Big house, little house, big bill
Week 3 of a new Monday Money series of blog posts I’m hosting with Emma at EmmaDrew.info and Lynn from Mrs Mummypenny. It’s a great way to share content about money, so do check the links at the end for other brilliant money posts! Plus, find out how to join in if you’re a blogger. We’d love you to add your posts.
Buying a home is an expensive business.
Want to move to the country, move to a bigger place, or get a toe hold on the housing ladder? You’re going to need a whole heap of cash.
First, you’re going to need a deposit. Most banks and building societies won’t lend all the money needed to buy a property. Instead you have to pay part of the price, known as a deposit. Faced with rising house prices, saving for a deposit can be a mammoth task, especially for first time buyers.
Trouble is, home buyers don’t just need to scrape together an eye-watering sum as a deposit.
You will also need to cover a whole heap of other costs, from solicitors’ fees and surveys to stamp duty and searches. And that’s before you’ve paid for a bed, a new boiler, or replacing particularly hideous wallpaper.
Before our big move to the country, I’d bought and sold several times, so can give you a bit of an idea what to expect.
Here’s a roll call of the costs to consider:
- Deposit
- Mortgage booking fee
- Mortgage arrangement fee
- Mortgage broker fee
- Higher lending fee
- Mortgage valuation survey
- Home survey
- Buildings insurance
- Stamp duty
- Solcitor’s fees
- Searches
- CHAPS/Telegraphic transfer fees
- Land Registry fees
- Disbursements
- Removal fees
- New keys
Read on to find out how much you might need to raise.
Table of Contents
Costs when buying a house
Deposit
Most of us don’t have the cash to buy a whole house, so we have to borrow money from a bank or building society. The loan to buy a property is called a mortgage.
Normally you also need to pay at least 5% of the property price, before anyone will offer you a mortgage. First time buyers using the government Help to Buy scheme only need a 5% deposit. But ideally, it’s a good idea to save up an even bigger deposit.
Plonk down a bigger deposit, and you should get a lower interest rate on your mortgage. A lower interest rate is A Good Thing, because it means smaller monthly payments, with enough money over to do handy things like eat.
Looking at a best buy table of mortgages for first-time buyers, for the cheapest rates you’ll need a deposit worth 5% to 20% of the property price. Some of the very lowest rates require a whopping 40% of the purchase price.
The key phrase to look out for is “loan to value” aka LTV. If you see a mortgage deal advertised with “max LTV 90%”, that means the bank or building society will lend you up to 90% of the property price, and you will somehow have to find the other 10% as a deposit.
If you’ve got your eye on a place for £200,000, then to put down a deposit of 5% to 20% of the value, you’ll need to raise between £10,000 and £40,000. Ouch.
Sadly the deposit isn’t the only cost associated with buying a property. Oh no.
You will also need to raise the money for:
Mortgage booking fee
Sometimes you have to pay to hold or ‘book’ a specific mortgage deal. It might only be £100 to £200, but you won’t get it back if the mortgage doesn’t go ahead.
Mortgage arrangement fee
Most banks or building societies charge arrangement fees to set up a mortgage, which could be anything from a couple of hundred pounds to a couple of thousand pounds for deals with the very lowest interest rates. If you use a mortgage broker, they should crunch the numbers to find the best combination of interest rate and arrangement fees to suit your circumstances.
Usually, the arrangement fees can be added to your mortgage if you don’t have the cash to pay up front. However, this means you’ll then have to pay interest on top, making them even more expensive in the long run.
Mortgage broker fee
Talking of mortgage brokers – some charge fees. Personally, I used L&C, which is free for customers as they take commission from the lender instead. A good mortgage broker can access deals you couldn’t get by wandering into a bank, explain different options and help find lenders suitable for your circumstances, if for example you are self-employed or have issues with your credit record.
Higher lending charge
If your deposit only covers a small part of the property price, your lender may also whack on a higher lending charge. This covers the cost of an insurance policy to protect the lender if you can’t pay your mortgage. Like arrangement fees, you can usually decide whether to pay upfront or add the fees to your mortgage.
Usually, it’s calculated as a percentage of your mortgage above a certain loan to value, so the cost will depend on how much you’re borrowing, and how much of the property price it covers.
Mortgage valuation survey
If a bank or building society is lending you a ton of money on a property, they want to know it’s worth it.
Sad but true: if you can’t pay your mortgage every month, the lender can throw you out of your home and sell it to pay off the money you borrowed.
