How much do I need to buy a house?
Buying a house is likely to be the biggest financial responsibility you’ll ever take on, particularly if it’s your first time. Find out how much you need to save and spend, including the costs that often get forgotten…
Buying a house is likely to be the biggest financial responsibility you’ll ever take on, particularly if it’s your first time. Find out how much you need to save and spend, including the costs that often get forgotten…
How much is the average house in the UK?
In June 2022, the average UK house price was £286,000. In England, the average was £305,000, in Scotland it was £192,000 and in Wales it was £213,000.
Buying your first home – how much to save
1. Taking stock
Buying your first home is a big expense, and it helps to be really clear about how much money you already have to put towards it.
This isn’t just for the mortgage costs and fees, but also to cover the move itself and any ongoing monthly costs, including the mortgage repayments, insurance and utility bills.
To get a clear picture of your current financial status, look at:
- Your income – how much you earn annually and have available to you monthly. As well as employment income, this could include money from investments.
- Your regular outgoings (monthly and quarterly) – review your bank statements, payslips, credit card statements and receipts for cash payments. Don’t forgot loan repayments, pension contributions and credit cards.
- Any one-off expenses – such as birthdays, holidays, a new car or tax/national insurance payments, if you’re self-employed.
2. Where can you cut costs?
Chances are, there are areas in your life where you’re overspending. Look at where you can cut costs, for example:
- On your utility bills
- Through debt consolidation
- Getting better deals on your credit cards
- Paying off an overdraft to cut interest payments.
- Cancelling subscriptions and memberships you don’t use.
- Reducing the amount you spend on going out.
3. Saving for your new home
Unless you’ve received an inheritance or gift from a family member or other lump sum, you’ll probably have to save for a mortgage deposit. If you can afford a larger deposit upfront, this could help you get a better interest rate for your mortgage offer.
There are various schemes to help you, including the Help to Buy: Equity Loan, as well as savings plans like the Lifetime ISA, which is available to first-time buyers looking to save for a new home.
To help your money grow in other ways, get more information about savings accounts with us.
4. Finding your new home
This is where being on top of your financial situation is invaluable. While you may have harboured dreams of what your new home will look like, most first-time buyers find that getting on the property ladder requires them to downsize their expectations and create a more realistic (and affordable) wishlist to match their budget.
If this applies to you – or you just want to make your money go as far as possible – it helps to focus on the variables involved in choosing a new home and then work out what you’re willing to compromise on.
The following all relate to location and have an impact on property prices, either positively or negatively.
- Local transport links – is there a railway station nearby, a good bus network, easy motorway access?
- Schools and colleges – are they getting good results?
- The local job market – is it flourishing or shrinking? What’s the local employment rate? Are there business hubs for things like tech and finance that draw affluent business professionals into the area?
- Shops, restaurants, pubs and bars – are they upmarket, or are they cheap and cheerful? Do the most popular brand names have a presence?
- Green spaces – for example, parks, woodland, nature reserves and countryside.
- Rivers, lakes and waterways – both an attractive natural feature but also a potential flood risk.
- Pollution levels – poor air quality is the largest environmental risk to public health in the UK, according to gov.uk. Noise pollution is also an issue, for example if the property is under a flight path or near a busy road.
Proximity to power lines, mobile phone towers and wind farms - Housing surplus – is supply outstripping the demand? If so, prices will be lower.
- Regeneration projects – healthy development boosts property prices.
- Local community and culture – are there theatres, cinemas, sports facilities, town halls, an arts scene?
- Crime rate – local figures are published by the Office for National Statistics (ONS).
- The street the house is built on – from how it looks to who lives there.
The following apply to the building itself:
- Age, condition and style – a new build may cost more, but it could also be a safer purchase, with new homes not suffering from wear and tear.
- Size – number of rooms, including number of bathrooms, bedrooms and additional rooms such as conservatories, loft and garage conversions and rooms that could be turned into a home office.
- Outdoor areas – gardens, patios, courtyards, balconies.
- Quality of upgrades and updates
- Parking – is it on-street, off-street or is there none at all?
- State of repair – inside and out. Is work needed?
- Ownership status – freehold or leasehold
- Energy performance and sustainability – this impacts the environment as well as the living cost.
- Aspect – including views and south-facing gardens
To get a better idea of the homes you could afford, use our mortgage calculator to work out the monthly payments.
How much should my deposit be when buying a house?
