Understanding the true costs of buying a home
When it comes to purchasing a new home, it’s not just about the property’s price tag. There are a LOT of ‘hidden’ costs you’ll need to budget for – and they can add up to thousands of pounds.
Budgeting for these expenses will give you a better idea of how much you need to save, and what mortgage you can afford.
Here are 10 potentially unknown costs that come with owning a home – both before and after you’ve bought it.
For most first-time buyer mortgages, you will need a deposit of anywhere between 5-25% of the purchase price of the home. On average, you’ll be alright with a 10% deposit. So if you’re buying a £200k home, that’s £20k.
- STAMP DUTY LAND TAX (SDLT):
This is the Government tax you pay on land or property at the time you’re buying. Depending on the Government position at the time, Stamp duty rates can be anywhere from 0-5% of the property purchase price for homes under £925k.
- MORTGAGE ARRANGEMENT FEE
Lenders often add fees to the mortgage loan, in addition to your mortgage interest. This could be in the form of an arrangement fee that could be up to 1% of the mortgage loan. This can also often be added to the monthly mortgage payment so you don’t need to pay upfront.
- MORTGAGE BROKER FEE
Having a good broker can save you both time and money.
However, you don’t always need a mortgage broker as you can often apply directly to many lenders, but some lenders insist on working only with mortgage brokers and a good broker would help you find the best deal for your circumstances.
Many brokers don’t charge you anything because they earn money from the Lender, however, some brokers could still charge you a fee up to £1000.
You can book a free appointment with a mortgage broker if you’re signed up to MortgageLadder.
- VALUATION FEE
The mortgage lender will assess the value of the property to establish how much they are prepared to lend you. The cost can be £150 – £1,500 based on the property’s value but can often be added to the monthly mortgage payments so you may not need to pay upfront.
- SURVEYOR’S FEE
In addition to a basic valuation, some buyers may want to carry out an additional survey to assess the condition of the property to check if there are any problems. This is optional and costs can vary from £250 to £1000.
- LEGAL FEE
You’ll normally need a solicitor or licensed conveyor to carry out all the legal work when buying your home. These fees are typically £500-£1,500 plus VAT at 20%.
- HIGHER LENDING FEE
This only tends to apply if your mortgage has a high loan-to-value (LTV), meaning you’re borrowing a large part of the property’s total value. This can include 95-100% mortgages.
Lenders add it to cover any increased risk they take on by giving you a mortgage. Usually due on the day of completion, you can pay this fee upfront, or add it to your mortgage and pay interest on it.
The size of the fees depends on how much you borrow and what your loan-to-value ratio is, but it tends to be around 1.5% of your mortgage.
- CONVEYANCING FEE
This is what your solicitor/conveyancer charges for the legal work that comes with buying a house. This covers everything from transferring ownership to checking environmental factors. You’ll usually have to pay costs as they come up. The total expense is generally between £850-£1,500.
- INSURANCE FEE
Lenders will often require you to take out building insurance to cover your new home against damage from fire, flood, subsidence, etc. The cost of this can be spread monthly and would typically be £20-£100 per month.
In some cases, you may also be asked to take out life insurance which can also be a similar budget amount to building insurance depending on your personal situation and age.
- REMOVAL COSTS
If you have little furniture and energetic friends, you can do this for free. But if you have a lot, then removal costs can range from £350 to several thousands of pounds.
- REDECORATION & FURNISHING COSTS:
It is possible that your new home needs some form of redecorating and the costs of this can vary considerably from a few £100s to £1000s depending on what work you’re doing.
If you’ve bought a ‘fixer-upper’ or are moving from a furnished place, you may need to pay for furniture and renovation to make your new house a home. If your budget doesn’t stretch that far, you might consider taking out a home improvement loan, 0% purchase credit card, or similar.
As you can see, the mortgage repayments aren’t the only thing that will have you counting sheep at night. The world of property can feel like a minefield! So it’s important that you do shop around and ask for quotes because hidden costs can drastically increase the budget you have for your first home.
So plan ahead, budget wisely and enjoy the ride!
Need help in the home buying journey?
Luckily, we’re here to offer a helping hand, as part of our mission to lower the age of first time buyers. From saving up to moving in, we help you fasttrack your path to homeownership.
So for more information on how to own your home quicker, sign up for our free web app at mortgageladder.com
About the Author
CMO. MortgageLadder. Using the art and science behind marketing, I strive to deliver an enhanced brand experience to our users. My background as a data scientist allows me to make data-driven marketing decisions that support business growth. I’m fond of great books, fitness and sweets!