Many buyers underestimate the total costs of buying a house. To help understand the main expenses you will face, here is a guide.
For many, especially first time buyers, this is the most difficult thing to find. In the past some lenders would consider lending the entire purchase price with a 100% mortgage. Others would offer up to 95% of the value of a home and then a further 30% of the value as an unsecured loan. As a result of the significant changes to mortgage lending introduced in April 2014 that lenders now face, this is no longer the case.
It is still possible to obtain a 95% mortgage from some lenders including large High Street lenders and smaller Building Societies, but their criteria and underwriting (assessment of you and your circumstances) is strict. As borrowing a large proportion of the value of your house presents the lenders with a higher risk of losing money if a borrower defaults, the interest rates on these schemes can be higher than with lower loan-to-value mortgages.
Although lending conditions are easing you will ideally need a deposit of 10% -15% of the purchase price in order to attract more attractive interest rates. Larger deposits of up to 25% are needed for new build flats and apartments, due to these suffering some of the greatest price decreases over the last few years. The higher the total deposit, then generally the lower the interest rates available.
Stamp Duty Land Tax (SDLT) is a tax payable on any residential property costing more than £125,000 and is paid to HM Revenue & Customs by your Solicitor upon completion of the purchase. The rates were revised in the 2014 Autumn Budget and became effective on 4th December 2014. SDLT is charged at different rates depending on the portion of the purchase price that falls into each rate band:
- Up to £125,000 = nil
- £125,000 – £250,000 = 2% (i.e. up to £2,500)
- £250,000 – £925,000 = 5% (i.e. up to £33,750)
- £925,000 – £1.5 million = 10% (i.e. up to £57,500)
- Over £1.5 million = 12% (uncapped)
The total charge is found by adding the sums within each band up to the purchase price. So for example a purchase at £325,000 would incur a stamp duty charge of £2,500 + £3,750 = £6,250.
A Solicitor will need to act for you in the purchase. They will make all of the necessary legal requirements to transfer ownership of the property to you. Depending on the property value you should budget for fees of £500 – £1500. On top of this you will have to pay ‘disbursements’ which are paid to other organisations for local, environmental and water searches, and to the Land Registry who record your new ownership of the property. Depending on your local council the range of these costs is £250 – £300.
Survey / Valuation Fees
All mortgaged property needs to be valued by an independent valuer. A basic report is needed by the lender, but a more detailed survey known as a Homebuyers Report is often recommended for the buyer. This is especially true where the property is older or has unusual features. Fees are usually on a sliding scale based on the valuation, from around £250 for a basic report on property valued at up to £100,000, to approximately £400 for a £300,000 property.
Homebuyer Report fees are around double the basic report costs but a much more detailed survey is produced, giving information and reassurance. A full structural survey will cost you more although this is designed for properties with specific areas of concern regarding its construction or structure. These types of report are rarely needed for straightforward home purchases.
Product fees are often charged by the lender for specific deals, such as fixed and tracker rates. These vary between £300 to £1,500 or more. Often the fee can be added to the loan and repaid over the life of the mortgage, but the fee must be factored in to the overall costs of the loan to compare whether the deal is attractive or not in relation to others with smaller or no fees.
Higher Lending Charge
Where a lender grants a mortgage above a certain amount, often 75% of the valuation of the property, they are required to arrange for their own protection some ‘additional security’. This is usually an insurance policy which would make good any losses they suffered in the event of a repossession and sale, where the sale price does not cover the mortgage debt.
Many lenders meet the cost of this insurance policy, but with tight lending restrictions in place it is possible more and more lenders will begin to pass on the charge to you. Higher Lending Charges, as they are known, are usually added to the loan and repayable over the life of the mortgage and will depend on the amount borrowed above the threshold. As costs vary widely you should ask your adviser whether this fee will be charged, how much it will be and how it is payable.
Mortgage Adviser Fees
The process of searching and applying for the most suitable mortgage is now longer, more involved and more difficult than it used to be, and many mortgage advisers now make a charge for their professional services. A mortgage brokers who claim to be ‘independent mortgage advisers’ must offer a choice of either a fee plus them keeping any commission received from the lender, or a larger fee and then refunding the commission to you when it is paid, often some time after the mortgage starts.
Bear in mind that if the adviser does not charge a fee then their only source of income is the commission payable. This could arguably bring into question their motives for choosing a particular lender.
Typical fees can be £250 – £750 where commission is receivable, or £1,000 – £1,500 where it is paid to you.
The total costs of buying a house will therefore vary depending on the value of the house you buy but you need to understand all of them, and when they are payable, before committing yourself.