The short answer is: the more you can save, the better. The larger the deposit, the smaller the mortgage you’ll need to take out, which means you could pay a lower interest rate over the mortgage term. Larger mortgage down-payments also give you access to better mortgage deals, as you’re seen as less of a risk to mortgage providers.
With 95% mortgages now available, the deposit required for first-time buyers can be as little as 5% of the total value of the property, but you’ll be paying back more over the life of the loan.
You’ll also need to prove that you can make the monthly repayments. Your credit score will also be taken into consideration. Read our guide to free credit checks to see how you rate, along with our useful tips to help you build your credit score.
What are the different types of mortgages?
- Fixed-rate mortgage – this fixes your mortgage payments for the agreed fixed-rate term (usually two to five years). If the Bank of England raise or lower interest rates, you won’t be affected until the end of your fixed term.
Once this expires, you’ll move to the lender’s standard variable rate (SVR). This is the long-term rate of interest that mortgage lenders charge once a fixed, or introductory discounted or tracker, period ends. Although lenders roughly track the Bank of England base rate, they can decide when to increase or decrease their SVR.
- Variable rate mortgage – if interest rates rise or fall, your monthly mortgage repayments will rise and fall with them.
- Tracker mortgage – the interest rate you pay is based on the borrowing rate of the Bank of England (the base rate). This means that your mortgage repayments can go up or down.
- Discount mortgage – the interest rate is set at an amount below the lender’s standard variable rate (SVR), for either a set period or the whole mortgage term. With a discount mortgage, your monthly repayment could fall as well as rise.
- Interest-only mortgage – you only pay the interest on the loan. This means your monthly payments will be lower, but you’ll need to pay the full outstanding balance at the end of the mortgage term.
The majority of new borrowers select a repayment mortgage where you pay off the interest on the loan, as well as some of the amount borrowed each month. This makes your monthly payments higher, but ensures that the loan is repaid in full if you keep up with the repayments.
Alternatively, with an interest-only mortgage, you only pay the interest on the loan. This means your monthly payments will be lower, but you’ll need to pay the full outstanding balance at the end of the mortgage term.
When submitting a mortgage application, lenders will want to carry out an affordability/eligibility check on you. This involves a credit check, a review of your credit rating and credit history, as well as your income and outgoings.
What are the mortgage costs associated with buying a new home?
In addition to the deposit, there are other possible costs to be considered.
These include:
- The services of a mortgage broker – (if you use one) to help you find the right deal. The alternative is to do the legwork yourself for free and compare mortgages online.
- Mortgage arrangement fee – the charge for setting up your mortgage. Some arrangement fees are charged as a percentage of the loan rather than a flat fee.
- Mortgage booking fee – paid when you submit your mortgage application.
- Valuation fee – to cover the cost of a survey organised by the mortgage lender to assess the value of your property.
- Surveys – to evaluate the condition of the property so you don’t get any nasty surprises. Read more in our guide to surveys.
- Telegraphic transfer fee – a bank charge for transferring your money to the seller’s solicitor.
- Conveyancing and legal costs – including the cost of legally registering you as the new owner of the property. For more details, read our guide to conveyancing.
- Land registry fees – the cost of registering your property to you.
- Higher lending charge (HLC) – up to 8% of the mortgage value. It applies to high loan-to-value (LTV) mortgages – loans that carry a greater risk to lenders.
You can read more about all of these charges in our guide to mortgage costs and fees.
Do I need to pay stamp duty?
Stamp duty comes into play if you buy a property over £250,000 in England. The rules differ in Scotland, which has Land and Buildings Transaction Tax, and in Wales, which has Land Transaction Tax.
If you’re a first-time buyer, stamp duty isn’t paid on properties up to £425,000. For more details, read our guide to stamp duty.
To work out how much you’ll need to pay, try our Stamp Duty calculator.
What are the insurance costs of moving to a new home?
While there are no legal requirements regarding insurance, if you’re buying a new home, buildings insurance is likely to be required by your mortgage lender. It’s a common-sense move, as it covers any repair and rebuilding costs to the property.
You may also want to think about taking out:
- Life insurance – to give your loved ones financial support if you die or become seriously ill before the mortgage has been paid off.
- Contents insurance – to covers the cost of replacing possessions if they’re stolen, damaged or destroyed. It may also cover your belongings during the removal process.
- Mortgage insurance – to help cover mortgage repayments if you lose your job or become unwell and can’t work.
