Additional costs of buying a house

You’ve found the home of your dreams and it’s within your budget, whether you’re a first-time buyer or a home mover it feels like a dream come true! But have you prepared for the additional costs of purchasing your new home?

There are a number of hidden costs associated with buying a property that you may not know about until you start your mortgage application, so we’ve put together an overview of a number of costs you might need to be prepared for.

Stamp duty

Stamp duty is a government tax that can add thousands of pounds to the cost of purchasing a property. It is a tax on homes of which the thresholds and first-time buyer exemptions vary in England, Northern Ireland, Scotland and Wales which is why seeking professional tax advice is so important.

If you’re purchasing a second property or a buy-to-let investment then there will be an additional stamp duty surcharge to be paid on top of the normal amount so it is worth seeking professional tax advice before making a purchase.

Conveyancing

These are the fees for the legal processes when buying your new home. They include various local searches on your potential property to check, for example, if it’s a listed building or located in a conservation area.

The cost of conveyancing fees can very depending on a number of factors like the value of the property, whether it’s freehold or leasehold and the local searches that need to be completed.

Surveys and valuation fees

Your mortgage lender will carry out a valuation survey that will look solely at the property’s worth – it doesn’t cover structural issues and won’t highlight any problems with the property, and you may be liable to cover the costs as part of your mortgage product. Dependant on the property that you’re buying you may want also want to commission an independent report to highlight any structural issues and problems.

There are different types of reports which will examine the property in different ways so it worth seeking professional advice before you go ahead with one. Depending on the property’s value and what type of report you go for this could cost anywhere from a few hundred pounds to over one thousand pounds.

Mortgage arrangement and other fees

These fees are sometimes charged by mortgage companies and will vary depending on each lenders stance and which product is selected. Some lenders might insist that you pay the fees up front which means you won’t be paying interest on it – others might add it to your mortgage which could be better if you can’t afford another financial outlay at the time of purchasing your new home.

There are also potentially a number of other fees you may need to be prepared for such as administration fees and electronic transfer fees to name a few. All lenders will take a different approach with regards to costs which is why a mortgage adviser can be so invaluable. We do not charge any fees for our mortgage advice.

Estate Agent Fees

It is important to factor in estate agent fees if you are selling your current home at the same as purchasing your new one. But, if you’re a first-time buyer, don’t worry, the seller will cover these costs!

Insurance

It is important you have the correct protection in place in case the worst should happen. Life insurance, critical illness cover and income protection can all provide a source of money for you or your family in your time of need which can help cover the cost of any debts like your mortgage. Whereas general insurance can be used to protect the economic value of your assets against accidents, damages or loss.

Removals or furniture

If you already have your own furniture then you might need to factor the costs of hiring a professional company to help you – unless you have little furniture and very energetic friends to hand!

If you don’t currently own any furniture then this of course is a definite cost you will need to factor in. Unless you’re prepared to sleep on the floor and drink warm milk you’re going to need a bed and a fridge as well all of the other furniture that you will want.

While this is only a brief overview of many of the additional costs you may be faced with when purchasing a home, it does highlight why it is worth seeking professional advice. Your mortgage adviser will be able to find a deal that’s right for you and your personal and financial circumstances.

If you would like to discuss the cost of purchasing a property, contact one of our advisers today!

A Guide To the Fees Charged when you Apply for a Mortgage

Most people base their decision on the interest rate being charged, the number of years the rate is available and the type of mortgage it is.house_2171105b

But before you plunge ahead, you should stop and look at the fees.  While interest rates have tumbled over the past few years, mortgage-related fees have shot up and can now easily add another £2,000 onto the overall cost of your mortgage.

To make matters worse there’s a whole list of charges and different lenders can have different names for each. Here’s a rundown of what you need to know:

Booking fee: A booking fee is charged upfront and pays for ‘booking’ the loan while your application goes through.  It can also be known as an ‘application’ or ‘reservation’ fee. A booking fee is usually around £99 but can be slightly higher while some lenders don’t charge it at all.  It won’t be refunded if you end up not taking the mortgage out.

Arrangement fee: An arrangement fee is what you pay for the lender to set up your mortgage. Arrangement fees vary significantly and you could be charged up to £2,000, although the average is about £1,000. You can usually choose between paying the arrangement fee upfront and adding it to the mortgage but it will ultimately cost more to do the latter as you will pay interest on it.  In some cases it can be worth opting for product with a slightly higher interest rate in return for a lower fee, than going for the lowest rate if the arrangement fee is really high.

Valuation fee: This pays for your lender’s survey on the property you want to buy. This is a basic survey which is only to check the property is adequate security for the loan.  The cost of a valuation fee varies considerably and some mortgages even come with free valuations.

Legal fees: Legal fees pay for a solicitor to do the legal paperwork for you – a process known as conveyancing – and are usually charged as a percentage of the mortgage price. Mortgage lenders often have offers where they contribute to these fees or will pay the standard legal fees on a remortgage.

Higher lending charge (HLC): Higher-lending charges were commonly charged on mortgages with high a loan to value. The money from the HLC is often used by the lender to buy an insurance policy which protects itself should you default on the mortgage. Since the amount you have deposited is only small, this covers the lender if your property falls in value after you buy it. The HLC is usually refundable if you don’t go ahead with the mortgage and expressed as a percentage of the loan.

CHAPS fee: This covers the lender’s costs when sending the mortgage funds over to your solicitor.

Own building insurance fee:  This is charged by your mortgage lender for checking you have taken out building insurance if you choose not to buy it from them. The fees are fairly small – around £25 to £50 each.

APR: All mortgages have an APR (annual percentage rate). The APR is calculated to factor in the total interest cost over the whole mortgage term, plus any fees.  In theory this should help you to compare deals but mortgage APRs can be a bit confusing because they only give you the average cost if you were to keep your mortgage product for the full term, which is pretty unlikely. You might, for example, have a two-year fixed rate mortgage at 1.65%, which then moves to the Standard Variable Rate (SVR) of 4.49%. This would give you an APR of 4.2% – but you’d never actually pay that rate as you would remortgage onto another fixed rate. So it’s always better to simply compare the initial rate you’ll pay and also check what the SVR will be when that rate comes to an end.

Early repayment charges (ERC): Most mortgage deals tend to have a short life. For instance, fixed rate, discount and tracker mortgages usually only run for between two and five years, though it is possible to find deals over 10 years. Whatever the term, if you come out of the deal before it ends, you will have to pay an Early Repayment Charge which, in most cases, is charged as a percentage of the loan. These can add up to thousands of pounds so make sure you think carefully about how long you tie in for in the first place.

Exit fee: An exit fee is charged for closing your mortgage account – for example, if you switch to another lender or remortgage to another deal with the same lender. But it can also be charged when you just finish paying off your mortgage. Also known as a mortgage completion fee, deeds release fee or exit administration fee, the cost can now ring in at between £50 and £200.