If you don’t plan to hang on to the property for longer than five to ten years, you shouldn’t renovate beyond what you can make back in that time. If you buy a house that you can barely afford and something breaks, you will not be able to fix it as well as make your mortgage payments. which breaks down how much we spend according to age. Consider the advice of your financial advisor on whether or not you are ready to buy a home and how much you can realistically afford. Who Spends the Most Making a House a Home? Sometimes “how much can I afford?” is not the right question. The other reason is that if you do not have the assets or financial means to save up 20% of the house value, it’s a good idea to ask yourself whether the house in question is too expensive for you. Five tips to help determine how much you should spend on a house 1. Overall, you should try to spend 35-40% of your annual income on housing expenses. We spend an average of £4,748 per year to get around, a 0.3% drop from 2018—this is more than the average household spends on rent/mortgage interest payments a year. But spending too much on a house could leave you with little money for other goals in life, such as retirement, college funds and vacation. We’ll work it out by looking at your income and your outgoings. If you choose a cheaper home and something unexpected happens that causes your income to temporarily decrease, you will still be able to manage your house payments. We produce in-depth research on all areas of personal finance, such as energy bills, pensions and budgeting. You will need to pay annual real estate taxes, insurance costs, heating and other utilities, and much more. Determining the price range that is right for you is the first step in looking for your perfect home! How Much Can You Afford to Spend on a House? To keep housing costs affordable, we are using an example of a third of your take-home income . According to data from the Office of National Statistics, the average UK household spends £3,224 on groceries and £1,581 on restaurants and takeaways every year. Our reviews, guides and tools simplify credit cards and help you get the most out of them. If you… The prices are based on averages for a terraced, semi-detached and detached house. To understand your finances you can sit down with pen and paper and go through your bank statements and credit card bills once a month. Here are some tips for figuring it out: When buying a home, you should be able to pay at least 10-20% of the value of the home up front. To achieve that, your annual salary after tax would need to be at least £28,000, depending on your financial circumstances. While the largest component of housing costs is rent or mortgage interest, a close second is the cost of utilities. The average UK household spends £6,000 on utilities and other household operational and maintenance expenses and equipment, as well as household goods & services. Your credit score will determine whether you qualify for a mortgage and what terms you’ll get if you do. Reviews that appear on this site are based on our own analysis and opinion, with a focus on product features and prices, not service. For example, if you have £30,000 saved up you will be able to use it as a 20% down payment on a house which is worth £150,000. Compare loans using our handy comparison tool. So how much should you be spending? Total costs for a regular roof over your head, whether rented or owned with a mortgage, typically eat up around 35% of an average UK household’s income, give or take. Using this method, here are average household budgets by household size: Note: To estimated non-housing expenses for a family with children we divided the average household costs by 2.4 and then multiplied by 3, which could reflect a family of 3 or 4 depending on child ages. It should take about five minutes to complete. How much should you spend… Dec 17 2014. You may have a £20,000 credit limit on your credit card but that doesn’t mean you have to spend it all, does it? In 2019, 86% of homebuyers used a mortgage to close the deal, according to the National Association of Realtors. This rule of thumb comes from the authors’ “ Power Trio of budgeting, ” which recommends that 45% of your gross income should go towards “foundation expenses.” Foundation expenses include necessary costs such as housing, transportation, medical care, and child care. Housing costs of £750 a month would mean you would need to make a minimum take home pay of £2,300 a month after tax to keep these costs below a third of your take-home pay. For an analysis of how spending changed in recent years, please see our article Household Budget Winners and Loser in 2017: Transport, Household Goods, Restaurants & Hotels and Education. In fact, 14% of our household budgets goes towards transportation, 11% to rent or mortgage interest (that's on average, across renters, mortgage holders and households owning their home) and 11% to feed ourselves. Some offers that appear on this website are from companies from which NimbleFins receives compensation. On top of the cost of the house itself, there are many other, one-off expenses involved in buying a home and moving which can tot up to between £2,000 - £5,000. Average amounts spent in other areas of the UK include: The East of England – £3,315 Legal fees (around £2,300) You’ll likely need to recruit a professional to carry out the legal work involved in buying your home. For help determining the right number for you, use an online mortgage affordability calculator like this one from Marketwatch. Depending on taxes and HOA fees as well as insurance and … But there’s a range of other factors, including insulation, when your home was built and the kind of light bulbs you use. 2. They eat at home more often, spending around 75% of their food & drink budget for consumption at home, with a quarter of the budget spent out of the house. The total debt that you pay each month should not be more than 36% of your income before taxes. Of those renting, the average monthly rent in the UK is actually £868 for private renters and £442 for social renters. But your housing situation can mean you spend a lot more or less. While we use our best endeavours to be comprehensive and up to date with product info, prices and terms may change after we publish, so always check details with the provider. ). Different lenders have different credit score requirements, but most Ultimately, it boils down to the value you put on things and what you can afford. For example, if your annual income is £20,000, 28% of this is £467 which would be the maximum monthly payment you can afford on a mortgage. © Copyright. While it’s an easy decision to make when choosing what to renovate, how much to spend on it is a different ball game. Most mortgages require a deposit of 5% or more before they pay for the rest of the purchase. The site may not review or include all companies or all available products. Here's a guide to figure that out. In this area of the UK they spend an average of £3,461 on repairs. 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