Unexpected expenses associated with property purchases can burden homebuyers with added debt and exhaust their savings, highlighting the importance of careful budgeting – especially when facing economic uncertainty. For buyers who adopt a proactive approach, though, the present market offers a bounty of bargains. See the following article from Property Wire for more on this.
The cost of buying a property in the UK may be £30,600 more than people think as unforeseen costs kick in, it is claimed. A fifth of home buyers fail to set realistic budgets when buying and then suffer financial strain, according to research from money.co.uk.
The study found that 21% of home buyers paid more for their properties than they planned to, with that budget gap averaging out at almost £23,000 per buyer.
In addition, home buyers spend an average of just over £8,000 on their property in the first year after purchase, but 23% do not budget for these expenses. In total, those unforeseen extra costs could add up to £30,600 for more than a fifth of home buyers.
The money.co.uk study also assessed how those extra costs are covered. For the average under budgeted buyer, 60% of the shortfall comes from long term savings, weakening the ability to cope with future rainy days.
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That leaves a further £13,400, of which just over half, 63%, is funded using credit in the form of personal loans (15%), credit cards (27%) and extended mortgages (21%). For many, these are long term debts, with only a third, 35%, paying them off within the first year. One fifth of home buyers are currently paying off these debts on top of their monthly mortgage payments.
‘These findings demonstrate why methodical planning and budgeting are such important first steps to buying a property. It is all too easy to overlook expenses and end up in a precarious financial position. Households with debt piled upon debt are most likely to be at risk during tough economic times,’ said Chris Morling, managing director of money.co.uk.
Property expert Sarah Beeny said she is amazed that some buyers are still jumping in feet first without a thought for their budget limitations. ‘House buying and renovation can be a rewarding and lucrative exercise, when done properly and to a budget. But hasty decisions on must have properties, fixtures or fittings will just result in financial turmoil,’ she said.
Morling believes that the home buyer’s budget gap is symptomatic of a wider feature of the nation’s money management characterized by a tendency to react to circumstances rather than plan ahead.
‘It’s clear that many people are struggling to really take control when it comes to managing money. More than half of British adults would like to feel more in control of their money. That’s not a surprise when you consider the complexity of modern personal finance, with most people operating more than five products but left largely to their own devices when it comes to the tools and guidance needed to really make the most of them,’ he said.
With house prices predicted to stagnate and mortgage rates remaining relatively low, there are undoubtedly ‘bargains’ to be had for home buyers who take the time to plan ahead, he added.
‘It’s not just about putting money to one side, although that is obviously an important step with many mortgage lenders still looking for sizable deposits. As our research demonstrates, it is also very important to have a clear picture of all the costs involved, rather than just looking at the purchase price,’ said Morling.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.