legal Fees and Any Stamp Duty are separately). Based on Johns income and situation, it is likely his maximum loan would be £142,500.00 and when adding his deposit on; the maximum value of a property he could purchase is £162,500.00. John is looking to by near to his work in Wimbledon and there are no properties in his price range. His parents have decided they would like to help and gift John £50,000.00 towards his deposit. John now can look at properties up to £212,500.00 and can now purchase a property in that area. Mortgage providers constitute a true gift as a sum of money which is non-refundable, non-interest bearing and the giftee does not have any financial interest in the property.
How Much Can I Borrow?
The most common question I will be asked when speaking to someone will be, “How much can I borrow” as this will be the driving force behind everything. All Banks & Building Societies have a maximum income multiple which in turn dictates the loan amount you can achieve. Income multiples vary from 4.5 times annual salary up to 5.5 times your annual salary, dependant on your circumstances. The reason I specified “annual salary” above as different lenders take in to account different percentages of additional income on top of your annual salary like commission, overtime, bonuses etc. Depending on the lender some can look at using 100% of your additional income, but others will cap this additional income and only take 65% of this. If you receive a large amount of additional monthly income like overtime or commission, a majority of lenders will look at taking a 3-month average of the additional income and annualising this; which can increase your maximum achievable loan amount substantially.
What Costs Can I Expect When Buying a Residential Property?
When purchasing a property, it is key you set out an accurate budget as you never want to be caught short when you are in the middle of the process. The main costs you need to think of during a purchase transaction are:
Stamp Duty Land Tax
This is dependant on the property value & property ownership status
This will depend on the type of purchase and tenure of the property (freehold or leasehold)
The cost will depend on the type of survey carried out. These include:
Basic Mortgage Valuation
Home Buyers Report
Full Structural Survey
Estate Agents Fees (if you are selling your property via an estate agent)
The overall cost will either be based on a percentage of the sale price or a flat fee upon instruction.
When you have taken all of the above costs in to account, I would always recommend having an amount of savings remaining for after you move in; this is because you never want to move in to a property without having funds for a rainy day.
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