Buying a property can be a complex process, and there are a number of costs that need to be considered in addition to the purchase of the property itself.
The cost of the property is by far the largest expense, and unless you are buying the property outright, it will be covered by the sum of your deposit and the amount you borrow from the lender (your mortgage).
As a rule of thumb, the more money you put down as a deposit, the better deal you can get on the interest rate on your mortgage. Keep in mind, however, that putting all the money you can down as the deposit is not necessarily the most sensible thing to do, as there are a number of other costs you will need to cover, and you may want to keep some aside in case of an emergency.
- Mortgage product fees : On top of the interest you will pay on the mortgage you borrow, there might be a mortgage product fee to cover. This can range from £0 to over £2,000*
- Mortgage broker or IFA fee: If you are using an independent financial adviser or a mortgage broker, there may be a fee for this service
- Legal fees: You will need a property solicitor or licensed conveyancer to perform the legal and administrative work required for buying a property. Some property solicitors (including Londonwide Conveyancing), offer a ‘no move, no fee’ guarantee, which means if your purchase falls through before exchange of contracts for any reason, you will not pay the legal fee. Solicitors might offer fixed fees, charge by the hour, or take a percentage of the property value so it is important to know what the fees are likely to be from the beginning to avoid a large bill and a nasty shock at the end. A fully qualified reputable solicitor in London offering a fixed fee is likely to charge between £500 and £1500 including VAT at 20%* depending on their seniority and expertise. If additional legal work is required beyond the remit of the standard conveyancing process additional fees would be payable. A good rule of thumb for seeking any professional service is to get three quotes before entering a contract but beware – conveyancing quotations can be difficult to understand so make sure the quotes you get are fixed and fully inclusive
- Searches: Your solicitor or conveyancer will arrange the searches, assess the results and report on their findings to both you and your mortgage lender. Searches are checks of: the Local Authority planning department for future plans or preservation orders affecting the property; the surrounding environment to check for contamination; church repair (chancel) liability; the water and drainage connections and any location specific searches such as a coal mining search. The cost varies depending on in which Local Authority you are buying. You will typically pay between £250 and £300* for searches
- Lender’s valuation fee: When you have had your offer accepted on the property you want to buy, your lender will commission a surveyor to carry out a valuation to make sure the property is worth the money you are paying for it. This is sometimes covered in the mortgage package, but unless specified you should budget around £150 and £1500* for this
- Survey: The mortgage lender’s valuation is a cursory assessment of the property’s value that assures them you are getting value for your borrowed money. To truly understand the condition of your new property you should look to commission an independent survey from a registered Chartered Surveyor. The cost of this survey will depend on which of the following three types of survey you choose, and will cost from £250* and several thousand pounds depending on the size, age and type of property:
- A Condition Report is the most basic, and generally only suitable for modern properties in good condition
- A Homebuyer’s Report is more detailed but non-intrusive so will identify surface level issues only. A Homebuyer’s report is the most detailed survey you need when buying a leasehold property
- A Full Structural Survey is the most comprehensive survey and therefore more costly, but advisable if you are buying a freehold house, especially if the property is very old, listed, unusual or in need of repair. The structure will be thoroughly assessed including in the attic or under the floorboards
- Stamp Duty Land Tax (SDLT):Stamp Duty Land Tax is a tax paid by the buyer of a UK property when the purchase price exceeds £125,000. The stamp duty rate ranges from 2% to 12% of the purchase price,depending upon the value of the property bought. Like income tax, each rate only applies to the part of the property that falls within the tax band.
From 1 April 2016 anyone purchasing an additional residential property such as a buy to let or second home will be charged a 3% surcharge on each of the threshold bands.
For the purchase of replacement of a main residence Purchase price bands (£) Rate (%) Between £40,001 and £125,000 0% Between £125,001 and £250,000 2% Between £250,001 and £925,000 5% Between £925,001 and £1.5 million 10% Over £1.5 million 12% For the purchase of ‘additional’ property* Purchase price bands (£) Rate (%) Between £40,001 and £125,000 3% Between £125,001 and £250,000 5% Between £250,001 and £925,000 8% Between £925,001 and £1.5 million 13% Over £1.5 million 15%
*Additional 3% SDLT for purchases made from 1 April 2016.
For more information and for help calculating the amount of SDLT you might owe on residential properties, use our stamp duty calculator.
- Moving costs: Hiring a professional removal company can save a lot of anxiety and hard work. A removal firm is well-worth considering, but even if you decide to move your belongings yourself, it is likely that you will need to rent a lorry or van for the day. To keep the moving costs down it is advisable to sort through your belongings ahead of the move and sell, throw away or recycle anything you do not need, as every box and bag will add to the overall cost
- Home insurance: Home insurance falls into two categories; buildings and contents. You can buy them together from one insurer or separately from different providers. Home insurance provides important cover for your buildings, contents and personal possessions against loss or damage.
Buildings insurance is usually a requirement when taking out a mortgage and usually required to be in place on exchange of contracts. However, extra insurance covering items such as contents, personal possessions and family legal protection will help to meet all your home insurance needs.
If you are buying a leasehold property, the freeholder of the building will often be responsible for buildings insurance and will pass the premiums on to you through the service charge. You will need to check this in your lease before you buy.
Specialist landlord’s building and contents insurance is available if you plan to rent your property.
- Critical illness cover, life assurance and income protection: It is prudent to consider what will happen if you are no longer able to cover your mortgage repayments due to losing your job, suffering illness or injury or if you die during the policy term. Arranging critical illness cover, life assurance and income protection is sensible and can help safeguard your property and your family in the light of an unfortunate event. Kinleigh Financial Services Limited arrange insurance exclusively through Legal & General.
- First mortgage payment: Your first mortgage payment may be larger than the scheduled monthly payments as you may complete mid-way through a month. Interest on the mortgage is calculated from a few days before completion (when the lender releases the mortgage monies) with the first scheduled payment (plus the interest) being due the following month
- Decorating and refurbishing: Your existing furniture might be too big or too small for your new property. Likewise, the colour-scheme of the previous owners might not be to your liking. The expense of buying new furniture and redecorating needs to be budgeted for
- Utility bills and Council Tax: If you have moved into a bigger property, your energy bills and Council Tax may also be bigger, so these costs will need to be taken into account
- Other costs: You may choose to professionally clean your new property before moving in, and you may want to change the locks once you have moved in. If you are moving into a brand-new property you may also need to pay for connecting a telephone line
Your home may be repossessed if you do not keep up repayments on your mortgage.
We do not charge for our advice. Instead, we simply charge a fee for arranging your mortgage of up to 0.5% of the mortgage amount. A typical fee is £499.
Kinleigh Financial Services undertakes credit broking and is not a lender.
*Source: Money Advice Service website.