Budgeting for a Bigger House: A Homebuyer’s Guide
With signs that the property market is beginning to bottom out, now might be the perfect time For homebuyers to make that move up the property ladder. But have you considered the additional costs involved in owning a bigger home?
Recent reports from the UK’s leading mortgage providers have suggested that the property market is, if not making a full blown recovery, certainly stabilising since the slump which began in the summer of 2007. May and June 2009 saw an easing of the decline in house prices, with some lenders even reporting a slight increase in values. For anybody looking to climb another rung on the property ladder, and trade up to that bigger home, now would seem like the ideal time to make a move. Average prices have dropped around 16% since their peak, meaning reductions of up to £56,000 on a £350,000 property. Savings like that can make a previously unfeasible mortgage suddenly seem affordable, with monthly payments reducing by the same percentage figure. But should your decision to move be based solely on the monies paid out monthly to your lender?
Although it is the main thing that any property owner looks at when budgeting for a new home, the mortgage itself is only one component of total household expenditure. Granted – it is quite possibly the largest part of a home owners outgoings, but the cumulative effect on essential spending can be greater than the change in your mortgage.
Council Tax- Moving to a bigger house, quite possibly in a more affluent area, can result in a big change to your Council Tax. For example, a Band A property in the London Borough of Lambeth (www.lambeth.gov.uk) currently attracts a yearly charge of £823.21. Compare that to a Band F property with annual rates of £1784.05 – over double the figure of it’s Band A counterpart.
Insurance- A bigger property means more bricks and mortar to insure; and quite possibly more possessions in it. Accordingly, you will need to increase your ’sum insured’; the figure payable should your house burn to the ground. As this figure has increased, so will your monthly premiums – by as much as 100%! Average monthly premiums on a three bed-roomed terrace are around £35; this can increase to £70 for a four bed-roomed detached property in the same area.
Personal insurance- In times of financial turmoil, people take out insurance against job loss or critical illness to cover their repayments should such an unfortunate incident occur. Again, monthly premiums are based on the insurer’s risk, and the amount that they would have to pay out should you need to make a claim. The more outstanding on your mortgage; the more your monthly premiums will be.
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Published in: Personal Finance
