Mortgage and Budget Information
This section lists the various costs you will need to budget for if you buy under New Build HomeBuy. We also explain briefly the different types of mortgage you could apply for.
For full details of how the scheme works, download the government’s guide below. You will need Adobe Acrobat or similar to view this document.
You can calculate what your costs would be using our online cost of buying a home planner and our online disposable budget planner.
When you first buy your new home, you will have to pay for:
• Your own independent survey (if you want one)
• Mortgage indemnity insurance
The running costs of your new home will include:
• Repairs, insurance and service charges
• Council tax, utilities bills etc
Initial costs
Building Society Survey
Survey
You may wish to have your own, independent survey which you must pay for.
Legal fees
You are advised to get a solicitor/licensed conveyancer to help you with buying your share. It is worth asking for an estimate before engaging a legal representative, as fees vary.
Stamp duty
This is a form of tax on the transfer of property. You should check with your solicitor/licensed conveyancer whether stamp duty is payable at the time of your purchase. If stamp duty is payable, you can either pay duty on your share or on the full value of the property. Your solicitor/licensed conveyancer should be able to advise you on which option to take.
Deposit
5% minimum deposit required
Mortgage indemnity insurance (if required)
Removal costs
Don’t forget the costs of removal. These can be quite large if you are moving several miles from the area in which you currently live.
Running costs
Mortgage repayments
You may need to borrow up to 95% of the cost of your share from a building society or bank. Repayments will vary as interest rates change. For a quick idea of how much you may be able to borrow, calculate 3 times your joint income or 3.5 times your income if you are single: this will give you a guide as to the amount of mortgage you are likely to be able to borrow. (Bear in mind though that lenders may vary this depending on individual circumstances. They are required to exercise responsible lending criteria.)
Rent
Your monthly rent will be a proportion of the total rent for the property. We will calculate how much rent you need to pay based on how much of the home you are renting. For example, if you own a 50% share and rent a 50% share, you would pay 50% of the total rent. Your monthly rent will be less than the normal rent you would pay if you were renting the whole property.
The rent will usually be reviewed every year. From April 2006, schemes funded by the Housing Corporation as New Build HomeBuy will have the initial rent set at a figure no higher than 3% of the capital value of the unsold equity and the annual rent increases will be limited to RPI plus 0.5%.
There is also a service charge – which covers building insurance and the maintenance and repairs of your communal areas if applicable.
Example:
Property value £100,000
Share purchased 50%
Share on which rent is charged 50%
Rent at 3% of £50,000 x
unsold equity 3% = £1500
Monthly rent £1500 (divided by) 12x = £125
Repairs, insurance and service charges
If your home is a house, you will be responsible for all repairs and redecoration both internally and externally. The housing association will insure the structure of your home and you will have to pay a small management charge to cover this and to help meet the costs of rent collection.
If your home is a flat, you will be responsible for all repairs and redecoration internally. The housing association will undertake to keep the building in which your flat is situated in good structural repair, to keep the structure insured and to keep any common parts, such as the staircase and corridors, decorated, clean and lit. You will have to pay a share of those costs. This is called a service charge.
The housing association must tell you how the service charge is spent. You will be consulted before any major repair or maintenance work is put in hand. In addition, a sinking fund will be set up by the housing association to which all purchasers are required to contribute, either on a monthly or annual basis, to build up a fund to cover the future costs of anticipated major works. You will be advised of the likely costs of both the service charges and the sinking fund contributions before you buy.
Council tax
You will have to pay the council tax to the local authority.
Heating and lighting bills and water and sewage charges
You are responsible for your own utility bills.
Fittings and furniture
You are responsible for supplying your own fittings and furniture and for the cost of insurance for the contents of your home.
A brief guide to mortgages
How long is a mortgage?
Mortgages typically last for 25 years although some mortgage lenders will allow you up to 30 years to pay off the mortgage.
What type of mortgages are there?
There are 2 main types of mortgage:
A repayment mortgage
Each monthly payment pays off a little of the underlying debt, as well as interest on the loan. The amount that you owe (the capital) reduces over the length of the mortgage and at the end of the term the capital is paid off, the mortgage is cleared.
An Interest only mortgage
With this type of mortgage you pay off the interest on the loan but not the capital. The mortgage payments may be cheaper but at some point you will have to repay the capital.
What is the difference between a fixed rate mortgage and a discounted or variable rate?
Fixed rates
The interest rate is fixed for the period agreed - often two to five years. This means you will make the same payment for your mortgage every month for a fixed amount of time.
Variable rates
This means the amount you pay varies every time interest rates change. This could mean your monthly mortgage rate increases or decreases depending on whether interest rates increase or decrease.
What are interest charges?
Mortgage lenders will calculate interest on the amount outstanding. Some calculate this daily, some monthly and some annually.
Are all mortgages acceptable for Homebuy?
The mortgage you take out on a Homebuy property must be one from a mortgage lender that is regulated by the Financial Services Authority (FSA) and must be a member of the council of mortgage lenders. The independent financial advisors we recommend will only recommend lenders who are regulated by the FSA.
Under the terms of the lease for the property we have to approve the mortgage.
We can refuse a mortgage if we find the interest rate or the term of the mortgage is not sustainable.
We will only agree to you taking out a mortgage up to the value of the share you are buying in the property.
The government suggests mortgage customers should ask these 10 questions.
• How much can I afford to borrow?
• How can I tell which mortgage rate is best?
• What is the best type of mortgage for me?
• How should I repay it?
• Can I make lump sum payments?
• Are there any redemption penalties?
• Does this mortgage come with insurance?
• What other charges will I have to pay?
• What happens if I can't pay?
• What about the small print?
For full details of how the scheme works, download the government’s guide below. You will need Adobe Acrobat or similar to view this document.