The hidden Costs of buying a home
Those of you that are currently saving for your first home or for a new home you will know that buying a house is expensive business. Most of you will be saving for a minimum 10% deposit but there are many other costs you have to prepare for:
Mortgage Arrangement Fee
The Financial Services Authority (FSA) define an arrangement fee as a "commitment or administration fee payable to the lender to reserve the mortgage funds”. It is basically a charge for organising the details of your mortgage, although frustratingly is mainly profit to the lender.
The size of the Mortgage Arrangement Fee varies per lender but should be stated along with the product’s mortgage rates. Looking at Moneysupermarket’s comparisons of low-deposit mortgages we can see Mortgage Arrangement Fee’s range from £199 to £999 so you should make sure you have saved enough to cover this charge.
You also need to watch out for lenders that are offering 0% mortgage arrangement fees because they often have higher mortgage rates, so it will cost more in the long run. Also check when you have to pay the Mortgage Arrangement Fee as some lenders will add it to your mortgage rather than charging it when you make your application meaning you have to pay interest on it.
Stamp Duty
Stamp Duty is a tax applied to the sale of land/property. First Time Buyers do not have to pay Stamp Duty on a property valued up to £250,000; however this is a short term offer by the Government and is likely to change.
If you aren’t a first time buyer or you are buying a property over £250,000 stamp duty will be applied in bands of:
- 1% on properties between £125,000 and £250,000
- 3% on properties between £250,000 and £500,000
- 4% on properties up to £1million
- 5% on properties valued at £1million+
Valuation and Survey Costs
A property valuation is necessary as it shows that your house is worth what you are offering for it. Valuations can range from free to around £250 depending on your mortgage lender. A survey can range from a basic survey, costing £120-£300, to a full structural survey which will cost at least £600. It may seem like a huge expense and you may feel like it is unnecessary but a survey can uncover serious faults or structural damage with your property and save you thousands in the repairs. It could also leave you in a better position to negotiate on the seller’s asking price if the survey uncovers anomalies.
Conveyancing
This is the legal cost of buying your home. Costs vary from property to property but for a £120,000 house you can expect to pay at least £415.00.
Land Registry Fees
The Land Registry registers all properties in England and Wales. When house ownership changes there is administration charge to update the details registered to the new owners. The cost depends on the house price. Contact the Land Registry for more information.
Finally, a few miscellaneous costs:
- Home/Contents Insurance
- Removals/Van Hire
- Decorating/Renovation costs
- Disconnection and reconnection of services
- Mail Redirection
It may seem like these costs are yet another barrier to the home buying process but they are unfortunately all necessary requirements of buying a property and the hassle will all be worth it when you are handed the keys to your own property.
