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 all of the options we went through in the last page you’ll be able to prepare for the biggest of these, your deposit.
However, before you continue to , it’s good to know the other up-front costs involved in buying your home so you feel fully prepared. They are:
- Stamp duty
- Solicitor’s fees
- Valuation and surveys
- Mortgage costs
Stamp Duty
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 [1]. It can add many thousands of pounds to your costs when buying your new home so knowing how much it could cost you is worthwhile.
How is Stamp Duty calculated?
The amount of Stamp Duty you pay changes depending on where in the UK you are buying. 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 [2]:
| Purchase Price | Rates as of June 2020 |
|---|---|
| £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 called the Land and Buildings Transaction Tax (LBTT), the thresholds are listed on the Scottish page on the Stamp Duty Calculator site.
Stamp Duty For First Time Buyers
Good news! For all first-time buyers in England or Northern Ireland, you do not pay any Stamp Duty on your first home worth up to £300,000 [3]. This then changes if you go over this threshold to the below:
- If your home costs up to £500,000, then you don’t pay any Stamp Duty on the first £300,000 if you are a first time buyer. This means if the property you want to buy costs £400,000 for example, you only pay Stamp Duty on the £100,000 difference.
- If the house costs over £500,000, then you have to pay the standard rates of Stamp Duty.
However, if you’re married or buying a home with someone else, you need to make sure you are both eligible first-time buyers to get this First-Time Buyers Stamp Duty Relief.
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 property at £230,332 [4]. In this case, this is £105,332 above the minimum threshold for 2% tax. You would therefore pay stamp duty of 2% on this figure, totalling £2,106.64, unless you are a first-time buyer where you wouldn’t have to pay stamp duty at all as the house price is below £300,000.
Solicitor’s Fees
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: to make sure the property can be mortgaged and properly insured.
- 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.
- Location specific searches: depending on where you are wanting to buy, these may be suggested by your solicitor if, for example, the property is in an area that used to be used for mining, so you can check if it has been built on unstable ground and at risk of subsidence in this case.
The solicitor will likely also charge a CHAPS fee, also known as the ‘telegraphic transfer fee’. This is the fee for transferring money to your solicitor securely 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 £40-50 [5]. 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 including VAT at 20% [6].
Estimated total cost
£1,140 – £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:
Valuation
- A valuation is required from the lender to complete a mortgage application. This is 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 – the cost is based on the value and size of the property and is typically between £150 – £1,500 [7].
Survey
- 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 with a survey that could easily have been missed.
- We will cover whether or not to get a survey later in this Home Buyers’ Guide. However, depending on the type of survey and size of the property, the costs should be as follows [8]:
- Condition report: from £250
- HomeBuyer report: from £400
- Building or structural survey: from £600
Estimated total cost
From £0 if you get a free valuation and no survey up to £2,100 if the house has a high valuation, is large in size and you choose to get a building or structural survey.
Mortgage costs
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, below is 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 [9], these charges (which include VAT) could include:
Arrangement fee
Sometimes called the ‘product fee’ or ‘completion fee’.
Typical cost: £0-£2,000
Booking fee
Some lenders might include this as part of the arrangement fee, while others charge it separately depending on the size of your mortgage when you apply for a mortgage. It is usually non-refundable, even if your mortgage falls through.
Typical cost: £99-£250.
Estimated total cost
£0-£2,250.
Final costs
So, as you can see, the additional costs of buying a property can vary hugely. These costs depend on factors such as your choice of solicitor and the type of survey you decide to get for example, so it’s good to know all options available. 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!
Next steps
You’re now fully clued up on the planning stage of the Beagle Street Home Buyers’ Guide – head straight to part 2, where we’ll cover ‘Mortgages’.
Appendix
- Money Advice Service – Stamp Duty- Everything you need to know
- GOV.UK – Stamp Duty Land Tax
- Money Advice Service – Stamp Duty- Everything you need to know
- GOV.UK – UK House Price Index summary: February 2020
- Money Advice Service – The cost of buying a house and moving
- Money Advice Service – The cost of buying a house and moving
- Money Advice Service – Homebuyer surveys and costs
- Money Advice Service – Homebuyer surveys and costs
- Money Advice Service – A guide to mortgage fees and costs
