The cost of buying a house

By Charlotte Yau

Take a look at every cost involved with buying a house, broken down into manageable chunks including unavoidable, costs.

Finally finding the house of your dreams is a wonderful feeling, but the costs involved with securing it can quickly get out of hand if you aren’t careful.

The cost of the house is only one part of what you are paying for; there are many other costs, such as a financial advisor, estate agents, solicitors, stamp duty and much more. Without awareness and understanding of each of these, and good financial planning for tackling them, you won’t be able to buy that dream house.

So, let's look at what you’ll be paying for before it's yours. What are the extra costs of buying a house? Read on to find out.

Unavoidable costs

The cost of the mortgage is one that you may not even notice, as usually it gets added onto the mortgage amount. That’s useful for you when you are trying to pay the other costs of moving and could do without another fee to pay.

The cost of your mortgage can be a few hundred pounds or could be about 1% of the value of the house. Working with an advisor to find what will work best for you will help you afford this fee, but factor it in so that you are prepared if it needs to be paid up front. This mortgage calculator from the Mortgage Advice Bureau can also help you to work out your potential outgoings.

Cost - Up to 1% of the value of the property

You will need your home insurance set up before you complete the purchase of your new home. This is a precaution for the mortgage company as well as for you; it means the house is covered from the start. Get some quotes on home insurance sorted as soon as you can.

Cost - get a quote and check! Usually between £30-60 a month

Stamp duty

If the property you’re buying is under £125,000, you’re in luck - you pay nothing. But over that price what you pay goes up in percentage increments based on the value of the house; from 2% to 5%.

Stamp duty is a tax on the land a house is built on. The property only becomes yours once the tax office registers it to you by providing a Certificate of Land Ownership. This can only happen once they have received the stamp duty.

This tax is unavoidable, but can be dealt with by a solicitor.

There are some discounts available on new build properties, usually by the builders themselves, as well as some regional discounts to help the housing market flow.

Stamp duty is paid on properties over £125,000 and its amount goes up in bands.

£0 on anything up to £125,000

2% on anything from £125,001 to £250,000

5% on anything from £250,001 upwards

So when you work out the budget you have available for buying your home, make sure that you keep in mind the possible cost of stamp duty. Being caught out with this one could be expensive!

Cost - check the calculator if your house is over £125,000

Optional but advisable costs

Financial advisor costs

Not everyone wants to use a financial advisor, but paying for the advice of someone who knows better will keep you in line financially! Your advisor can broker your mortgage and may even find you one that you wouldn’t have found yourself. As they can handle all of these arrangements, it gives you some breathing space to deal with everything else.

Although not cheap, a good mortgage advisor is worth the money. Expect to pay around £250-300 for the privilege of their knowledge. You may find they check up on your finances annually for free once you are with them; a service that could prove invaluable.

Cost - around £300

Solicitors Fees

It is well worth the money to find a good solicitor beforehand to manage the valuations, surveys and deadlines involved with the move. This management of the process is not something you can do easily, and again will free you up to manage other things.

Solicitors fees are anything between £450 and £800 plus VAT, or more, and you will also be expected to pay for local searches such as mining, water and drainage, and environmental on top of this fee.

Are the searches necessary? YES! There are certain issues that only specialists can spot and flag up as a hazard. If found, you can pull out of the purchase. These searches will cost roughly between £30 and £80 each, but differ slightly between local authorities.

Cost - Up to £1,000 +VAT, depending on the solicitor

Avoidable costs

Estate agents fees

If you’re a first-time buyer and an estate agent is going to charge you to buy a house, walk away from them. You should only pay estate agents fees if you are selling a house first, which is typically around 1% of the price of the house.

Cost - Nothing for first-time buyers

Ongoing costs

Unexpected house costs

Always have some money ready in case your new home has maintenance needs. This could be some leaky pipes or it could be a full rewiring job. So, make sure you have some money saved - around £1,000 would be a nice cushion to have ready just in case.

A home buyer survey is a prerequisite of a mortgage, and will tell you exactly what work will need doing. This survey can range from £250 to £600 and beyond, depending on how in-depth you want it to be.

Some lenders will include this for free when you are setting up the mortgage. However, be warned that it is not in the lender’s interest to go into detail. They just want to see if the property is worth being involved with, and may not even agree to share their findings with you. So, if you want to know of any problems the house may have (which you should!), get a more detailed report done privately.

Cost - usually around £400. For more information on this click here.

Leasehold or Freehold costs

Is the house you want to buy leasehold? If so, find out how many years are left on the lease.

Leasehold means that someone else owns the land your house is built on, and you are leasing it from them. That sounds like having a landlord, but the lease length is usually between 40 and 99 years, and can be as much 999 years! Most people prefer freehold as it means you own the house outright. Only around 1.5 million people have a leasehold property.

Mortgage companies sometimes don’t lend on leases less than 60 years. Extending the lease can cost between £8,000 and £20,000, so either get that knocked off the price, or have a contingency to pay for it once the house is yours.

It is also worth being aware that mortgage companies tend to only lend on leasehold flats due to the nature of the structure they are housed within, and buyers will struggle to get a mortgage for a freehold.

Likewise, it is more common for houses to be freehold. It is worth checking the status of the house you wish to buy and seeing what a lender suggests. It would only take a quick chat to find out where you stand.

Cost - Nothing for freehold, up to £20,000 for leasehold depending on the current lease length.

The house buying checklist

It is inevitable that a house will be one of most expensive things - if not the most expensive thing - you will buy in your lifetime and will eat up more money than you expected. If done well though, and thoroughly, it should only feel expensive in the short term, and you will soon settle into a good routine with bills and outgoings.

When it comes to the optional but highly advisable element of hiring solicitors and financial advisors, do so if you can! Make whatever stretches you need to find the money for it. They know house stuff better than you do, so let them help you. They could end up saving you money, and house heartbreak, in the long run.

You can also use this cost of buying a house calculator from Rightmove to make sure you’ve done your sums right.

Whether it’s you or a professional doing it, check absolutely everything you can about the house; whether it’s freehold or leasehold, searches for issues, plus the non-financial things like the local area, economic growth potential and your future neighbours’ noise levels.

This way, you know exactly what you are buying.

Not happy? Gut telling you something isn’t right? Remember that until you exchange, you can still walk away if necessary.

On a final note, make sure you have a contingency fund just in case anything crops up during the purchase in addition to these house buying costs. And good luck! All of this stuff will fade to a distant memory once the move is complete and you’re settling in; honest.

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