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House purchases: some of the costs to expect
Despite the rising inflation rate, which is starting to impact consumer spending, the housing market is staying strong and defying predictions of a Brexit-related slump. In April, asking prices from sellers hit a new record high of more than £313,000 surpassing the previous high of £310,471 recorded in June 2016.
As asking prices rise so does the cost of the deposit that will be needed when it comes to purchasing a property. It’s not just getting the deposit together which is proving difficult and expensive for would-be homebuyers as there are plenty of additional costs, some expected and some unexpected, which come along with buying a house.
- Deposit – The most obvious, and usually biggest, cost of buying a house is the deposit you will need to put down on it. Although, the government have made it easier by lowering the deposit amount to 5% of the property value, this can still be a lot to save up. Plus the less money you put down on the property, the higher your interest rate will be.
- Stamp duty – If you buy a house with an asking price of £125,000 or more, you will have to pay stamp duty on your property. The amount you will have to pay ranges from 2% of the asking price to 12% however for second homes, you will pay stamp duty regardless of price.
- Mortgage set up fee – Also known as arrangement fee, this is the cost your lender charges for arranging the mortgage for you. These fees can range from £100’s to £1000’s but in many circumstances, it can be added to the overall cost of the mortgage to pay off over the mortgage term.
- Valuation fee – This will need to be paid upfront to your mortgage lender and is usually non-refundable even if the house sale does not go through. The lender makes a quick valuation of the property to ensure what you are borrowing reflects the property’s value – if there is a big difference in these numbers, it could be a sign you are over or under-paying.
- Survey fee – Again, this will need to be paid up front, either to a surveyor or your lender. This differs from a valuation as it looks at the property and will highlight issues including damp, structural problems, plumbing, electrics and more. This will cost anywhere up to £700 depending on which of the three tiers of survey you opt for.
- Legal costs – This will cover the costs of dealing with the transfer of ownership, checking paperwork and planning permissions, it is also likely to include an electronic transfer fee for the transfer of mortgage funds from lender to solicitor. These costs vary quite a lot and are likely to be paid on completion.
- Searches – These are likely to be included in your legal costs. The searches include environmental, land registry, coal authority etc. which will look into the local area and make you aware of any issues that could affect the property and your intention to buy.
- Land registry fee – This may also be included in your legal costs. It will be paid after completion and will transfer ownership of the land into your name. The exact cost of this is usually dependent on the cost of the property you are buying.
- Moving costs – Unless you have very few belongings, it is likely you are going to need to hire a van or use removals services. These prices vary quite a lot depending on how much you need to move and how far you will be moving. Also factor in costs for storage facilities as these can be useful for storing non-essential items until you are settled.
- Estate agent’s fee – This is a fee only seller’s pay and again, they vary in price depending on which type of agent you use. Online only estate agent tend to offer a fixed fee paid upfront which can be cheaper but is often non-refundable whereas traditional agents fees are around 1-3% of the final sale price and are payable on completion.
- Initial bill payments – It is worth keeping in mind the cost of setting up household bills in the new property and paying off bills relating to your old property. Usually the initial payment is slightly more expensive so it is worth keeping some money aside to deal with these costs.
- Furniture, household goods etc. – When you buy a house, you will want and need new furniture, household goods, paint, wallpaper, curtains etc. If it is your first house, you will need a stock of general household items such as cleaning products etc. All this quickly adds up so try to obtain only necessary items first.
- Legal contracts – These are optional but worth considering for typing up any loose ends. If you are buying a house with someone you are not married to, a declaration of trust is worth considering; this will stand as proof of the ownership status of the house and how much each party is entitled to should the house be sold. A will is also worth considering as this will put into place your wishes on who will have the rights to your share of the house and your possessions should you pass away. Both documents will protect your share in the property and are safeguarding measures should the worst happen.
To find out more about the costs of buying a house, speak to a conveyancing solicitor, estate agent or independent financial advisor (IFA).