How to move house without nasty surprise costs.

By Iona Bain

Fees are nasty little things. Make sure you look out for these extra costs!

When you are focused on securing your mortgage, your property, and your completion, it’s easy to overlook the need to scrutinise any extra costs -especially unnecessary ones.

Brokers and add-ons

Your mortgage lender and/or broker will try and sell you a home insurance policy. They may say it has the best features and good value. But it is highly likely that you can do better by scanning the market.

When you do settle on a policy, remember the price you have been offered will be rock bottom because the insurer is trying to sign you up as a customer.  You can bet that they will hike up the price in a year’s time when you come to renew, and, for the same reasons, you can probably do better by scanning the market when that time comes.

Your broker or lender will probably also ask whether you have life insurance or a critical illness policy or any insurance  to cover you if you have to be off work through an accident or sickness, or you lose your job, and are unable to keep up the mortgage payments.

This is the point at which, in the past, so much payment protection insurance (PPI) was sold as an add-on to the customer who had just borrowed £150,000 and wasn’t going to argue about another £20 or £30 a month for what sounded like a sensible safety net. But many of those policies were unsuitable and unlikely to pay out.

Nowadays, your mortgage application will probably include questions about life insurance and critical illness cover. Life cover will only pay out on death or terminal illness, while critical illness cover pays out on certain tightly-defined medical conditions.

Unlike PPI, these generally pay out lump sums, not a monthly income.  These should be considered as part of your overall financial strategy - for instance, do you have any dependents, do you already have life cover through your employment, how worried are you about critical illnesses, and so on.  

If you do want to insure against accidents, sickness or unemployment, there are good value ‘income protection’ policies available from brokers and online. Investigate the options and then shop around before deciding what you need, and don’t be bullied into signing up for a policy just because a lender or broker suggests it, or makes you feel it is part of the deal.

Want a breakdown to mortgage brokers and mortgages? Take a look at this article.

Mortgage fees

Many mortgages have a booking fee, which might be £100 to £200, and is paid to secure a particular mortgage. It is paid upfront and is non-refundable.

Many also have an arrangement fee which could be anything up to £1,500 or £2,000.  The most attractive headline interest rates will normally come with a fee of at least £1,000, and your broker should have worked out for you whether the savings you will make over what might be only a two-year period are worth a big fee.

You may be offered the option of adding the arrangement fee to the mortgage.

It sounds appealing, but remember that is effectively adding another £1,000 or more to the purchase price (if you are allowed to) and therefore paying interest on it over 25 or 30 years.  That makes it an expensive fee.  But paying the fee upfront does bring a risk that the deal will fall through and you will lose your money.

One solution is to agree to add the fee on to the mortgage, but earmark some savings to pay it in cash after the deal goes through, say in the first year.  Most mortgages allow a repayment of up to 10 per cent extra each year as ‘overpayment’, and this is a good idea anyway if you can manage it.

Other fees

Then there is the valuation fee. A ‘free valuation’ is often a perk of the mortgage, and as it would otherwise cost you £200 to £400 it is not to be sneezed at.  But remember; lenders are not surveying the property, or even really estimating its value, only checking whether it is worth enough to cover what they are lending. Valuations are said by some insiders to sometimes be no more than ‘drive by’ checks by a surveyor on a property, to see that it appears to confirm with those around it which have a known market value.

In Scotland, the seller has to provide a Home Report, which does include a valuation. This can be useful to you as a prospective buyer, because you can ask for a new report if it is more than three months old, and you suspect the property is over-valued perhaps because prices in the market generally or the local market have been under pressure. If prices have been going up, on the other hand, you can ask for a ‘re-type’ of the existing report.

If you’re using a broker, he or she may charge you a fee – £250 is fairly typical. The broker may well also be earning commission from the lender (in the form of a Procuration Fee) , which will be declared in the mortgage offer. Good brokers will be open to negotiate on the fee if they are already getting the commission – so be prepared to haggle. They will not usually ask for an upfront fee –  unless it is to be refunded later when they earn their procuration fee.   Otherwise, if you don’t pay you risk losing that fee if the deal falls through for other reasons.

Stamp duty

Stamp duty is paid to your solicitor, who then passes it to HM Revenue & Customs when the property purchase completes. It is always paid upfront.

In every area of the UK bar Scotland, properties up to £125,000 are exempt, then you pay 2 per cent on value above £125,000 and up to £250,000, and 5 per cent on the portion above £250,000 and below £925,000. There are higher rates of 10 per cent and 12 per cent, but these are not normally a concern for first-time buyers.

In Scotland, the duty threshold is £145,000, but the 2 per cent band only goes up to £250,000. Then it’s 5 per cent up to £325,000 and 10 per cent up to £750,000 – so much steeper rates for all properties above £325,000.


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