Some deals for first time buyers chuck in a free valuation survey, where the mortgage company arranges for a valuer to check if the home you want is worth what you’ve agreed to pay. Otherwise, budget for a couple of hundred pounds for a mortgage valuation.
Home survey
Aside from the mortgage valuation survey, you might also want to pay for your own survey.
Let’s face it, your home is likely to be the most expensive thing you ever buy. It’s good to know if you’ll be forking out a shedload more to fix any problems.
If the survey shows the place needs loads of repairs, you might still buy it – but at least you know beforehand there’ll be extra costs involved. The survey might also help when bargaining with the sellers, if you negotiate a lower price, or ask the sellers to fix stuff before going ahead.
Typically, surveys come in three varieties: a condition report, a Home Buyers report and a building survey.
Condition report: quick overview of the condition and obvious major issues. It’s cheapest, and most suitable for a relatively new house that doesn’t look like it has any problems.
Home buyers report: more detailed, with info about obvious problems, plus advice on repairs and maintenance. Normally it would also include a valuation of the property plus an estimate for rebuilding cost. You’ll need a figure for rebuilding cost to arrange buildings insurance. The survey still isn’t a magic wand for finding all faults, as the surveyor won’t be moving stuff or crow barring up floorboards, but just reporting what they can see. This kind of survey should be fine if the property is in a reasonable state.
Building survey: the most expensive option. A more in depth report on the property, plus the advice on repairs and maintenance. We went for a full whack Building Survey before buying our house, because it’s an old house with a lot of history aka potential issues that could go wrong.
The cost for different surveys depends on where you are buying and the property price. Expect to pay anywhere from £300 to £400 for a Home Buyers report on a property that costs less than £100,000 right up to £1,500+ for a full Building Survey on a house worth half a mill or more.
The Royal Institute of Chartered Surveyors has a handy dandy tool for finding surveyors near you. Your estate agent might also have recommendations.
Buildings insurance
Unsurprisingly, mortgage lenders are not keen on losing the money they’ve lent if your home goes up in flames or crumbles to the ground. Normally, they insist that you take out buildings insurance, to cover the cost of damage to the structure of the property. If you’ve never owned a place before, this can come as a nasty shock.
Even if you don’t need a mortgage, it’s still worth paying for buildings insurance to protect your own investment. The price of policies varies enormously depending how much your home would cost to rebuild.
Stamp duty
When you buy a property, you have to pay a load of extra money to the Goverment for nothing at all. This is called Stamp Duty.
The amount you pay depends on the price of the property you’re buying, and whether you have bought a property before.
The good news is that in the latest budget, the Government said that first time buyers don’t have to pay any Stamp Duty Land Tax (the official name) on properties that cost up to £300,000. If you buy a property for up to £500,000, you won’t pay any stamp duty on the first £300,000, and then 5% on the chunk between £300,000 and £500,000. So the max stamp duty you’d pay on a £500,000 property is £10,000.
If you’re buying a place as a couple, you’ll both need to be first-time buyers to benefit – one of you can’t have owned a property before.
If you’re not buying for the first time, you will need to pay different rates on different chunks of the price:
Up to £125,000: Nothing
From £125,001 to £250,000: 2%
From £250,000 to £925,000: 5%
From £925,001 to £1.5 million: 10%
Above £1.5 million: 12%
So if for example you’re buying somewhere for £300,000, you’ll pay zip all stamp duty as a first time buyer.
Otherwise you’re looking at paying nothing on the first £125,000, and then 2% on the next part of the price between £125,000 and £250,000 plus 5% on the last bit between £250,000 and £300,000. Total Stamp Duty Land Tax bill: £5,000.
But don’t worry, to save headaches, the Government has a stamp duty calculator here.
If you’re a would-be landlord after a buy-to-let property, or you fancy a weekend pad in the country, remember that if you’re buying a second property you’ll get stung with an additional 3% stamp duty on anything above £40,000.
Solicitor’s fees
You’ll need to pay a solicitor or conveyancer to do all the legal side of buying a house. This is one area where I think it can be a false economy to go for the cheapie cheapest option. It was absolutely worth it to me, when buying houses, to pay the extra for solicitors who knew what they were doing and would answer the phone when called.
Buying a house is stressful enough without using a solicitor who is so swamped with work they haven’t the time to deal with your purchase, and might not know how to cope if something unusual comes up. There are some times to cut costs, and much as it pains my frugal soul to say, this is not one of them.