Leaseholder costs
If you buy a property freehold, you own it outright, including the land it’s built on. You’re responsible for maintaining both.
As a leaseholder, you own the property for an agreed period of time, but not the land it’s built on. That’s owned by the freeholder – your landlord.
Although buying leasehold is often cheaper than freehold, it brings extra costs that you’ll need to plan for. These are:
Ground rent – paid annually. This can increase over time.
Service charges – paid monthly or annually to maintain shared areas of the building, like the roof or staircases.
Sinking fund – you may have to pay into this to cover any unexpected maintenance or repairs.
Details of all of these charges should be included in the terms of the lease. It can be helpful to have a lawyer look over it to make sure you’re clear about your financial commitments.
Read more about the differences between freehold and leasehold.
What are the costs of moving home?
It’s easy to forget about the costs associated with the big move itself, but they can add up, so it’s worth being prepared.
This is also one area where it pays to shop around for the best deals, as well as making sure you’re getting the level of service you need to make your moving day as stress-free as possible. Recommendations from friends and family can be worth their weight in gold.
Below are the moving costs you’ll probably need to factor in.
Removals
Look for reviewed, rated and Ombudsman-regulated businesses and get several quotes, ideally from companies that will visit your property rather than giving you an estimate over the phone. However, if you’re moving some distance, you may be able to get a better deal from a removals firm based near your new address.
If you get an estimate, ask for it to be broken down so you know what you’re paying for. This might include insurance cover for your possessions, packing, mileage, any storage costs and hourly rates, including any charges for the team working overtime.
The cost will vary depending on the amount of rooms you’re clearing, plus the number of people needed and the distance you’re moving.
You may also need to factor in the cost dismantling and reassembling furniture, as well as professional packing services and materials.
The budget alternative is to hire a van and do it yourself – a job made easier if you can rope in a team of willing volunteers to do the heavy lifting.
Storage costs
Access to a storage facility means you don’t have to move all your belongings in one go – you can stagger it.
It’s also a place to keep your possessions if you’re waiting for new cupboards, shelving and wardrobes to be delivered or if you’re having work done on your new house and want to minimise the chaos.
Your removal company may be able to provide storage for you, which can make for a more seamless moving experience. However, if you’re downsizing, you may want to look at other storage facilities for a longer-term solution while you think about what you want to keep or get rid of.
Prices will depend on how much you want to store and for how long. If you’re looking at a shorter-term solution, a storage company that charges you on a weekly rather than monthly basis might save you money.
And be wary of introductory offers. While you may make a saving for the months of the deal, costs may rise steeply afterwards, adding to your ongoing monthly expenses.
It’s also wise to make an inventory of everything you put in storage, so you know if anything goes walkabout.
Removals insurance
Your contents insurance may cover the potential risks of moving house – check the terms of your policy to make sure. Our guide to insurance when moving home will also help you get clear on whether there’s an additional cost to cover.
If you have valuable items, find out if they need special packing and whether they’re covered by your removal company’s policy. The same applies when items are in transit or in storage.
You can do some of the packing yourself, but if an item breaks in a box you’ve packed, it won’t be covered by the removal company’s cover. DIY removals can invalidate your insurance.
Cleaning costs
Your removal company may be able to provide you with cleaners to leave your old property in the best possible state – and if you’re moving from rented accommodation, the safe return of your deposit might depend on it.
Although it will save you money to do the cleaning yourself, a professional organisation is likely to have access to equipment that will do a thorough job on your old place and perhaps tidy up your new home too.
Prices depend on the number and size of rooms that need cleaning, and whether a regular or deep clean is required.
Childcare and pet care
On the moving day itself, having someone to look after your children or pets can make for a much less stressful experience. If you don’t have a friend or relative that can step up, paying for a babysitter or a kennel or cattery stay for your furry friend is another cost to add to the budget, but will be a weight off your mind.
Additional moving costs
From getting takeaways until your kitchen is in working order to filling up the freezer again, there are ‘settling in’ costs that are worth thinking about, not least because these are the things that can help you feel more at home.
Read our comprehensive checklist and tips for moving home to help you create a timeline of jobs to do and when to do them.
The Editorial Team - Compare the Market
Experts in personal finance, insurance and utilities
Compare the Market’s Editorial Team is made up of industry experts with decades of experience in personal finance, insurance and utilities. Each of our authors has an area of expertise, where they can share their extensive experience to help you get a better deal, by finding the right product and saving money.