Are You 'Clueless' about Home Buying Costs?

09-Apr-2010

Are you fully aware of the financial commitment you're taking on when you decide to buy a property?  According to research carried out by IFA portal unbiased.co.uk, 24% of homebuyers have no idea how much the additional costs of buying a house will set them back.  9% of those surveyed thought that the extra costs would only amount to 1,000 GBP.  Those 9% would be surprised to know that this is only a fraction of the probable cost.

Things are looking up for the 2010 first time buyer, in that this year's Budget included a two-year extension to the Stamp Duty holiday for properties costing up to 250,000 GBP.  Stamp Duty would otherwise have cost these buyers up to 2,500 GBP on top of the price of their property.  However, despite these savings, there are a number of other costs associated with buying a house that it is essential to be aware of.
    
Mortgage Arrangement Fee

Typically there will be a fee of 500-1,000 GBP to pay when you take out a mortgage.  Some lenders will offer a lower arrangement fee, but approach these deals with caution as the costs will often be recouped through an increased interest rate.  When you're comparing mortgage deals, use the APR (annual percentage rate of change) as the basis for your comparison, because this figure takes all the arrangement fees and introductory rates into consideration.

Valuation and Survey

For a start, you need to have the house valued and surveyed by an expert.  Often, your mortgage lender will insist on this process being carried out before agreeing to a home loan.  The valuation confirms that the house is worth the amount that you wish to borrow, and the survey serves to determine the property's basic condition and overall state of repair. 

If you're planning to buy a particularly old or damaged property, it's a good idea to get a full structural survey carried out before agreeing to the purchase, to ensure that it is habitable.  A survey could cost from 50 to 1,000 GBP, depending on how thorough you need it to be.

Solicitor Fees

The legal process of transferring ownership of a property is a complicated one, and you will need to hire a professional solicitor or conveyancer to take care of this for you.  This can cost between 600-1000 GBP for the basic service.  You'll also need to pay for the Land Registry fee to register as the new owner of the property.  The costs for other searches and environmental checks may fall to the buyer to cover, although they may be included in the home information pack (HIP) and therefore be covered by the seller.  Allow up to 1,500 in total for these legal fees.

Buildings Insurance

Often, your lender will make it a condition of your mortgage that you take out home buildings insurance on the property.  This is because if the house is damaged, they can recover their investment.  Of course, it also works out well for you because you would not have to pay the full costs of having your house rebuilt in case of flood, subsidence or fire damage. 

The cost of buildings insurance will depend on multiple factors, including the value of the property and whether you are buying a property in an area at high risk of flooding.  When you have found your property, shop around for home buildings insurance quotes - usually there is no requirement to take your lender's insurance, so you may be able to find a cheaper deal elsewhere.

Karen Barrett, Chief Executive of unbiased.co.uk comments, "Buying a home is a huge financial commitment, and it is crucial for consumers to factor in all the additional costs involved in order to then calculate which price bracket they can afford. This involves thinking beyond your deposit and mortgage, and taking into account stamp duty tax, survey and solicitor fees, and other essential checks - not to mention how much you may need to spend on your home once you actually move in."

"Consumers should ensure they seek advice from a whole of market mortgage adviser so they are fully aware of all the costs involved in house-buying before they find themselves out of pocket.  Especially if they decide to add these extra costs onto their mortgage - as the added interest will be on top of the value of your property - pushing the cost up significantly.

Simply fill out our short mortgage form to request a callback from an experienced mortgage adviser.  The adviser will be able to talk you through the full cost of purchasing a property, and provide you with no-obligation mortgage quotes based on your personal circumstances. Use our 'Total Cost of Home Purchase' Calculator to help you with your research.