New research shows first-time buyers underestimate the true cost of buying a home
Most people have probably grasped that buying a home is usually a significant investment, but research by Aldermore Bank suggests that today’s generation of first-time buyers are significantly underestimating both the size of the deposit they will require and the other costs associated with buying a home.
Deposits
Research from Aldermore indicates that first-time buyers aim to save a deposit of £34,397 but that in reality, they are more likely to need a deposit of £49,639 in most parts of the country and in London, where house prices are notoriously high, the average deposit is in the region of £123,000, or more than three times what first-time buyers expect.
First-time buyers are also underestimating how long it will take them to save up for their deposit. Around 58% thought that they would be able to save for a deposit in five years, but in reality only 51% of recent first-time buyers managed to save their deposit in that time frame, some 16% of first-time buyers needed over eight years to get the money together.
Stamp duty
The 2014 changes to stamp duty probably benefitted first-time buyers by reducing the duty payable on lower-priced properties, however the fact still remains that the standard house-price trend is “onwards and upwards” and that in certain areas of the country (notably London), even entry-level properties can be priced at a point where stamp duty is payable. If first-time buyers are looking to buy, as they intend to start a family and are therefore looking for a family home as opposed to a starter flat, then their likely exposure to stamp duty becomes much greater.
Other costs
There are further costs associated with the property-buying process, which it appears that first-time buyers either do not understand or underestimate. Of these, the three main ones are surveying fees, legal fees and the possibility of a sale falling through.
Surveying fees
There are different sorts of surveys depending on how thorough you want the surveyor to be. Assuming you need a mortgage, the lender will almost certainly require a surveyor to provide a valuation, but this is, essentially, just what it says and basically reassures the lender that they have a good chance of getting the money back if the property needs to be sold. More in-depth surveys will look at the actual fabric of the property and should pick up any problems which might stop a sale (or at least lower the price you are prepared to pay).
Legal fees
In an ideal world, all conveyancing would be a simple process and would be completed in under a day. In the real world, even the most straightforward conveyancing process is likely to take weeks rather than days and when complexities start to arise this can extend the process even longer and hence increase the fees.
Sales falling through
Many sales involve chains of some sort and a chain is only as strong as its weakest link. One link breaks, the whole chain falls apart – and those involved in the chain have to watch their money disappear and put it down to experience. Aldermore’s research puts the cost of this at £1,305, which is not a huge amount in home-buying terms, but certainly enough to hurt.
Author Bio
Hopwood House are property investment specialists, with a wide range of investment properties for sale opportunities in the student property, care home and buy-to-let investment markets.
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Daniel Peacock