You’re in the market looking to buy a home. You have money saved up for a deposit. You’ve been approved for a mortgage. But wait, the cost of the house or flat is not the only cost you have to think about. There’s also a bunch of other expenses that you need to account for when buying a home. In this blog post, we’re going to go over some of these expenses that you’ll need to budget for when buying a home such as stamp duty, mortgage fees, legal fees (conveyancing), survey costs, removal costs, insurance, land registry fees, and estate agent fees.
Stamp Duty
In England you must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price whether it’s a freehold, a leasehold, shared ownership, or it’s a land or property transfer.
The threshold is £150,000 for non-residential land and properties, £250,000 for residential properties, and £425,000 for first time buyers buying a residential property worth £625,000 or less. There are a number of reliefs and exemptions as well.
The stamp duty land tax rates for residential properties are:
- Zero for properties up to £250,000
- 5% on the portion from £250,001 to £925,000
- 10% on the portion from £925,001 t0 £1.5 million
- 12% on the portion above £1.5 million
For example, if you buy your first home at £300,000, you will not need to pay stamp duty. However, if you’re buying a property through buy-to-let or through a limited company, you will be liable an additional 3% stamp duty.
Mortgage Fees
There are multiple fees associated with a mortgage application. These include:
- Mortgage Broker/Adviser fee: If you’re getting your mortgage through a broker instead of directly through the bank, you’ll pay about £500 to the mortgage broker. Mortgage brokers can also help with things like life insurance and critical illness benefit.
- Booking fee: A non-refundable application fee of anywhere from £99 to £250. This is paid to the lender and reserves your loan.
- Arrangement fee: This can cost up to £2,000 and this is the fee you pay to the lender to set up your mortgage. On average, the arrangement fee is £1,000. It can either be a flat fee or a percentage of the mortgage cost. It can be part of your mortgage, but keep in mind this will increase your monthly payments.
- Valuation fee: This service is to find out if the property you’re buying is worth what you’re paying for it. This is also of benefit to the lender, who is taking a risk by lending money to you to buy the property. Some mortgage providers include this service in their fees, but if you have to pay for it separately, it can cost hundreds of pounds, depending on what you want the surveyor to look for. Not all surveyors do their valuations in person. Sometimes they look at recent sales data and maybe quickly drive by the property, but it’s not the same as a surveyor who looks for structural issues with the property. For valuation they only look for any obvious defects that might lower the value of the property. Once the valuation is carried out, the fee is non-refundable.
- CHAPS fee: A non-refundable fee of £25 to £50 for your bank or mortgage lender to transfer the money to your solicitor. This fee is paid to your bank. CHAPS (Clearing House Automated Payment System) is a high-value payment system that provides efficient settlement risk-free irrevocable payments in the UK. It guarantees the money will arrive the day you send it. A house is probably the most expensive thing you’re going to buy so that money needs to be transferred securely. Solicitors and conveyancers use CHAPS to complete property transactions.
Besides the APR (annual percentage rate), there are fees for late or missed payments, exit fees, and early repayment charges.
Legal fees
When buying a property, you’ll have to pay a significant amount of money on legal fees. These fees are to pay for the work your solicitor does in the home buying and selling process such as disbursements, searches, and enquiries. When looking for a solicitor, make sure they are registered with the Solicitors Regulation Authority (SRA). You should also check if they’re registered with the Council of Licensed Conveyancers (CLC). While the latter is not required, it’s nice to know that they are experienced in conveyancing. Depending on the price of the property the fees on average can range from £1,090 to £2,550.
It is possible to do your own conveyancing, but it’s time consuming and complicated and if you don’t do it correctly, you’ll run into problems. There’s a lot of legal jargon on all those forms and there’s a reason that solicitors spend years in university learning all about that. You can choose to have a solicitor do conveyancing or if you’re on a budget you can choose a conveyancing company that does conveyancing in bulk, but you may feel like you’re on an assembly line.
Both buyers and sellers will have a solicitor.
Surveying fees
When buying a house, you’ll want to know what condition it’s in and you can’t tell by just walking in and looking around. Appearances can be deceiving and it’s important to have peace of mind before you’ve signed all of the paperwork. A house survey is typically conducted when the seller accepts the buyer’s offer. A professional surveyor will know what problems to look for whether it’s structural integrity, electricity, plumbing, heating, gas, insulation, ventilation, and safety and compliance. The older and less maintained a home, the more maintenance that will need to be done. It’s best to go into a home purchase informed.
When hiring a surveyor, you want to make sure that they are a member of the RICS – Royal Institution of Chartered Surveyors or the RPSA – Residential Property Surveyors Association. There are three levels of surveys:
- Level 1: A basic survey that uses traffic light ratings to give an overview of the property’s condition and highlighting significant issues, but it is not an in-depth report. This is best for newer, modern properties in good condition.
- Level 2: This survey is more comprehensive than Level 1 and is best for most properties in reasonable condition. It is not an intrusive survey so the surveyor will not look behind furniture or look under floorboards.
Removal costs
Whether you’re buying or selling a home, you’re going to have to move your stuff to a new place and that’s going to cost money. You can move your stuff yourself and rent a van, but that’s a lot of work on your end. Plus if you break anything, it’s your responsibility. If you have a lot of heavy furniture and delicate items in your house, it might make more sense to hire an expert removals service. It saves you time and stress and if they break anything, they’ll pay to replace it or fix it, but it can be very expensive, especially if you have a lot of furniture and items to move. The more stuff to move and the greater the distance, the higher the charge.
For a small flat, removal costs can be a few hundred, but for a larger house it can go into the thousands. You can pay for a complete removal service with packing and removal or just a basic service with removal alone.
Alternatively, you could sell furniture and excess stuff to lower the removal costs, but keep in mind you’re not going to get what you paid for back. This can also make sense if you’re downsizing.
You might also want to consider hiring cleaners if you’re selling your house or moving into a new house.
Insurance
You’ll also want to buy insurance for the building and the contents, so keep that in consideration. Some lenders may also require you to take out a life insurance policy that clears out the mortgage in one lump sum if you pass away or one that pays out enough to cover the mortgage if you become ill.
Land Registry Fees
These fees are compulsory and register the property changes in the public record. This ensures that you really do own your home. These fees vary depending on how much the home was sold for and how you make your registration.
Estate Agent Fees
The seller usually covers these fees. These range from 1-3.5% (plus VAT) of what the home sells for, but some estate agents charge a flat fee. The best estate agents are usually going to be more expensive than their competitors, but they might sell your home a lot quicker.
Buying or selling a home and getting a mortgage can be really stressful and you might want financial advice. It’s good to speak to a financial adviser about this. To book a free initial consultation with Neil, click here.