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20 Jun 2019

How much money do first-time buyers actually need to buy a £200,000 home?

You'll need much more than just your mortgage deposit

The average first-time buyer home costs £203,695 according to the Land Registry - but how much money would you actually need to be able to buy a property costing this much?

Most people consider successfully saving up a deposit as the key to buying their first home. And while they may be aware that there are additional costs to take into account, such as house survey, mortgage valuation and removal fees, the true scale of these can come as a nasty shock.

Here, we explain everything you'll need to pay for when you buy your first property, and how to calculate the real figure you need to save towards.

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How much do you need for a deposit?

The amount you'll need to save for a deposit will depend on what loan-to-value (LTV) mortgage you want to go for.

The smallest deposit you can usually buy with is 5% of the property price, which would mean taking out a 95% LTV mortgage to cover the other 95% of the price.

Based on our imaginary average £203,695 property, you'd need to save £10,185 for a 5% deposit. If you wanted to aim higher, a 10% deposit would be £20,370, while 15% would work out at £30,555.

Usually, the higher percentage deposit you can put down, the better mortgage rates you'll be offered.

However, the mortgage market has become particularly competitive at 90% and 95% LTV recently, with more products available at increasingly competitive rates. In fact, comparison site Moneyfacts recently reported that rates across these LTVs have dropped every month since August 2018.

Despite the competitive rates across higher LTVs, though, the latest UK Finance figures report that the average first-time buyer mortgage is for 77% of the property price. As our scenario is based on the average first-time buyer, we'll base our buying costs on a person saving for a 25% deposit.

Deposit cost: £51,000

If you want to know roughly how much you'll need for a deposit in your area, use the calculator below.

What other costs do first-time buyers need to consider?

Your deposit will take up the biggest chunk of your savings, but there are numerous other fees and charges to pay.

Valuation fees

Lenders will carry out a valuation to make sure the property you're buying is worth roughly the amount you're planning to pay for it.

While the lender will arrange the check and may not even show you the results, you'll usually have to pay for it.

The cost will vary depending on the value of the property and terms of the mortgage deal. According to Moneyfacts, a valuation for a property worth £250,000 would cost £268 - so the cost for our imaginary property will be similar.

Valuation cost: £268

House survey costs

While the valuation looks at the property's worth, it doesn't report on any potential problems such as structural issues or damp, so it's well worth getting a house survey.

There are different types to choose from - the Rics HomeBuyer's Report looks at the general condition of the property, while a building/structural survey gives a more in-depth analysis.

There's also the Rics Home Condition Report, suitable for modern homes in good condition that are unlikely to have structural issues.

Prices for each kind of report vary according to the property's value, but for our average first-time buyer home, it would be around £500 for the Home Condition Report, £600 for the HomeBuyer's Report and £750 for the building survey.

If you're buying a new-build property, you should get a professional snagging survey to identify any problems, which usually costs between £300-£600.

We're going to get a building survey to be on the safe side.

Building survey cost: £750

Conveyancing fees

A property solicitor or conveyancer will handle all of the legal aspects of your property purchase. They'll either charge a flat fee or a percentage of the property price; you're likely to pay around £740 for a £250,000 property.

There are other conveyancing-related costs, too.

You'll have to pay around £15 to cover the costs of money transfers between mortgage lenders, conveyancers, buyers and sellers; £300 for searches; £170 for a mortgage lender's legal fee; and around £135 to get your property registered under a new owner in the Land Registry.

If you're buying a leasehold property, there'll be an additional £325 to pay.

Conveyancing cost: £1,360

Removals costs

Unless you have access to a large van, it's likely you're going to have to pay to use one - and if you have a lot of stuff, possibly for a full removal service.

Prices vary depending on the number of bedrooms you have (as it will roughly correlate to how much stuff you have to move).

For our imaginary move, we're leaving a one-bedroom property, which will cost around £100 to just hire a van or £400 to use a removals company, plus an additional £150 if you want them to pack for you.

As we don't like driving big vans, we're opting to use a removals company.

