Unforeseen costs rack up long term debt for home buyers
Research conducted by money.co.uk has revealed the financial strain suffered by the one fifth of home buyers who fail to set realistic budgets for the purchase and ‘personalisation' of their new homes. 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'. 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.
Chris Morling, MD of money.co.uk said: "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."
Commenting on the findings, property expert and founder of Tepilo.com, Sarah Beeny said: "It amazes me how 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."
my money
Morling believes that the ‘home buyers' budget gap' is symptomatic of a wider feature of our nation's ‘money management' - betraying a tendency to react to circumstances rather than plan ahead.
The launch of my.money.co.uk makes available 50 free, interactive personal finance ‘Goals'. The Goals break down specific personal finance objectives into a series of interlinked and achievable steps, each complete with clear advice, guidance and a comprehensive range of tools and resources. It is the most comprehensive online resource designed to help Britain get on the front foot when it comes to money management, with the support, advice and encouragement of others striving to achieve the same Goals.
Morling said: "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.
"With 50 step by step money Goals for users to work through, each comprehensively written by independent experts, and an established online community providing support and encouragement, we believe that my money represents a significant step towards filling that gap."
Get on the front foot
With house prices predicted to remain depressed for at least another five years and mortgage rates remaining relatively low, there are undoubtedly ‘bargains' to be had for home buyers who take the time to plan ahead.
Morling said: "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. I would urge anyone keen to plan for their home purchase to try our ‘I want to buy a house' and ‘I want to move to a new property' Goals on my money. There they will find comprehensive step by step, guidance and advice as well as a range of other tools designed to help save money and make money."
Sarah Beeny added: "This is a great, simple tool to help homebuyers develop realistic budgets and stick to them. Buying and renovating a home is the biggest financial challenge most people ever take on and without the right advice and planning, particularly in this market, the results can be disastrous."