The cost of buying a house
Saving for a home is hard enough. Yet the value of the property is far from the only expense you’ll have to cover. There are fees, taxes and other debts surrounding it, which could drastically affect affordability. Here we break down all the costs of buying a house so you can learn what’s ahead of you.
Upfront costs
Obviously, you’re looking at the asking price first. Other costs include:
Stamp Duty
Stamp Duty Land Tax (SDLT) is a one-off taxation on your purchase. If you have a single residential home, you won’t have to pay anything for a property worth less than £250,000. However, if you’re buying a second home, you’ll pay Stamp Duty on it regardless. First-time buyers don’t have to pay Stamp Duty for the first £425,000 of their new home.
SDLT increases in tiers, much like income tax. The current rates are:
First residence
- Less than £250,000 = 0%
- £250,001-£925,000 = 5%
- £925,001-£1,500,000 = 10%
- Over £1,500,001 = 12%
Additional properties
- Less than £250,000 = 3%
- £250,001-£925,000 = 8%
- £925,001-£1,500,000 = 13%
- Over £1,500,001 = 15%
Deposit
Costs when buying a house almost always include a deposit unless you’re buying outright. This determines the size of the mortgage you’ll be taking out — the loan-to-value (LTV) ratio — relative to the property’s value.
As a rule of a thumb, you should try to pay at least 20% of the asking price upfront. The more you pay, the safer you’ll seem to the lender. That means a 25% or 30% deposit will work in your favour for lower interest rates as repayment continues, saving you additional cash over the mortgage lifetime. Some lenders will offer a mortgage at 85%, 90% or 95% LTV, but the terms will be harsher, and you may have to pass a stricter eligibility test.
Valuation fees
Property value changes constantly, accounting for the state of the home and the market. Before you close the deal, your lender will typically send a chartered surveyor to gauge the most accurate valuation for a mortgage deal. They’ll bill you for the privilege. You’re likely to pay between £200 to £1,250 depending on the property’s size and location.
Solicitor fees
What costs are involved in buying a house? Plenty of people forget solicitors, but they’re integral to the process. They ensure all of your paperwork is in order and that you won’t get stung for a legal dispute further down the line. For homebuyers, it’s called ‘conveyancing’. Direct administration (i.e. arranging, checking, approving and filing your papers) will cost somewhere in the region of £500 to £1,200.
Searches
A sound purchase demands information about the environment around your property, as well as planned developments in the area which could affect future valuation or structural integrity. For example, conveyancers will discover whether there’s anything you need to know about the risk of flooding, contamination or unclear land ownership, liaising with local resources and the seller. Expect to pay £150 to £200.
Legal fees
More costs will accrue depending on whether the purchase is freehold (you own the property and the land) or leasehold (just the property for a set amount of time). Leasehold agreements involve bringing third parties together e.g. management companies. As such, they’re more expensive. Preparing freehold agreements already may cost up to £2,000 as standard.
Conveyancing
Although specialist solicitors can act as conveyors, you might find that it’s cheaper to split those responsibilities — hiring solicitors for the legal work and conveyancers to investigate the property. This could save £300-£400. However, you might be taking on more risk using a conveyancing service with a low quote and barely any reputation on the market.
Land Registry fees
The government charges you for registering new land ownership in England and Wales. You get a 50% discount if you use the HM Land Registry Business service. When researching the costs of buying a house, factor in these prices for the digital submission:
Property value
- Up to £80,000 = £20
- £80,001-£100,000 = £40
- £100,001-£200,000 = £95
- £200,001-£500,000 = £135
- £500,001-£1,000,000 = £270
- Over £1,000,001 = £455
Estate agent’s fee
Are you selling a property too? The estate agent will take a cut, traditionally between 1.5% and 2% including VAT. If you’re using several agents to sell — what’s known as a ‘multiple agency agreement’ — that fee could double.
Mortgage costs
Simply saving for a mortgage is just the beginning. Costs when buying a house take in several charges for arranging the loan, analysing eligibility, maintaining the account and adding other securities into your deal. Let’s tackle them head on.
Mortgage broker fees
If you’ve used a mortgage broker, lenders pay these brokers a small commission for introducing you and arranging the mortgage deal. It’s up to your broker whether they pass this charge onto you or cover it themselves. Often, it will be 0.3% to 1% of the total loan.
Survey costs
Surveys are similar to valuations, but look further into the property’s overall condition – for example grading structural damage and defects, which might influence your decision to purchase. On average survey costs can be as much as £1500 and as little as £300 depending on the type of survey you choose.
Home insurance
Your mortgage lender might offer home insurance or suggest a good provider. Either way, there are two layers: building and contents insurance. The first covers the property while the second secures your possessions inside it. Contents insurance is usually around £60 a year. Home insurance, on the other hand, is pricier, influenced by variable interest rates and the asset’s location.
Life insurance
It’s a marginal expense, but if we’re asking what costs are involved in buying a house, then life insurance might surprise you. Some lenders deem it a prerequisite before they approve your mortgage. Why? Because if you die or can’t repay the mortgage, they want to know that someone else will. At present, the average cost of life insurance is £40 a year.
Council tax
This will kick in when you’ve officially moved to the property. You’re probably paying it already, wherever you live, yet the cost could be more than you’re anticipating. Check rates for different bands with your local authority.
Ongoing costs
Of course, you’ll have to carefully weigh up what you’re able to afford per month for the size of the mortgage and LTV. Just remember that your initial payment, even on generous terms, could be slightly higher than others, since the lender will add payment on interest for the date you move in (say, the 10th of the month) to payments on the interest and principle (at the end of that month).
Moving home
What about the rigamarole of packing your things, hiring a removal team and fixing a new home up to your satisfaction? It makes sense to calculate these final costs when buying a house.
Removal costs
Again, rates will vary depending on where you’re moving to and what kind of property it is, for example two-storey, three-storey, three-bedroom, four-bedroom etc. Local movers will also be slightly cheaper. Some charge an hourly rate, whereas others have fixed bills with mileage expenses. In general, you should be looking to pay £500 to £2,000 for a full family home.
Furniture and white goods
If you need to remove or dismantle tables, desks, fridges, dryers or washing machines, a removal service may charge several hundred pounds extra, especially to reinstall those items in your new home. You might want to pay for storage in the interim as well, which could be roughly £70 to £150 a week.
Redecorating
Redecorators in the UK charge upwards of £30 an hour. In the South of England, that may rise to £40 or £50. You can always try to complete as much of the project yourself, such as stripping wallpaper and repainting. Bigger, more complex tasks like retiling, reflooring and meddling with fireplaces can be left to the experts.
Maintenance and repairs
Any number of things might degrade or require improvements over time. On average, costs of buying a home in the UK demand between 1% and 4% of your property’s value for annual maintenance. At the very least, set aside a budget for essential work, using these percentages as your baseline — lower for a newer build, higher for an older one.