Removals cost: £400

Buildings and contents insurance

Mortgage lenders require you to have buildings insurance in place from the moment you exchange contracts, so that you're covered in case of any damage to the structure of the property.

Once you've moved in, you'll probably also want to get contents insurance - this covers the cost of your belongings in case they get stolen or damaged.

Some insurers offer a combined policy that covers both, referred to as home insurance.

We recently wrote about the cheapest and most expensive areas for home insurance to help give you an idea of what you're likely to pay, as costs can vary depending on your location and type of property.

As MoneySupermarket says the average UK premium came to £138 in the first three months of 2019, we'll take that as our insurance total.

Home insurance cost: £138

Mortgage fees

Some mortgage lenders offer fee-free deals, while others offer cashback (and some even offer both).

We recently wrote about how cashback mortgages for first-time buyers can mean higher interest rates, which are more expensive in the long-run. This can also be the case with fee-free mortgages.

According to data from Moneyfacts, of the 3,422 products currently on the market that are open to first-time buyers, 1,312 are fee-free. The rest have fees ranging between £100 and £3,495.

Looking at the 75% LTV mortgage deals that suit our deposit, the best rate on offer is 1.33%, but it comes with a £1,999 arrangement fee. The most competitive fee-free rate, meanwhile, is 1.49%.

Assuming you paid the fee up front (which is generally the best option as you avoid paying additional interest), the first deal would mean monthly payments of £598.86, whereas the fee-free option would cost £610.27. While it may not sound like much month to month, the fee-free mortgage would actually end up costing you an extra £3,500.

We'd rather make savings over the long run, so we'll factor in this mortgage fee.

Mortgage fee cost: £1,999

Do you need to pay stamp duty?

This question will largely depend on where you are in the UK, and how you're planning on using the property.

First-time buyers in England and Northern Ireland do not have to pay any stamp duty on properties under £300,000 - so our £203,695 home would be stamp duty-free.

However, in Scotland you'll pay land and buildings transaction tax (LBTT), which has different rates and thresholds. Here, first-time buyers pay no stamp duty on the first £175,000, but there is a 2% charge on the portion of the property price between £175,001 and £250,000. This means our property would garner a fee of £573.90.

It's a different story again in Wales, where you pay land transaction tax (LTT). Here, first-time buyers pay the same rates as home movers, so to buy our property on Welsh soil we'd have to pay £829.33.

It's all change again if you're planning on letting the property rather than living in it: in England and Scotland, first-time buyers will have to pay home mover rates of stamp duty (meaning they lose out on the first-time buyer discount), and LTT rates will add an additional 3% buy-to-let stamp duty surcharge.

What's the overall total?

Let's say our first property - costing £203,695 - is in England, isn't leasehold and isn't a new-build home.

We want to put down a 25% deposit, and are willing to pay a mortgage fee.

This means we'd need around £56,000 to cover all of the necessary costs - £5,000 more than the mortgage deposit.

What help can first-time buyers get?

It would be understandable if seeing the total cash sum has left you feeling a bit overwhelmed, but help is out there for those struggling to save.

  • 95% mortgages - as mentioned earlier, you can get a mortgage with a deposit of as little as 5%, meaning you can buy with a much smaller savings pot. Make sure you take professional advice on whether it's the right option to you, as there is a risk of negative equity.
  • Help to Buy - the Help to Buy equity loans scheme enables people to buy a new-build home with a 5% deposit, with the government lending a percentage of the property price so you can take out a lower LTV mortgage. How much you borrow varies depending on whether you're in England, Wales, Scotland or London.
  • Shared ownership - the shared ownership scheme is another way for first-time buyers to get a property with a 5% deposit. Properties are owned by housing associations - you'll buy a share of a property (usually between 25% and 75%) and pay rent on the rest. Buyers can then 'staircase' to increase the equity they own.

Our guide on how to save for a mortgage deposit has loads of tips on how to reduce your bills, cut down on everyday spending and make extra money to help you get to your savings goal faster.