The Hidden Costs of Buying a House

The Hidden Costs of Buying a House

Buying your first home is one of the biggest financial decisions and investments you are ever likely to make, and one of the most exciting!

But here's the reality: so many first time buyers aren't aware of the hidden costs of buying a house. It's very easy to underestimate just how much you actually need to save for your first home.

The Hidden Costs of Buying a House

In this blog, we'll outline the upfront costs on top of your deposit - that you'll need to factor into your savings.

We'll also give you the lowdown on the ongoing costs - post purchase - that you may not have thought about yet. Lastly, we'll share some tips with you on getting the best deal.

But first, let's quickly cover your deposit and stamp duty:

Deposit

This is one of the biggest costs involved in buying a home. Generally speaking, the higher the deposit you can manage, the more favourable the repayment terms will be, so it pays to hustle as many pennies together as you can.

Stamp Duty Land Tax

You must pay Stamp Duty when you buy a home over a certain price. The amount you pay depends on when and where you buy your first home.

If buying your home before 31st March 2021, the stamp duty threshold and rates are as follows:

Stamp duty rates until 31st march 2021

From 1st April 2021, first time buyers benefit from stamp duty relief up to £300,000. That means if your first home costs £300,000 and under, you'll pay zero stamp duty.

You will then pay 5% stamp duty on the portion from £300,00 to £500,000.

Upfront Costs

Surveyor’s fee

Surveys can be expensive, but they are well worth considering. Having a comprehensive understanding of the condition and construction state of your dream house is important for both you and your lender as it can save you a lot of money on repairs down the line.

A basic Home Buyer’s Report costs around £400, it's often suitable for conventional properties with no obvious issues. It is designed to identify structural issues like subsidence or damp but it won't look beyond floorboards or behind furniture and walls.

A Building Survey costs around £600. This is more suitable for larger or older properties and if you're planning major works. It provides an in-depth analysis of the property's condition.

Conveyancing fees

You are required to instruct solicitors to represent you throughout the house buying process. A property solicitor (otherwise known as a conveyancer) draws up contracts, conducts searches, registers your property and anything else related to the legal process of purchasing a property.

You should budget around £600 to £1,300 to cover their fees. 

It's really important to get multiple quotes, ask for a full breakdown of all costs and find out if there are any potential costs not outlined.

Your breakdown of costs looks something like this:

Breakdown of conveyancing costs

Land Registry fee

This is a fee you will have to pay to register your ownership of the house. It varies depending on how much the property is worth. You should expect to pay between £95 -£300 on average.

Your solicitor has a duty to register your deeds as soon as possible once you get the keys to your new house.

Money transfer fees

Your solicitors may charge you a fee to cover the transfer of the property and the bank charges involved. It’s usually around £40-£50.

Mortgage costs

There are some administrative costs associated with setting up a mortgage and these can include:

  • Valuation fee

Your lender will carry out a valuation to make sure that the property they’re lending you money to purchase is worth what you’re planning to pay for it. Usually, you’ll be expected to cover this fee.

Valuation fees can range from £150 to £1,500 depending on the value of the property. Some lenders offer free valuations as part of their mortgage service so make sure you ask.

  • Booking fee

Some lenders may charge you a fee to apply for the mortgages. You can expect this to be around £100 to £250. This can sometimes be included in the arrangement fee.

  • Arrangement fee

Your lender might charge you a fee (generally between £975 and £2000) for setting up your mortgage. This can also be added to the mortgage itself, but it's worth noting that it will increase the amount you owe, your interest and your monthly payments.

  • Broker fee

This fee goes to your mortgage broker for arranging the mortgage and providing all relevant advice. If they don't charge a fee, they will alternatively take a commission from the mortgage provider.

On-going costs

Now, let's talk ongoing costs. It's important to consider these numbers when looking at what mortgage payments you'll be paying, so you're sure that you can comfortably afford to pay all monthly costs associated with owning your own home.

  • Insurance

Most lenders will require that you have buildings insurance so that you’re covered against structural damage caused to your property. 

The cost depends on the size and type of property you're buying, you can expect to pay approximately £13 per month.

  • Council tax

This is the annual fee covering municipal services like rubbish collection, police presence, library provision, etc. The amount you pay depends on the value of your property and the area it’s in and it can vary greatly from borough to borough.

The average council tax bill can cost you anything between £650 and £1,800.

You can check your Council Tax Band on gov.uk. Then, when you know your band, you can search the relevant Council website for the costs associated with that band.

  • Service charges and ground rent

In England and Wales, if you buy leasehold flat you’ll usually pay annual ground rent to the landlord, plus a share of the building’s insurance, maintenance fees and service charges.

Ground rent typically costs between £100 and £500. It's a regular payment for the occupation of an area of land or a plot in a development.

Watch out for the service charges – they can amount to over £2,000 a year. Service charges are fees paid in order to contribute to the upkeep and servicing of the building.

  • Utilities and other regular costs

TV License:  £175.50 per year

Water: £415 per year

Broadband (+TV): £17 - £90 per month

Gas and electricity: £66 per month

How to get the best deal

  • Get multiple quotes for brokers and conveyancers

  • Always ask them for a full breakdown of all costs

  • Ask them about potential future costs

  • Use comparison sites for utilities & insurance

Planning Ahead

So as you can see, your deposit is definitely not the only thing you should budget for! Knowing some of the additional costs involved is the first step to making sure your home buying adventure is achieved within a budget that is right for you. 

Plan ahead, keep yourself informed and enjoy the ride!

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