Planning To Buy: Knowing The Costs
There’re no two ways about it, buying your first home requires significant financial investment. But it’s ok – with the various options covered on the last page you’ll be able to prepare for the biggest of these: your deposit.
However, before you continue to Part 2 of our guide – The Application Process – take a deep breath, because there’s no point shirking the other up-front costs. They are:
- Stamp duty – high, depending on value of property
- Solicitor’s fees – medium-high
- Valuation/Surveys – medium
- Mortgage costs – none-high
In this part of the guide, we’ll shed some light on these and make sure you are prepared. Just think, after all this you’ll be the most well-prepared buyer out there!
What is Stamp Duty?
Tax, essentially – a tax you only have to pay if the purchase price of the property you want to buy is over £125,000.
How is Stamp Duty calculated?
Well, until December 2014 stamp duty operated on a “slab tax” system, where, if the property price was over a certain threshold, you paid a given percentage on the WHOLE amount. Now, though, the system has been replaced by a graduated system, which works like Income Tax – you pay different percentages on different portions of the price. The current thresholds in England, Wales and Northern Ireland (they are slightly different in Scotland) are:
|Purchase Price||Rates as of 4/12/14|
|£0 – £125,000||Zero|
|£125,001 to £250,000||2%|
|£250,001 to £925,000||5%|
|£925,001 to £1.5 million||10%|
|More than £1.5 million||12%|
Stamp Duty in Scotland is now called Land and Buildings Transaction Tax (LBTT), the thresholds are listed on the Scottish page on the Stamp Duty Calculator site.
Estimated total cost
It really does depend on the cost of the house you are buying. The latest figures from the Land Registry for England and Wales put the average price of a house or flat at £217,888 . In this case, this is £92,888 above the minimum threshold for 2% tax. You would therefore pay stamp duty of 2% on this figure, totalling £1,857.76.
What are they?
We’ll cover solicitors and finding the right one in the next part of the guide. For the moment, all you need to know is that there are legalities to purchasing a home and various checks need to be made (all the things that aren’t immediately obvious from viewing a property).
These checks may include:
- Local authority searches: any planning or local issues which you need to be aware of.
- Land registry search: to confirm the seller owns the property.
- Flood risk checks.
- Water authority searches, including a drain search: so you know how water is supplied to your property and whether any public drains may affect future building works.
- Environmental search: this gives information about anything to do with the land in and around the property from nearby contaminated land and gas hazards, to issues surrounding the stability of the land the house is built upon.
The solicitor should likely also charge a CHAPS fee, also known as the ‘telegraphic transfer fee’. This is the fee for transferring money to your solicitor and is usually non-refundable.
How much does it cost?
- In total these searches should cost roughly £250 – £300    , with the CHAPS fee typically ranging between £25-50 . On top are the solicitor’s fees to instigate the searches, produce new deeds and deal with any issues that may arise. These solicitor’s fees tend to be in the region of £850-£1,500 plus VAT 
Estimated total cost
- £1,125 – £1,850 (including VAT).
Valuation and Surveys
This is where it gets slightly trickier because it really does depend on the state of your property and the mortgage provider you choose. On top of this, valuations and surveys are often talked about in the same breath but are actually quite different:
- A valuation is required from the lender to complete a mortgage application. This constitutes a very basic check of the property to see how much it is worth, with a note about any major works that might be necessary and might affect its value.
- Some lenders might cover the costs of a valuation for free, or let you add the cost to the mortgage, allowing you to pay it over time.
- Other lenders might charge for the valuation to be done – as a ballpark figure, for properties around the £200,000 mark, a valuation should cost roughly £200-£355.   
- A survey is not required from the lender to complete a mortgage application. However, because checks undertaken during a valuation are basic, you may feel more comfortable double checking for faults that could easily have been missed. This is what a survey is for.
- Again, whether or not to get a survey is addressed later in this Home Buyers’ Guide. However, depending on the type of survey and size of the property, the costs should be as follows :
- Condition report: from £250
- HomeBuyer report: from £400
- Building or structural survey: from £600
Estimated total cost
- Anywhere between £0 for a free valuation and no survey, to a minimum of £800 for a valuation and buildings survey.
This is probably a good time to flag up the fact that taking out a mortgage could involve a number of different fee elements. In the next Part of the Home Buyers’ Guide, we’ll go over the Mortgage Application Process, including the pros and cons of using a broker. However, we have provided an overview of the costs that could be incurred by the mortgage provider (and adviser, if you choose to go down that route) below.
Some lenders may add these costs into your mortgage policy, to be paid over time. However, others may require payment up front. According to the Money Advice Service, these charges (which include VAT) could comprise:
- Sometimes called the ‘product fee’ or ‘completion fee’.
- Typical cost: £1,000, but might be significantly more or less.
- Some lenders might include this as part of the arrangement fee, while others charge it separately. It is usually non-refundable.
- Typical cost: £99-£250.
A helpful article on charges related to taking out a mortgage is found on the MoneySuperMarket site.
Estimated total cost
Some mortgage providers offer fee-free mortgage products called, for obvious reasons, ‘fee savers’. On these products they might waive certain fees such as those for arrangement and valuation (though they may pass on any fees they have to pay to other parties). Although these mortgages usually have a slightly higher rate, they could save money in the long run and reduce the amount you need to pay upfront. For this reason, they are often of interest to buyers with a very limited cash budget.
As you’ll have seen, the additional costs of buying a property could vary hugely. At the top end, based on the average price of a property being around £218,000 the costs could amount to around £4,700*. However, this could be much less depending on factors such as your choice of solicitor and the type of survey you decide to get. What’s clear is that it is always best to prepare to cover for these costs so you’re not hit by any setbacks in the purchase process.
The financial preparation for the mortgage application process is the biggest hurdle faced by first-time buyers. If you’re able to get over that, preparing for the application should be a piece of cake!