The answer is, unsurprisingly, “a lot”. Buying a house is an expensive – and not to mention confusing – endeavour, particularly in cities like London.
For some, it’s well worth the expense – owning a home can be a wonderful feeling – while for others it may not be the right investment. We discuss whether or not to buy a house in Is Buying a Home a Good Investment in 2024?
Here, we focus on how much cash a potential buyer is likely to need to purchase a home in London at current prices (note, we haven’t estimated mortgage payments and any other post-purchase costs they might incur).
In May, the average property price was £457,471 in London, equal to over 13 times average incomes.
Meanwhile, banks will typically lend buyers 4-5x annual incomes, leaving a healthy gap to fill for the average house purchase in the capital.
But it’s not just the deposit house buyers have to worry about – there are lots of other, quite substantial costs which buyers need to factor in when saving up for a home purchase.
Deposit Required For A Home Loan In London
This is typically the biggest chunk of cash buyers will part with during the house buying process. Deposit requirements can vary from as low as 5% to as high as you can afford.
In 2018, deposits for first-time buyers were 27% on average in London, or £114,952. Most find a 20% deposit to be a reasonable starting point – on a £457k property, this would be £91,400.
Stamp Duty
Stamp duty is a tax levied on all property purchases and is typically the next highest upfront cost incurred by house buyers.
The amount depends on the price of the property and whether the buyer is a first-time buyer, a home mover or already own at least one property.
In England and Northern Ireland, for first-time buyers of properties below £500,000, no tax is due on property values below £300,000, with a 5% rate charged on the additional value between £300,000 and £500,000.
For home movers, stamp duty is payable on property purchases above £125,000, at higher rates. For those who already own a property, a surcharge of 3% is payable on top of usual stamp duty charges. Using the £457,000 average property price example above, the stamp duty charge would be:
- First time buyer: £7,850 (= 5% of (£457,000-£300,000))
- Home mover: £12,850
- Multiple property owner: £26,560
Note, stamp duty charges differ in Scotland and Wales. For a useful stamp duty calculator – see here.
Legal Fees
Conveyancing fees differ depending on the type of property and the complexity of the transaction, but often vary between £1,000 and £2,000. These will include a fee for the solicitor/ conveyancer, a fee to the Land Registry and the cost of any local searches, to identify any issues that may impact the property in a negative way. On top of that, a flat fee is usually charged in the case of leasehold properties.
Surveys
Prospective buyers can get a survey done such as the Rics HomeBuyer’s Report, to help protect them from buying a property with large structural issues.
The depth these surveys go into will depend on the report chosen (many come with a disclaimer that only surface-level checks are done – meaning you won’t be able to test drainage, leaks etc in detail). Prices range accordingly from c. £500 to £1,500.
Mortgage Product & Valuation Fees
Some mortgages have a fee attached for the mortgage itself, typically ranging from £500 up to £1,500. This fee can usually be added to the mortgage, or paid upfront.
As part of the application process, the mortgage provider will conduct a valuation of the property to determine its worth (and hence determine the loan-to-value ratio and interest rate), which buyers will be charged for separately. According to Moneyfacts 2018, this fee can range from c. £200-600.
Insurance Costs
Taking out buildings insurance is usually a requirement when getting a mortgage. In addition, buyers may decide to take out mortgage protection insurance, life insurance or another cover that can protect them by paying the mortgage in the event of illness, redundancy etc. The costs for these are wide ranging and will recur each year.
Moving Costs & Repairs
Aside from all of the fees above, buyers should factor in any moving costs (packaging materials, van, any additional help) as well as any urgent repairs or decorating that need to be done in the property prior to moving in. This could add several thousands of pounds to costs, of course depending on how complicated or big the move is and how much work needs to be done.
Adding up these costs means prospective buyers of an ‘average’ property in London can expect to face around £14,000 of costs on top of their deposit. Depending on the size of their deposit, this means that buyers need an eye-watering £100,000 or more to get on the ladder in the Capital. With median incomes in London around £34k, it is no surprise that the average age of first time buyers has reached 33, 2 years older than ten years ago. Unsurprising, too, is that ‘the Bank of Mum and Dad’ is set to become the 11th largest lender in the UK.
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