The deposit for your mortgage is going to be the most expensive part of buying a house; it’s the part that people spend years saving up for.
But, sadly, the financial burden of buying a property doesn’t end there. There are many hidden costs on top of the expected ones that can amount to up to 10% of your overall costs, so these need to be budgeted for. Here we offer the most important hidden costs in buying a property (that aren’t to do with actually moving house, which you also need to budget for!).
We touched upon this briefly in our blog, How to avoid paying too much for your house: the Stamp Duty Land Tax (SDLT) is the tax you pay for buying a property on freehold, leasehold or shared ownership residential properties above £125,000. The amount you pay depends on the value of the property you are buying. If property costs between £125,001 and £250,000, the SDLT is 2%, £250,001 to £925,000 is 5%, £925,001 to £1.5 million is 10% and anything over that is 12%.
But that doesn’t mean if you buy a house worth £275,000, you pay 5% of that amount (£13,750). You would instead be taxed 0% on the first £125,000, then 2% on the next £125,000 and then 5% on the final £25,000: a total of £3,750.
Bear in mind that if you are buying a second property, thanks to the new Stamp Duty Changes from April 2016, you will be paying an additional 3% tax on top of the above.
Scotland, however, does not have Stamp Duty, but the Land and Buildings Transaction Tax. In Scotland, you pay 0% tax on any property with a value up to £145,000, 2% on properties above £145,000 up to £250,000, 5% above £250,000 to £325,000, 10% above £325,000 to £750,000 and anything over that is 12%. Scotland also has an extra 3% on additional properties, except they call it Additional Dwellings Supplement.
If you are intending to buy for your child, then you will still need to pay the extra Stamp Duty tax. This won’t apply if you are helping them pay for their deposit.
A survey is an inspection of the property to check its condition and report on any structural problems. Most lenders will expect you to pay for this yourself, and can cost anywhere from a few hundred pounds to more than a thousand, depending on your property value.
The price of the survey will also depend on whether you get a full structural survey or a basic one. Some people choose to get a basic survey but change to a full survey if any red flags are waved.
Paying for a full survey has the advantage of being able to expect a great service and you may even be in a position to take legal action if they miss any problems with the house. Any problems your surveyor does find, however, will give you greater bargaining power with the seller.
This is the word given to the legal work involved in buying a house. It includes land registry and local authority searches and, for leasehold properties, an examination on the lease to find out about any further hidden costs or conditions.
It’s important to get a solicitor that you believe in for this part of the buying process. Many first-time buyers fear conveyance because the efficiency of your solicitor can mean the difference between hitting your deadline or not. We recommend you choose a solicitor based on reliable recommendations, although many lenders will only accept a solicitor if they are on their own panel of firms. Be sure to check that your chosen solicitor is able to act for your chosen lender.
If you are unable to get a recommended solicitor, try to get three quotes and decide which works best for you. These quotes may have hidden costs of their own, so check that they include things like letters and postage, bank transfer fees and VAT.
The prices will vary with location and value of property, but expect to be spending somewhere between £1200 and £1500.
Mortgage Arrangement Fees
As Monty pointed out in his blog, you have to be careful about which mortgage you go for – the headline rates do not necessarily mean the value will be there. Arrangement fees are added on by lenders and may be a set number or a percentage of the property value, although the average is about £1000. You may be required to pay upfront, or the lender might add it to the mortgage.
Another fee you might find yourself with, especially if you are going into the mortgage with a low deposit, is a Mortgage Indemnity Guarantee (MIG), also sometimes known as Mortgage Indemnity Insurance, among others. With words like ‘indemnity’ and ‘guarantee’ you might think these sound like added protection, but in fact, offer no benefit to you, the buyer. They are to be avoided if at all possible.
We’re sad to say the unexpected costs don’t really end there, as there are other moving costs to consider. These include removal services, new furniture, parking charges and ground rent among others. That’s not even to mention the fees that come up once you actually have your mortgage, although we shall cover that in another blog. If you want to come in to talk to Coreco about how to properly budget for your purchase, we’d be glad to help! There are no hidden fees in your purchase that will stay hidden from us. Just drop us a line at our contact page, we’ll be very glad to hear from you!