Adulting is a long timeline where you and your friends go through the different life stages at your own pace. I have friends who are having kids, getting married and of course, buying houses. I have never bought one, and my parents bought theirs when I was 6, and don’t really have any memory of what it was like. So, here I am, now considering the house buying phase of adulting, and I have to learn everything from scratch. So here is what I have learnt so far.
Where am I in my house buying journey
Currently I have been saving in my LISA (Lifetime Individual Savings Account). By the end of this financial year (FY) (24/25) I will have over 15k. My goal is 20k which I will have by the end of the next FY. I use Moneybox as my LISA account holder (not sponsored) But the balance in my account earns interest, so even if I don’t contribute funds, the money in there is compounding in the background.
I am aware of some of the rules of having a LISA, such as the house needs to be my primary residence when I purchase it. Also, the penalty fee I have to pay if I don’t spend that LISA money on a house or on retirement. But now that I am starting to house hunt, I have learnt some additional thing, that I didn’t think to google.
How much you’re entitled to borrow
When house buying, if you don’t have 6 figures saved up to buy the house outright, you can get a mortgage. This is a loan from a bank to get the house and then you pay back the bank for the money you borrowed. If you don’t keep up with the payments, they can legally take the house away from you (which is not ideal). But there is a limit you can borrow, or else they could me 950k for a £1 million house.
This limit is, you can borrow no more than 4 times your salary. So, if you earn £40k per year (pre-tax), then you can borrow up to £160k for a mortgage. If there is 2 of you and your salaries are £36k and £24k, then you can borrow up to £240k. (36k + 24k = 60k; then 60k x 4 = 250k). This is not just salary from one source of income. If you have a side hustle earning £20k and your day job doing £50k, then you can borrow up to £70k x 4 = £280k.
Your debts have some effect on the amount you’re entitled to
I have credit card debt, a personal loan & a student finance payment. These each can have a reducing effect on how much I can get from my mortgage. So ideally, if you have 0 debt, then you will be able to get 4 times your salary. But, if you have debts, then depending on how much you pay towards them per month, will affect the total mortgage you can get. Now I don’t know by what percentage each one affects your entitled amount. When I last talked to a mortgage advisor, they said if I paid off the credit card and the personal loan, I could get £250k (which wasn’t too far from 4 times my salary). But since I still had the credit card and the personal loan, they couldn’t ‘t offer anything over £245k.
This is a big difference with regards to house availability. So, it’s worth considering, are you ok delaying the house purchase to increase your borrowing limit?
Stamp duty and house buying
This is going to change in April 2025, so I am showing the prices from April 2025 (if you buy before April 2025, it must be nice).
Stamp duty is an extra tax that you pay when you buy a house (as if the property is not already expensive as it is). The amount you pay is dependant on the price of the house. You must pay the stamp duty within 14 days of the sale closing on your new home. (Disgusting)
If you are purchasing your first house (after April 2025), then you get to claim some relief. You pay £0 stamp duty for a house price up to £300k, and 5% on a price tag between £300k and £500k. But if you buy a house over 500k, you don’t get any relief on the purchase. This means if you buy a house for £350k, then the first £300k has no stamp duty, and then you 5% of the remaining £50k, which is £2500.
If this is not your first time buying a house, then if the house is £125k or less, then you pay £0. But any amount up to £250k, you will be charged 2% of that amount. A price between £250k and £950k will be charged at 5%. And there are two more brackets after that if you buy a house above £950k. This means if you buy a house for £275k, then the first £125k you pay no stamp duty. But the next £125k of the house price you will be charged 2% stamp duty, which is £1250. AND the £25k remaining, you will be charged 5% stamp duty which is £1250. So, you pay a total of £2500 in stamp duty.
I already know I am buying after April 2025, but I will be entitled to the first-time buyer relief.
Have a mortgage in Principle
This document shows that you are serious when it comes to house buying. It means you have been to a mortgage advisor, and they have outlined the funds that you are most likely to be given by the bank. This means to people selling the house to you, they can feel comfortable that you know where your finances are, and that you are able to afford the house. Moneybox can help you get a free mortgage in principle (or that’s what they keep saying in my app).
Hidden costs in house buying
I am sure I don’t know all of them, but there are other costs that come with house buying:
Solicitor fees (the lawyer who handles your mortgage negotiations). Surveying fees (they check that the house ready to move in). Furniture (lol duh). Refurbishment fees (if necessary or if you want to change the colours). Moving vans (can’t forget those)
What to do when looking at houses
- Take a friend or relative (preferably who has bought or recently bought a house before). They can ask good questions from their experience
- Do not rush this. This is a big purchase, so give yourself time and space to think through the decision carefully.
- Have a list of things that are things you want definitely in a house. Whether that’s a good parking situation, a south facing garden (get sunshine there all day for BBQs) or the views.
- Have a list of questions (especially for new builds)
- Don’t lead the sellers on. Let them know when you are no longer interested, it helps both parties get along.
TL;DR
- House buying is daunting
- My ideal house is just over 6 times my salary so I got a lot of work to do, to either raise a huge deposit, or increase my yearly income
- Did you know you needed to pay your stamp duty tax within 14 days of getting the house? Now you do.
- There are so many other fees to consider beyond deposit and Stamp Duty (which I’ll elaborate as I become more aware of them)
