When buying a house, the first thing you should always do is work out your budget. But it is not just the mortgage amount that needs to be considered when purchasing property, there are many other costs that need to be included such as the deposit, stamp duty and legal fees. We have put together this guide to help you set a realistic budget with no nasty surprises.
How Much Deposit Will I Need?
There is no set amount for a deposit but the general rule is that the larger the deposit, the better the mortgage deal. To make the most of the good rates that lenders are offering you typically require a minimum of a 5% deposit, especially for first time buyers.
However, there are government schemes available such as Help To Buy where deposit contributions range from between 5% and 20%. Most mortgage providers and solicitors will ask for both proof of deposit and the source of the deposit.
If it is a gift or loan from a family member or friend this could complicate matters under the Anti-Money Laundering laws so it is essential that you have all the correct paperwork in place otherwise this could delay the buying process. Your chosen legal representation can advise on this.
Understand You Mortgage Arrangement Fees
Most mortgage lenders charge an arrangement fee to cover the costs of setting up your mortgage. The amount varies quite substantially between providers so it is important to understand what they are before you progress with the mortgage.
Sometimes the offers that look like a good deal with a low interest rate incur the largest arrangement fee. You can add this fee on to your mortgage which avoids the initial outlay but you will end up paying interest on it.
How Much Stamp Duty will I have to Pay?
Stamp Duty is a government tax paid on all homes and land purchased in England, Wales and Northern Ireland costing over £125,000. Scotland have their own Lands and Buildings Transaction Tax.
This additional cost can be quite a large amount so it is important to factor this into your budget at an early stage before you start viewing properties. The Stamp Duty owed is based on the price paid for the property.
|Property Price||Stamp Duty Rate *|
|£0 - £125,000||0%|
|£125,001 - £250,000||2%|
|£250,001 - £925,000||5%|
|£925,001 - £1,500,000||10%|
|£1,500,001 and over||12%|
One important point to note when trying speed up the purchase process is that when buying a new house, if there is a delay in selling your home, you will have to pay the higher Stamp Duty rates as you will officially now own two properties.
However, you can request a refund for the amount above the normal Stamp Duty rates if you sell your previous main residence within three years, and you claim the refund within three months of the sale of your previous main residence, or within 12 months of the filing date of your self-assessment tax return, whichever comes later.
Stamp Duty must be paid within 30 days on completing the purchase of your new home.
Mortgage Valuation Costs
All mortgage lenders require a valuation of the property to check that it is worth the price being paid. Even though this is a request from the mortgage provider, you usually have to cover the costs. There are some exceptions where the lender will waive this fee, which is usually offered as an incentive for you to take out your mortgage with them.
The cost will depend on the size of property, starting from about £150 for smaller, more simple valuations on newer houses, up to £1.500 for larger and more complicated structures such as older and listed buildings.
What about Survey costs?
On top of the valuation commissioned by the mortgage lender we do advise that you have your own independent, more detailed survey carried out to check for any defects. Additional surveys vary in price depending on the level of detail.
A condition report is most suited to a newly-built property or a property in excellent condition and normally costs around £250. The next is a Homebuyer's Report, which is suitable for modern and older well maintained standard houses and costs from about £400 depending on the value of the property. The more comprehensive Building Survey, which is more detailed and structural, can cost anything up from £600 plus VAT, and also depends on the value of the house.
Land Registry Fees
When you buy a property from someone else, the Land Registry charges a fee to transfer property registration entry from the seller’s name into yours. This fee can range from £40 up to nearly £1,000, depending on the property value and is collected by your Solicitor after completion.
How much are the legal fees?
When taking on a solicitor to manage the legal side of a house purchase, it is advisable to get an upfront quote before you kick off the house buying process. The legal responsibilities, known as conveyancing, include drawing up contracts, managing Land Registry, arranging the payment of stamp duty and transferring the payment for your property. You will also have to pay for money transfers between mortgage lenders, conveyancers, buyers and sellers, and for searches.
If you're buying a leasehold property, you'll also need to pay a fee, which usually remains the same whatever the price of the property.
Fees can range from about £500 up to £1,500 depending on the work needed and the firm you go for. If you’re buying and selling a property at the same time your conveyancing fees will be higher, as your conveyancer will need to carry out work for both transactions. Usually, when buying and selling, you’ll pay up to £2,500.
Removal costs can vary greatly depending on the company, the distance of move, quantity that needs moving and level of service required. You are best to obtain quotes from at least 3 different removal companies.
Charges usually start from £1,000 for a basic removal with a small van up the many thousands., especially if you use a packing up service.
Additional Costs to think about
When taking on a new property other costs may need to be considered, especially if you are going up the property ladder to a larger house: