Granted it was a number of years ago but I do well remember the time I purchased my first property. I thought it was a simple matter of finding the right home, arranging a mortgage, saving up for the deposit and hey presto – the house was mine. It couldn’t have been further from the truth because by the time you add in all the hidden costs, it can be quite a frightening experience. So let’s go over piece by piece all the various costs involved, both upfront and ongoing. You will be quite surprised!
Unfortunately the days of buying a property with zero or a minimum of 5% deposit are long gone! Granted, the government is currently offering assistance in respect of a deposit but it only applies to certain banks and certain Building Societies. There is no simple way to put this other than to say a minimum deposit of 20% of the purchase price will be required by the Mortgagor, namely the bank. You need to consider this carefully!
The deposit on a property that costs in the region of £150,000 will be £30,000 whilst that for a house costing £200,000, the minimum deposit currently required of 20%, means an amount of £40,000!
The average price of a property within the UK is currently in the region of £150,000, although bear in mind this specifically excludes London which is believed to be in the region of £500,000. Therefore using the minimum average and on the basis that you do not qualify for the 50% deposit currently offered by the UK Government, you will require a minimum cash deposit of £30,000. Even with the Government contribution, this still means you have to find and/or save an amount of £15,000, a terrifying amount for those on a low wage!
You probably won’t be surprised to learn that the vast majority of your costs are associated with the actual mortgage itself.
In order that a lender may reserve funds for your eventual purchase, the majority will charge a Set-up fee which can be anything up to £250. The good news is that in some instances, this can be fully refundable if the mortgage is not completed.
The lender will require a full Valuation of the property before they even consider lending you the money. They have to be fully satisfied that the minimum value of the property is that of your potential purchase price and so you will need to employ the services of a Surveyor and present their certificate to the lenders for consideration and in support of your purchase price. The cost for this can be anything up to £1500 and relates purely to the value of the property. In some circumstances, the lender might consider a rebate to you of this amount should the mortgage go ahead and be finalised. It is probably best to look for a local surveyor who is a member of the Royal Institution of Chartered Surveyors.
Whilst these are normally undertaken on your behalf by your solicitor, it is essential and indeed, your lenders will insist that a search is carried out with the local council to determine whether there might be any potential planning or local issues that could have an ultimate result on the property’s value in the years to come. For safety purposes, this should also include a search of existing and potential drainage.
This is yet another fee charged by the lender to cover the costs of setting up the account, maintaining it throughout the duration of the mortgage and eventually closing it down. It is a one-off payment and as such, you will not be charged anything further when you come to close the account.
This fee charged by the lenders relates to the cost of setting up the mortgage once it has been agreed. This can sometimes be quite substantial, anything up to £2000 but in certain circumstances, the lender will allow you to add this fee to your overall mortgage amount. Since you will pay interest on this amount, in addition to the normal mortgage, I would suggest that if possible, you pay it in full at the time of the purchase.
Of all the taxes that we have to pay, this is probably one of the most unpopular ever created. Basically, it is a tax for placing what used to be a Wax Seal with a Stamp on the Document of Deeds, although these days, the actual document is not so grand! However, the tax still applies and is based on a percentage amount of the purchase price of the property, ranging anything up to 7%. It can be somewhat complicated to mentally calculate the exact amount and so often, an online calculator is used by both solicitors and mortgage lenders.
Both you and the seller will need the services of a solicitor as there are quite a few legal obligations that need to be completed. Under no circumstances should you agree to use the same solicitor since whilst it may save costs, it is totally unethical as a solicitor cannot have both your interests at heart in the same time. Costs for a solicitor can be anything between £500 – £1000 and is strictly dependent upon the amount of work involved. In any event, whatever the final fee may be, do not forget to incorporate a budget amount to cover VAT which will be on top of any fees quoted by the solicitor.
All the items covered above relate basically to the main costs incurred when purchasing a property in United Kingdom. There are one or two other additional items you might like to consider.
It is normal for the lender to insist that insurance for the actual Buildings be incorporated into the monthly mortgage repayment charges. This enables the lender to ensure that the appropriate insurances are kept in force and in any event, they probably have a special deal with one insurance company so that they get unique terms when placing all the insurances for all properties with this company. Be aware though, it is not unusual for the lender to make an additional charge should you decide not to avail yourself of these facilities.
Bear in mind that if this is the first property that you have purchased, utilities such as gas, electricity and communications may very well demand a small deposit before they connect up your property with the services. You should check with your preferred supplier to see if a deposit would be required and what the amount is likely to be.
The biggest concern for any new property owner is exactly what the cost of the mortgage is going to be. Until you have agreed final rates with your potential lender, it can only be guesswork and to give you an idea, it is sometimes extremely useful to use an online mortgage calculator for this exercise. Always bear in mind that mortgage interest rates can fluctuate and before granting any mortgage, the lender will carry out an in-depth investigation of your personal circumstances and costs. These will include your present spending on such items as food, utilities, entertainment, holidays and other items not previously taken into consideration.
This may all seem a daunting experience but I can assure you from my personal knowledge that there is nothing more exhilarating than walking into your own property the first time you receive the keys.