5 Costly Mistakes First-Time Homebuyers Can’t Afford To Make
Buying your first home feels lovely.
But as mortgage interest rates and cost of goods are going up while salaries stay the same, there are lot to consider before you leap into home ownership.
The property market hasn’t always been the most stable and is subject to fluctuations and competition so making this commitment can be challenging.
Let’s go through most of these common mistakes new home buyers make.
#1 MISTAKE: Buying a home you can’t afford
Avoid overstretching yourself financially. Just because a bank could offer you and £X amount, doesn’t mean you should take the maximum loan on offer.
Often, what banks can lend you surpasses your expectations. Don’t let this tempt you. Set a realistic budget and stick to it rigidly.
There are many ongoing costs related to owning a property in the UK (our example) including service charges, council tax, repairs, and mandatory major works costs (the latter one is for leasehold properties only).
Meanwhile, compare your income and your expenses. Consider your recurring costs and other bills. Can you still live without financial stress after removing the mortgage for the month? If not, go for a lesser mortgage.
Getting settled in one of the dream new houses being built every year and your first foot on the property ladder is your main priority. But to prevent frustration, managing your expectations is key.
#2 MISTAKE: Underestimating the costs of buying and owning a home
There are a lot of costs related to buying and owning a home. Make sure you are aware of these costs before you buy, so you can budget for your lifestyle properly.
Expected purchase costs in the UK (our example):
| CONVEYANCING FEES | £1,659.00 |
| SURVEYORS FEES | £600.00 |
| MISC/ MOVING COSTS | £1,500.00 |
| STAMP DUTY/ TAX (£0 for properties under £125K) | 2%-12% |
| MORTGAGE APPLICATION FEE | £1,312.00 |
| HOME BUYERS INSURANCE (will explain this below) | £63.00 |
| COST OF WHITE GOODS /FURNITURE ETC | £5,000.00 |
Home Buyers’ Insurance protects you against gazumping, that is when the seller changes their mind and either withdraws the offer or decided to sell the property to someone else (usually someone who offers more money). Gazumping can cost buyers thousands of pounds on conveyancing, surveyors, and mortgage applications fees.
Ongoing costs related to owning a leasehold flat in the UK (our example):
| SERVICE CHARGES | £1,800 |
| GROUND RENT | £10 |
| COUNCIL TAX | £1,200 |
| MAJOR WORKS (every 7 years) | £8,000 |
| HOME CONTENTS INSURANCE (per year) | £300 |
| BILLS (water, electricity, gas, internet) | £1,300 |
Read more about my experience buying my first home in London.
Your home should be a source of joy and peace, not financial stress so be aware of what you can afford.
#3 MISTAKE: Overpaying on a home by not considering sold prices
Asking price is a wish, sold price is reality.
The key to any good investment is buying at a fair/low price.
You can offer less than the asking price. We did and knocked £35K off our asking price by knowing the market.
Look at what homes in your area sold for in the last two years. All this info is freely available on Rightmove.com and Zoopla.com.
Go and speak to neighbours, they may offer tip-offs on the area or home. Unlike agents and sellers, neighbors will likely be honest about what the area is like.
#4 MISTAKE: Buying into a bad area
Often people have a good idea of the type of home they want (square footage, number of bedrooms etc), but overlook the area.
If you want to buy in an area you don’t know very well, go and prowl the neighborhood on foot, visit the parks and shops at different times of the day.
Speak to local people, Google about crime rates, etc.
Your neighborhood is a vital part of investment. If you ever have to resell, you want the environment to add to the selling price, not reduce it.
#5 MISTAKE: Speaking to only one mortgage broker/lender
A mortgage is a loan that enables you to cover the cost of a home.
A mortgage advisor’s main goal is to find the most suitable mortgage to meet their client’s financial situation, needs, and goals.
By comparing multiple offers, homebuyers can find the most competitive rate and favorable terms that could save them thousands over the life of the loan.
There are 3 types of mortgage advisors:
✔️ Independent mortgage advisors
Are also known as whole-of-market mortgage brokers. They must consider mortgage products from all providers across the entire market. unbiased advice on a wide range of mortgage products from across the market.
They are not restricted to specific lenders’ products. They also have a duty to consider a broad range of mortgage products and are obligated to recommend the best option for their clients’ needs.
Independent advisors may charge a fee for their service, but they can often access deals that might not be directly available to consumers.
✔️ Tied mortgage advisors
Tied mortgage advisors are tied to one mortgage lender and usually work for them, i.e. in a bank or building society.
These advisors work for a specific lender and offer mortgage products from that lender only. Their advice is limited to the products their employer provides, which might not cover the full market range.
✔️ Multi-tied mortgage advisors
Multi-tied mortgage advisors can offer more products than tied mortgage advisers, but it is still from a limited choice of providers.
Additionally:
Mortgage advisors can be generalists or specialise in specific mortgage products, e.g. residential, commercial and buy-to-let.
Consulting multiple lenders ensures that buyers are aware of all available options, such as fixed-rate vs. adjustable-rate mortgages, FHA loans, or VA loans.
Having multiple offers allows homebuyers to negotiate better terms. If one lender offers a lower rate, you can use that offer as leverage to get a better deal from another lender.
Additionally, some lenders might include hidden fees or higher closing costs. By comparing offers, homebuyers can identify and avoid these additional expenses, ensuring they get the best overall deal.
