Beyond The Mortgage – Concealed Costs To Consider When Buying Your First Home

Buying a new home can be far more expensive than you expect. There are a plethora of hidden costs that can add more than 10% to the total bill, which you need to be aware of and budget for. If you have only rented a property previously, the added costs of running and maintaining your property can come as quite a shock. These can be far more expensive than one would expect if you don’t adequately prepare for it. Without adequate planning, the first few years of owning your own home can be a time of real hardship and make the process seem even more intimidating.

Mortgage

You will need to get your mortgage in place, and this includes ensuring you have the financing available for a mortgage deposit as well as the monthly fees to follow. Your solicitor will receive a copy of the offer and go through the conditions.

You will need to get a mortgage valuation. This valuation is carried out on behalf of the mortgage company, so they know that the property provides sufficient security for the loan. You will typically have to pay for it, although some mortgage companies do now offer to cover the costs to attract business.
Mortgage arrangement fees are often charged by mortgage companies or brokers and can range from a few hundred pounds to 1% of the mortgage, which can equate to quite a considerable sum. Some lenders insist you pay the fees up front; others add it to the mortgage.

Traditionally, if you had a high loan-to-value ratio, your lender may charge you a Mortgage indemnity fee that will cover the insurance that they take out in case you cannot pay back the loan. Thankfully most lenders now will not charge indemnity fees even for those borrowing more than 90% of the purchase price.

Paying for your new home is, of course, the overwhelming cost, yet beyond the mortgage, there are many others that you will need to budget for.

Conveyancing & Surveys

Conveyancing is the legal process involved in buying a property, including various search fees and registering with the Land Registry. How much it costs depends on the value of the home you are buying, as well as which searches you have done. Conveyancing costs can range from £800 to £1500 and are more for leasehold properties. Solicitors tend to be more expensive.

You will want to have any other necessary surveys done. Whether you have a survey done and what sort of investigation you choose will depend on your specific circumstances. Surveys and valuations can also prove expensive, from a few hundred pounds to well over £1000, depending on the value of your property and what type of survey you have.

Stamp Duty

Stamp duty can add many thousands of pounds, as much as 7%, to the cost of buying a home. Stamp Duty or Stamp Duty Land Tax (SDLT) official jargon is a tax you pay when you buy a house, where the buyer pays stamp duty and not the person selling. It applies to both freehold and leasehold purchases over £125,000, but following an announcement in the Autumn Budget 2017, first-time buyers are exempt from Stamp Duty for properties up to £300,000. Stamp duty is calculated in the same way income tax works.

For example, if the agreed price of a home being purchased by an existing homeowner is £375,000, stamp duty is calculated as follows:

0% on the first £125,000 = £0
2% on the next £125,000 = £2,500
5% on the final £ 125,000 = £6,250
Total stamp duty payable = £8,750

For a first time buyer, the purchase of a home worth £375,000 is calculated as follows:

0% on the first £300,000 = £0
5% on the next £75,000 =£3,750
Total stamp duty payable = £3750

To calculate exactly how much stamp duty you will need to pay, you can use a stamp duty tax calculator. You have to pay within 30 days of the day on which you are entitled to take possession of your new house. You still have to submit a return even if you are not due to pay any stamp duty on the purchase price of your property unless the property costs less than £40,000. Your solicitor or conveyancer should ensure that you do not miss the deadline.

Insurances

Before exchange of contracts can take place your lender will require you to get Buildings Insurance for your new home. You are responsible for the property as soon as contracts are exchanged, so it is in your interests to do so.

Life Insurance provides a source of money your family can rely on to cover any debt such as a mortgage in the event of your death. Many people purchase it when they take out a mortgage, but you should watch for the commission and cancellation fee.

Once you have moved into a property, it isn’t just the mortgage you have to worry about paying. There are all those other costs you may need to consider:

Contents Insurance.

Alongside your buildings Insurance, you will need to look at protecting the other items in your home with contents insurance. It’s worth shopping around as it can come to anywhere between a few hundred and thousands of pounds a year, depending upon what you are insuring, how much your home is worth when it was built and from what material, the rebuilding costs, the locks on your doors, your job etc.

Removals.

If you have little furniture and eager friends, you can do this for free. But if you have a lot, then hiring a professional removals firm can cost anywhere from £350 to many thousands of pounds, depending on the size of your house and how far you are moving. Hiring a man and a van might be a more reasonable way of reducing overheads.

Furniture.

Unless you are prepared to sleep on the floor and drink warm milk, you will need a bed and a fridge, as well all the other furniture. It is possible to cut costs buying second hand, but it is easy to spend thousands on furnishing your new living space.

Redecorating.

Very few new homes need no work doing to them. Most require some redecoration or other minor building works. If you are up to the task, doing it yourself can cut costs, but most new homeowners spend far more than they expect on doing up their new place. Again, how much you spend entirely depends on how much work you are having done and who is doing it.

Council tax has to be paid by occupants of properties and can range from a couple of hundred pounds a year for a small property in low-cost local authorities to several thousand for more prominent houses in expensive councils.

Utility Bills.

Water, gas and electricity bills can be expensive monthly costs, adding up to a few hundred pounds a month for large properties. They are pretty much impossible to avoid, although energy bills can often be reduced if you compare the costs of the service providers in your area.

Ground rent & service charge.

If you live in a leasehold property, you may have to pay an annual ground rent and service charge to the freeholder. You may also be liable for special contributions to work on communal areas or the structure of the building (such as a new roof).

Service charges.

If you live in a serviced apartment, you may have a regular service charge to pay.
Residents’ parking. In many towns and cities, you have to pay an annual fee to be allowed to park your car on the street, and then buy additional permits for your visitors.

Maintenance and building work.

Repairing the roof, redoing the wiring, or fixing subsidence all add significant costs as a homeowner. If the boiler kicks the proverbial bucket, there is a leak or the fridge packs in; you will need to pay and can no longer look to a landlord to cover these costs.

Add on top of all of the above, your television, broadband, cable and telephone monthly bills then the privilege of owning your own home proves to be an expensive one, but one that will hopefully lead to security for you and your family in later years.

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