Buying a new home can be an expensive exercise but the good news for first time buyers and those with lower incomes is that most of the costs are proportionate to the value of the property you are buying. In other words, the more expensive the property, the more it is going to cost you to buy. The lower the purchase price, the less it will cost to buy.

There is one exception to this and that is the property bought as an investment. The UK Government has decided that Stamp Duty Land Tax (SDLT) and changes to Income Tax laws should be used to dissuade those in England wishing to buy-to-let. Therefore, historic tax allowances on rental income are being phased out and and Stamp Duty has been raised dramatically for new buyers of buy-to-let investments.

Let’s look at the costs you might incur as a home buyer.

The Deposit

It is normal for a home buyer to have to find at least 5% of the purchase price to use as a deposit. The bad news is that this can be a lot of money (£15,000 on a £300,000 house) the good news is that there is help available from the Government for buyers on new homes or buyer with no current home.

How much Deposit do I need to buy a House?

Stamp Duty

Stamp duty Land Tax is charged by the Government and unless your new property is under the lower threshold (£125,000) then you are probably going to have to pay something! At the time of writing, SDLT for owner occupiers is as follows;

£0 - £125,0000 0%
£125,001 - £250,000 2% of the sum between the bands plus
£250,001 - £925,000 5% of the sum between the bands plus
£925,001 - £1,500,000 10% of the sum between the bands
£1,500,001 and over 12%

Please Note: SDLT for buyers of even low value residential investments is considerably higher.

What is Stamp Duty and how much will it cost?

Solicitor’s Fees

These can vary but expect to pay between £450 and £1,800 dependent on the value of the property and the work involved. Always ask for a quote before instructing.

Conveyancing Expenses

Your solicitor / conveyancer will also incur expenses on your behalf, including local authority search fees, Land Registry Fees etc. There may also be charges for bank transfers and photocopying. It’s worth checking your terms of engagement. These costs are likely to be between £250 and £1,000 dependent on the value of your new home and what is chargeable.

What is a Licensed Conveyancer?

Mortgage Arrangement Fees

Mortgage lenders charge a variety of fees and expenses and costs tend to vary from company to company. The unwary borrower can easily be saddled with lots of ‘hidden fees’ which, whilst included in the agreement, might not always be completely apparent at the time of purchase.

We recommend you take advice from an Independent Mortgage Broker before agreeing to any new mortgage. Fees may vary dependent on how large a deposit you put down and in many cases the fees can be added to the mortgage sum and paid off over the period of the loan.

Mortgage Indemnity Guarantee

The Mortgage Indemnity Guarantee is payable by the borrower when a deposit of less than 25% of the valuation is put down. The insurance covers the lender in the event that you later default on your loan and the net equity (the money left) after the sale of the property does not cover all that you owe. This can be several hundred pounds or even a couple of thousand pounds although in many cases it can be added to the loan amount.

What is a Mortgage Indemnity Guarantee?

Valuation Report

Your mortgage lender will require a professional opinion confirming that the property upon which they are making a mortgage offer is worth what they need it to be worth. In addition, it may well be prudent for a buyer to have a professional confirm that they are not paying over the odds for the property. There are a variety of valuation reports and surveys available at differing costs.

A basic mortgage valuation should cost between £150 and £1,500 dependent on the value of the property.

Life Insurance

When you take on a new mortgage, you are committing to a significant long term loan. It’s prudent that you will be looking for life insurance so as to repay the loan or cover monthly payments for a period of time in the event of your death. Failure to insure against this risk may leave your family exposed to the trauma of eviction at what is already going to be a very difficult time. Ask us for more details on this potentially complex subject.

Specialist Life Insurance / Mortgage Protection

Removals Company

If you are a first-time buyer you might be relying on friends and family to help move you. If not, you’re likely to use a professional removals company to help move your furniture, etc. Either way, you are likely to incur some costs (maybe van hire) which you should allow for in your budget. Budget between £100 to hire a van up to several thousand pounds for the full service.

SKY Satellite / Box & White Goods / Carpets & Curtains

Remember to take your existing box and card with you when you move (if you own it). If not, you may have upfront costs such as dish installation and account opening fees to budget for when you move into your new home. Do you need to buy a washing machine or fridge? What about carpets and curtains? The costs can really mount up here so be clear what is included in your purchase.

Cable / Broadband Connection

Again, some utility businesses will make small charges for connection but this can mount up into the hundreds in some cases. Check what is on offer before you sign up.

Home Insurance

Don’t forget to insure your new home and its contents! If you have a mortgage you must have buildings insurance although contents insurance is optional. This is unlikely to cost more than £100 - £200 p.a. dependent on the sum insured.

Fantastic Deals on Home Insurance

As we said, buying a home is a significant commitment. Make sure you allow for all costs when doing your budget.