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Don’t overlook these 10 house-buying costs
Buying a property is an expensive business, and it's not just the deposit you'll need to save for.
by Michelle McGagh on Nov 22, 2012 at 12:13
You’ve scrapped together the money for a deposit on your first home, and although you’re already parting with a hefty amount of cash you need to factor in a host of other costs that you will have to pay for.
Gone are the days of the 120% mortgage so everyone these days needs to get a deposit together if they want to get their foot on the property ladder – typically 10% of the price of the property you want to buy.
But you also need to budget for these 10 largely-unavoidable costs.
1. Stamp duty
After saying the costs are unavoidable, this one can be avoided if the property you are purchasing is costing you £125,000 or less.
Stamp duty then increases with the purchase price of the property. You pay 1% of the purchase price if the property costs £125,001 to £250,000; 3% on properties between £250,001 and £500,000, 4% on those between £500,001 and £1 million; 5% between £1 million and £2 million; and properties over £2 million pay 7%.
Many people believe they can just add the cost of stamp duty on to their mortgage, but it has to be paid separately. Either you will have to save money to cover this cost or, if you have a large deposit, take some of that money althought that will leave you borrowing a bigger proportion of the purchase price. This will cost you as the higher the loan-to-value (LTV) ratio the more you will pay in interest to the lender.
2. Mortgage arrangement fees
Lenders won’t offer you a mortgage out of the goodness of their hearts, or just for the interest they will earn on the loan, they will also charge you arrangement fees for, you guessed it, arranging the mortgage.
These fees can also be called booking fees, completion fees or administration fees, but they all go towards the cost of setting up your mortgage. According to Moneyfacts.co.uk the average cost of arranging a mortgage at the beginning of 2012 was £1,498 (up from £1,201 at the beginning of 2011).
As you can see, the mortgage fee can be a considerable cost so you must take it into consideration when choosing the best mortgage rate. If you are borrowing a lot of money and have a longer fixed rate mortgage deal then the fee won’t matter so much, but if you are borrowing a smaller amount and plan on changing your deal in a couple of years, the fee will have a much more significant impact.
3. Valuation fee
Lenders want to know exactly how much the property you want to buy is worth. Their loan to you is secured on the property so they want to make sure it’s not worth less than the mortgage. A valuation is often based on a cursory visit by a surveyor. Nevetheless, many lenders will charge you for it.
However, some lenders will offer a free valuation, a set valuation cost or an escalating valuation cost depending on the cost of the property – the more it costs the higher the valuation fee.
Before making what is sure to be one the biggest purchases of your life you should make sure that what you are buying isn’t going to sink into the ground or fall apart. This is where a survey comes in.
There are three different types of survey providing different levels of detail – the more detail, the more costly the survey.
If you are buying an unusual property, for instance a period cottage or a large country house (in other words a place where lots of things could go wrong), then it’s worth getting a Buildings Survey done.
A building survey will give a full report on the condition of the building, what repairs are needed and details of any concealed problems such as damp. It will also provide recommendations for how to remedy any problems.
According to the Royal Institute of Chartered Surveyors (Rics) the minimum you should spend on a building survey is £750.
The second type of survey is a Homebuyers Report which focuses on urgent repairs and any other significant problems. The surveyor will flag anything they think needs further investigation but will not report any minor problems that could be corrected by a bit of elbow grease or general maintenance. Homebuyers Reports cost around £400, according to Rics.
The final type of survey is a Condition Report which is around £250. This is a general health check for the property and is not as detailed as a Homebuyer Report.
A Rics spokesman warned about choosing the cheapest option: 'Anything much less [than the figures provided], then would-be clients should ascertain how the surveyor is able to carry out the instruction in accordance with Rics guidance and question whether the report is providing value for money.'
There is no standard price for legal work relating to a house purchase so it’s worth shopping around for the best deal.
The solicitor will not just charge for their work but will also add in the cost of Land Registry fees (see below), and doing ‘water searches’ to check that there aren’t any changes being made to the sewage and water system.
6. Land Registry fees
These fees will often be rolled up in the amount you pay your solicitor but they are worth noting because they vary depending on the value of your property. The Land Registry is the government department that holds details on who holds what land and property in England and Wales.
If you are buying a property up to £40,000 not only have you got a bargain but you pay just £40 to the Land Registry to register you as the new owner.
The prices go up incrementally to £300 for properties worth between £200,001 and £500,000, and to £800 for properties over £1 million.
7. Money transfer payments
Another little cost that will add to your total. The lender will charge you between £20 and £25 for transferring the money you borrow to pay the seller for the property. These are also known as telegraphic transfers.
Buying a property for the first time should see you taking out some insurance cover that you have not had to before. The first is an obvious one; buildings and contents insurance. Buildings insurance covers damage to the property such a fire, flood or subsidence, and contents insurance (which can be bought with buildings insurance or separately) covers all your possessions.
You should also consider life insurance, particularly if you are buying the property with someone else. Taking out life insurance for the amount left on the mortgage means that in the event that you die the person named on the policy – the person you bought the property with – receives a lump sum to pay off the remaining mortgage. This is useful if the person you leave behind cannot afford to pay for the mortgage themselves.
The costs don’t stop once you’ve got all the paperwork out of the way and have the keys in your hand. You will need to move into the new place, and unless you have a van, or a friend or relative with one, you will need to pay for moving all your things into your new home.
You can hire a removal company to move your things but if you want to save money, and have a driving licence, you can rent a van and do it yourself.
10. New furniture
If this is your first home you may have previously rented places that provided furniture, electrical goods and even kitchen utensils, so it’s worth making a note of the things that you have and, more importantly, haven’t got.
If the property you’ve bought doesn’t have a washing machine then you’ll need to have a budget for one, unless you want to endure endless trips to the launderette. Having a sensible budget for basic furnishing and immediate DIY jobs is essential to make sure that the move into your new home is as comfortable as possible.
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