Expect to pay £500 (*cough* *avoid*) up to about £1,500. And be warned, solicitors will also whack 20% VAT on top.
Searches
See those solicitor’s fees above? That’s just for their time, and doesn’t include all the extras – starting with searches. Searches are enquiries to the local council and local authority, checking that no-one is planning to build a motorway through your dream home, or previously buried nuclear waste underneath it, or carelessly built it on a flood plain. Expect to budget £250 to £500 for searches.
CHAPS/Telegraphic transfer fees
Unfortunately, paying for your new home isn’t a matter of a few taps on internet banking.
You may also need to fork out for ‘CHAPS’ or ‘telegraphic transfer’ fees, to cover the cost of your lender sending the mortgage money to your solicitor, and then your solicitor making sure the purchase price gets to the right place at the right time. That’ll be another £20 to £50 for each, please.
Land Registry fees
When you finally buy your home (hurrah!) you’ll also have to fork out for the Land Registry to register your name as the new owner.
The registration fee will depend on how much you pay for your home, and will be cheaper if it’s all done electronically.
Your solicitor should sort all this out, but to get an idea go to this calculator on the Land Registry site, select the option “Transfer of whole for value” and pop in the property price. So for a £200,000 property, the electronic fee to register the property would be £95.
Then add on another £70 to register a mortgage, and another £15 if you’re registering a brand new property.
Disbursements
One way or another, there are bound to be some added extras on your solicitor’s bill, whether it’s a few pounds for a copy of the title deed from the Land Registry when you’re selling somewhere, postage for zapping stuff back and forth, or payments for money laundering and fraud checks. Expect to bump up the bill by at least another £50.
Removal fees
If you’re a true minimalist, you could probably just chuck everything you own in a back pack and mosey on down to your new pad.
But the rest of us need to work out how to move a mountain of belongings. This could mean anything from hiring a van, to hiring a man with a van, to booking an actual, genuine removal firm with appropriate experience and insurance (check out members of the British Association of Removers).
Top tip: if you’re paying for a removal firm, it doesn’t cost that much more to pay them to do the packing for you.
Removal fees can end up costing anything from £100 for van hire up to a couple of grand for moving a big houseful (plus the contents of your cellar/shed/garage/garden furniture etc etc)
New keys
You’ve finally got the keys to your new pad! Many cheers. But you might not want to keep them for long.
If you’re moving to a new home, it’s good idea to change the locks and get brand new keys. That way your seller – or anyone else they might have given a key to – can’t just nip back in if they feel like it.
Now – over to you. Any extra costs to consider? What costs surprised you, whether you’re hoping to buy, or bought before? Do share in the comments, I’d love to hear!
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A great reminder of why we have decided to stay put and renovate our home rather than move. The stamp duty ‘saving’ is paying for the first chunk of the project 🙂
Author
Moving house is so expensive! Glad you’ve been able to improve not move, and use the money where you can see the benefit.
Another recommendation for L&C. We used them for our last mortgage. So easy and at a time to suit you.
When you list out all these costs, it’s no wonder you feel broke the day after you move into your new home. Thanks for listing all of them out.
Author
Glad L&C worked well for you too! It’s amazing how it all adds up.
It is so expensive! I had no idea about some of the expenses before we started the process of buying our house. We luckily managed to negotiate £1000 knocked off the price of the house after the searches because of a wonky chimney (which we have left wonky) and that helped with the solicitors fees, but like you’ve outlined in your post, there are so many costs involved that you don’t necessarily think about beforehand.
We’ve just stuck on a kitchen/diner extension and 2nd bathroom on our house and we now have all the space we’ll ever need, so we avoided all of the moving costs. But when we last moved we used an online solicitor that was recommended to us (in fact we’ve used them twice as my mother in law used them shortly after us when she downsized) and they were FAB both times! Much cheaper but more efficient than our local solicitors.
Author
Brilliant that you’ve been able to extend not move, and also brilliant that you found an efficient solicitor – makes such a difference!
How does the Pandemic changed in market? As I know the transaction numbers and house prices have been rising since the start of the stamp duty holiday.
Author
Hi Jacob – The stamp duty holiday has sent house prices soaring, but don’t think it’s necessarily made other costs of buying a house more expensive. Issue is more the delays in the conveyancing process, complicated by people working remotely due to coronavirus.
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