18 Feb 2022
Top Tips to Avoid Overpaying for A House
Houses are expensive enough as it is, without realising you’ve somehow gotten yourself into a situation where you’re paying more than the house is worth. When looking for a house you want to make sure you’re getting the best value on what is already a huge financial decision, probably the biggest of most people’s lives.
In this article, we’re going to look into how overpaying for a property happens and the best ways to avoid it.
Don’t Get too Attached to a House
Your first step to buying a home is finding one - but remain realistic. Realistic in what you can afford and realistic when it comes to finding the “perfect one”. Even if you do find what you perceive to be the perfect house for you, don’t let yourself become too naive and fall in love with it so much that you’ll pay more to get it.
This is especially true if someone else is after it, don’t let yourself be lured into a bidding war and end up paying more than its original price. Remain stoic and remember, if you love something, sometimes you have to let it go. There’s plenty more houses on the market.
Compare Similar Homes’ Prices
If you know what size and kind of home you’re looking for, then you can easily look up similar properties in a similar location online. You can then compare how much they sold for and use this information to work out what the average price should be for the type of house you want. It also helps with knowing what you can expect to pay for what you want.
Knowledge is key when buying a home, so do all the background research you can, to avoid overpayments.
Make a List of Backups and Negotiate Price
Similar to how you shouldn’t get too attached to one house, you should make sure you have a backup, or maybe even make a wish list of a few backups. This will put you in a strong position and not leave you at the mercy of overpaying for that one house you really want/need.
You can combine your wish list with the research you did comparing similar homes’ prices (like we suggested above) to make a reasonable offer, but you’ll also be able to walk away if the seller is asking for too much.
It’s also great to have a backup for if someone else offers a higher price you can’t match or something else happens that makes you lose the house you wanted.
Put Down the Biggest Deposit Possible
One of the first challenges, after finding a house you like, is the deposit you need to put down and saving up for it. Whilst you can currently go as low as 5% for a mortgage, the higher you can save for the deposit, the better.
It is difficult and not everyone may be able to pay as much as they’d like to for a deposit, but with a higher deposit you can enjoy benefits such as lower monthly repayments, less interest accumulating, and more equity in your home.
Make Sure You Get the Right Mortgage and Avoid Interest
Making sure you get the right type of mortgage for your circumstances will also help. As mentioned before, a higher deposit may mean less total interest accumulating over the years; the right type of mortgage can also help with this.
A fixed rate mortgage, for example, will keep the interest rate on your repayments frozen in place, even if the standard interest rates go up. This will help costs stay down and allow you to know exactly what you’ll be repaying each month.
The interest freeze on fixed rate mortgages can last anywhere between two and ten years, with some lasting even longer. However, after this deal ends, you’ll be paying the current interest rate. There’s also the risk that interest rates fall but you’ll still be paying the higher amount that it was at the start, that’s where variable or tracker rate mortgages have an advantage.
If possible with your financial circumstances, you can get a shorter term mortgage. This will mean higher monthly repayments, but you’ll pay it off quicker and pay less in total as you won’t be charged as much interest as longer term mortgages.
If in doubt, contact a mortgage advisor (like us!), for professional mortgage advice. We’ll be able to find the right mortgage for you based on the details you send us.
Equity and Avoiding Falling into Negative Equity
Equity refers to how much of the house you currently own and its value versus what you are still paying off on your mortgage. The more you still have to pay of your mortgage the less equity you own, and vice versa.
Negative equity happens when a house drops in value, but you still owe more on the mortgage you originally took out than the house is now worth.
The main thing you can do to avoid falling into negative equity is make sure you’ve built up a good percentage of equity from the beginning, you got the house for a good price and avoid interest only mortgages.
Remember, the bigger your deposit, the more equity you’ll have from the get-go and the further you are into your mortgage term will also mean you’ve built up more equity with every repayment.
If you do fall into negative equity, it can make it hard to sell your house or mean you’ll have to sell your house for less than you paid. But try not to worry if this does happen, if you stay put in your home, the ever-changing house prices may go back up and you’ll be put back into positive equity.
Protect Yourself from Overpaying
Knowing is half the battle, and if you’re about to buy a house, these tips should save you from paying more than it’s worth. Remember to research the market as best you can, and if you need help and advice, you can contact us today.