Financial fitness for home owners
Get your finances in shape to meet your property goals this year.
Are you planning to move house this year or looking to increase your current living space? Maybe you’d like this to be the year you get on track to pay off your mortgage early. Whatever your aspirations, you’ll almost certainly have to do some advanced planning so your finances are in the right shape to get you there.
Moving home in 2020
If you’re thinking of looking for a new property this year, getting your financial preparations right is key. The best place to start is by finding out how much your current home is likely to sell for. Online property portals such as Zoopla and Rightmove will give you an indication of what places in your area have sold for in recent months, but for the most accurate valuation it’s a good idea to contact at least two local estate agents. They will usually value your home at no charge in the hope you will choose their firm to market the property.
Armed with a valuation, you can then work out what your target price range is for your new home. How much you are willing and able to spend on a new property should also take into consideration any savings you can put towards the purchase, as well as the mortgage deal you can obtain – so it makes sense to talk to your lender at an early stage.
Finally, it’s sensible to ensure you have sufficient budget to cover the extra costs associated with moving. The most significant of these are likely to be:
- Tax on the property you’re buying: this will be stamp duty in England and Northern Ireland, land and buildings transaction tax in Scotland, or land transaction tax in Wales. The Money Advice Service website features a tool to help you calculate this tax on the home you’re interested in. As a guide, for a house worth £250,000, stamp duty would be £2,500, while buyers in Scotland would pay £2,100 and buyers in Wales £2,450.
- Estate agent fees: these are paid by the seller and are normally a fixed percentage, say 1% or 2% of the sale price. So, a fee of 2% on a £300,000 home would cost £6,000. Check whether the percentage includes VAT or not.
- Solicitors’/legal fees: costs here can range from several hundred pounds to over £2,000 depending on the complexity of your transaction.
In Scotland, your estate agent and solicitor will often be the same person, but you will still need to cover both estate agency and legal fees, typically within the same kind of price and percentage ranges as above.
Making home improvements
Given the costs involved in moving, extending your existing property may be a more appealing way to gain additional space.
Start by establishing what you want and how much your project is likely to cost. Ask for quotes or initial advice from at least three tradespeople; if possible, try to get recommendations from people you know. Depending on the scale of your project, you may need to seek advice from an architect or surveyor at this early stage; many builders will also offer some form of design service.
It’s also worth thinking about the timing. The best contractors are unlikely to be available immediately and you may also need to apply for planning permission, which can take several weeks.
You may have enough cash in the bank to fund your project, or you could consider remortgaging your home. How much money you can release through remortgaging will depend on factors such as the current value of the property as well as your outstanding mortgage debt and household income level.
Once you have established a price for the work, check what extra costs are likely to be incurred, for example new furnishings and decorating. It is always a good idea to have a contingency fund in place – around 10% of the overall budget – in case of any unexpected overruns or extra expenses.
Reducing your mortgage term
Another common goal for homeowners is to cut the time remaining on their mortgage term. By paying a bit extra every month, it could be possible to clear your total mortgage debt earlier than expected, which would mean becoming the outright owner of your home sooner and reducing the total amount of interest paid.
Many lenders allow borrowers to make monthly overpayments up to a certain level – this could be ideal if your salary has increased and you have some extra cash to devote to clearing your mortgage each month.
Homeowners can talk to their mortgage lenders about the possibility of overpaying.
Alternatively, if you’ve had a cash windfall of some form, you could contact your lender to see if you could pay off a chunk of your mortgage debt with a lump sum.
However, before you start clearing your mortgage debt, it’s worth checking whether there are other more suitable uses for this spare cash. For example, if you have debts on credit cards, these are likely to incur higher rates of interest, so should normally be addressed as a priority.
Cutting your monthly outgoings
The start of the year is a good time to look at your monthly home-related expenses to see where costs could be cut.
- Mortgage: this is probably your biggest outgoing, so the best place to start. You may be able to move on to a new mortgage deal if you are no longer in the fixed-rate period, typically of two or five years. If your home has increased in value significantly since you took out your loan, for example, you may be entitled to a lower rate of interest.
- Utilities: you should check on a periodic basis that you are on the best deal for the likes of gas, electricity and broadband. There are a number of online comparison services that can help find the best deal based on factors such as the size of your home and your usage levels.
- Insurance: at some point in 2020 your home insurance – both contents and buildings policies – should come up for renewal. Before you accept your current provider’s price for another year of cover, it pays to shop around or use a comparison service to see if you can find a cheaper deal. Make sure you are comparing like with like, though, bearing in mind any extras your current policies include, for example accidental damage cover or insurance for high-value items.