The never-ending costs of buying your first home
There are the costs you expect, and then those you never even imagined, or budgeted for...
I've just stepped onto the bottom rung of the housing ladder and am the proud owner of a two-up, two-down in Manchester. But boy did it cost a lot of money!
Not in the obvious way -- I knew my savings would disappear overnight when we paid the deposit -- but in rather more surprising ways. Costs we hadn't considered, such as the daily trips to B&Q and eating takeaway food for weeks - all of which quickly mount up.
When you buy a property you generally have a good idea of the major costs and you've hopefully kept enough aside to cover them. But a contingency plan is essential because so many things come up that you might not have planned for.
The big costs
The deposit: In the current market if you want a decent choice of mortgages you will need a 25% deposit. So on a property valued at £175,000, this means £43,750, and for a £250,000 property, this means a massive £62,500 deposit. At the absolute minimum, you will need to pull together 10% of the property's value to get a mortgage.
Stamp Duty: Buy a property for £175,000 or under and you do not have to pay Stamp Duty - although this temporary threshold is set to go back down to £125,000 in December (but with an election looming it will surely be extended!)
- Properties from £175,001 up to £250,000 pay Stamp Duty of 1% of the purchase price
- Properties from £250,001 up to £500,000 pay Stamp duty of 3%
- And properties over £500,000 pay 4%.
Legal fees: Your bill is often made up of two parts: the fee for the solicitor or conveyancer's time (in our case about £350); and the disbursements, which include the Land Registry fee (£200), Land Transaction form (£50), Land Registry search (£3), Land Charges search (£4) and Bank Wiring fee (£12). There may be further charges depending on what's included in the Home Information Pack you receive from the vendor.
Survey: Ours was a full structural survey at a cheap £299. We used an online survey quote generator, found the cheapest and then phoned a local firm and asked them to match it, which they did. The price will rise the more expensive the property.
Lender's valuation: Ours was £275 on top of the survey as the lender insisted on having its own valuation done. Again with more expensive properties these costs will rise significantly. Note that you usually pay this upfront so have the cash to hand (even if you add it to the loan you often have to pay upfront first and then get the cost reimbursed).
Buildings insurance: This needs to be place from the date you exchange contracts and is compulsory if you buy your home using a mortgage. You usually have to tell the insurer the rebuild cost of the property which is different to the actual cost or value. Our house cost £175,000 for example, but the rebuild cost is £110,000. You might get a better deal with combined buildings and contents cover, as we did for £20 a month with Bank of Scotland.
Life insurance: It's easy and cheap to arrange a basic life insurance policy. We set up a cheap joint decreasing-term assurance policy that would pay off the mortgage in the event that one of us dies. Perhaps we will upgrade to a level-term assurance or even whole-of-life insurance policy one day, but with so much to arrange at once this was the easiest option. We got a deal for £10 a month with More Than. Read more in Seven steps to buying life insurance.
Removals: Since we are currently renting and have no furniture we are simply hiring a small van to transport our modest belongings. The cost for two days came to £75.
Those unforeseen costs!
- If you wait until the last minute to transfer the deposit funds (as we did) you may have to pay a CHAPS transfer fee of £20-£30 to get your deposit over the solicitor in time. If the money is coming from two accounts (yourself and a partner) that could be £60 wasted, so plan ahead.
- Our mortgage arrangement fee was a modest £499 and we asked for it to be added to the mortgage. But the lender took it from our account without warning. A big shock. Apparently the underwriter insisted on this in order to rubber stamp the mortgage, but nobody thought to notify us. An unexpected £500 bill is obviously a major problem, and although it was a genuine mistake, be prepared because mistakes happen.
- You may have to pay a Higher Lending Charge (HLC) if you are borrowing a large proportion of the property's value -- for example over 90% -- because the lender deems you high risk. Many lenders have scrapped HLCs but some remain and they can be hundreds or thousands of pounds. Ironically the fact that few lenders are currently willing to lend over 90% means that a lot of HLCs are not being triggered. But check the small print of your mortgage.
- Unfortunately when you have a survey, problems tend to come up. You may be able to renegotiate on price but, as in our case, the vendor might not budge. The work may still need doing though. We needed a damp proof course on two walls at £400. And this meant two rooms had to be replastered afterwards at another £500.
- Things just crop up! In the process of the damp proof course, we found a problem with one of the radiators. When the new worktop was fitted in the kitchen we were told that we needed to get the electrics checked out as 'they look a bit dodgy' and we had to pay a gas man to turn the gas back on.
It has quickly become clear that the costs just mount up. In the space of three weeks of owning this house (we haven't even moved in yet) there have been a few surprises and I'm sure there will be a lot more.
And we haven't even factored in buying furniture yet!
This homebuying lark is certainly a deep, deep money pit.