Buying a home is one of the biggest financial transactions you’ll ever make, and on top of the price of the property there are a wide range of associated costs both before and after completion.
This article contains all the costs that are linked with buying a new home. We’ll show you what you need to budget for, and all the costs you need to be prepared for so you have everything covered.
The costs of buying a home can be split into two stages: upfront costs before completion of your property purchase and post-completion costs.
The costs of buying a house
The absolute first cost of buying a home is the deposit. If you’re a first-time buyer you will normally have to find 10% of the purchase price, so £25,000 for a £250,000 property. The more you can save up for a deposit the better, because it will reduce your loan-to-value (LTV) ratio from 90% in the example above. So, if you can increase your deposit to £50,000 for the example above, you’ll be paying 20% of the property price, leaving an LTV ratio of 80%.
This opens up better mortgage product deals that charge lower interest rates on borrowing for your mortgage, and reduces the amount you have to pay until you own the property outright.
If you’re moving from one home to another, funds from the sale should cover the deposit of a new mortgage for the new property. If you’ve accumulated a lot of positive home equity in your previous home, this will help you borrow more to afford a more expensive house – or alternatively, a big deposit for a good LTV ratio.
When you buy a property there are a range of associated legal, regulatory and tax costs.
Stamp duty is one cost you’ll face unless the property you are buying costs less than £125,000.
New rules also mean first-time buyers in England and Northern Ireland are exempt from paying stamp duty on property sales up to £300,000. If the property is worth between £300,001 and £500,000, first-time buyers only pay stamp duty on the amount over £300,000. If the property costs more than £500,000, though, you get no tax relief at all.
For everyone else, the stamp duty rates in England and Northern Ireland are 2% of the portion of the purchase price between £125,001 and £250,000, 5% between £250,001 and £925,000, 10% between £925,001 and £1,500,000 and 12% for £1,500,001+.
So, if you buy a property costing £350,000, you’ll pay 2% on £125,000 (£2,500) plus 5% on £100,000 (£5,000) for £7,500 in total. A first-time buyer would pay 5% on just the £50,000 over £300,000, which comes to £2,500.
From 2018, homeowners in Wales and Scotland have seen stamp duty replaced by their own Land Transaction Tax that works in a similar way. Read our stamp duty guide for the full details on how much tax you pay across the UK.
Mortgage fees generally mean a product arrangement fee and a booking fee. From 2016, lenders must include extra fees like redemption fees and valuation fees as part of the annual interest calculation. You will often see this referred to as “the overall cost for comparison”.
When you arrange a mortgage with a lender, all mortgage product costs should be shown in a key facts illustration.
A booking fee is a charge for applying for a mortgage deal and is usually payable when you apply for a mortgage whether you’re accepted or not. It can sometimes be included as part of the arrangement fee and is also known as a reservation fee. The cost is usually from £75 to £250.
The arrangement fee, sometimes known as a completion fee, usually costs between £500 and £2,000, depending on the lender and the mortgage product. Lenders will usually let you add it to the cost of the mortgage, but this means you’ll pay interest on it so try and pay it in full, separate from your mortgage.
You’ll also have to pay an electronic transfer fee, usually about £40 to cover the cost of transferring the mortgage amount from the lender to the solicitor.
Estate agent fees
These are only paid by the seller, not the buyer. They are a payment for the estate agency’s services and are agreed when the property is put on the market, usually around 1 to 3% of the sale price + VAT. This can be a huge amount of money in the case of an expensive house. Read our guide for some alternative ways to sell a home without an estate agent.
This is a fee that you pay to get your prospective new home valued, to confirm to the lender that the property is worth the sale price, so that they feel secure in lending you lots of money. If you don’t keep up monthly repayments, your lender can repossess your home and then sell it to recoup its money. The cost of the valuation fee varies (usually up to a max of £350), and sometimes the lender will do the valuation for free.
The valuation only looks at how much a property is worth. A property survey must be completed to check if there are any problems with the property like structural issues, subsidence or damp.
When buying a home, there are two main types of survey to choose from. A home buyer report looks at the general condition of the property and normally costs between £300 and £1,000 depending on the value of the property. A building survey takes a more detailed look at the condition and structure of the property and costs between £500 and £1,250. The more detailed building survey is usually only required for buildings that are more than 50 years old, or if you, as the prospective buyer, want as much information as possible about your new home.
You pay conveyancing fees, also known as legal fees, to a licensed conveyancer who looks after the legal aspects of buying a property. The conveyancer will either charge a flat fee or a percentage of the property’s value, which usually comes to around £500 to £1,500, depending on the location and type of property. You may have to pay a further £250 to £450 for required local searches. Read our full guide on mortgage conveyancing to find out more.
Land Registry fee
The Land Registry keeps records of all registered properties in England and Wales and charges a fee for registering a property with a new owner. The fee depends on the property price but is normally between £90 and £150.
You can cut the cost by doing it yourself if you have access to a big enough van, otherwise removal prices start at around £100 for a small local move but can rise up to £1,000 for moving lots of stuff over a long distance.
These costs are not strictly related to buying a home but are part of the responsibility of owning a home and can’t usually be avoided. These include utility bills like gas, electricity and broadband, mandatory costs like council tax and building and contents insurance, and other costs like a TV licence or Netflix subscription. Your total household bills will usually cost at least £250 per month, even for a smaller property.
Moving into a new home can mean extra space to fill – or certainly a different space from your previous home – so new furniture may be required, like a new bed or storage units.
Alterations and extensions
In a similar vein, you may need or want to alter your new living space, to make changes and alterations to get the property exactly right for your requirements. This could be by installing a garden office, converting a garage or loft for an extra room, erecting a conservatory, removing an internal wall to create a larger living area or kitchen/diner, or erecting a partition wall to create an extra room.
Bear in mind that it might be much more convenient to get messy and dusty building works done before you move into a new home.
Mortgage repayments and associated charges
The biggest ongoing cost of owning a property for most of us is mortgage repayments. The only way you avoid these is by paying for your home outright – but that rarely happens, unless you’re downsizing dramatically or you’ve received a large lump of cash from somewhere.
In general, the smaller the mortgage in relation to the overall property cost, the lower your interest rate will be. If the property costs £300,000 and your mortgage is for £180,000, you already own £120,000 or 40% of the property. With an LTV of 60%, lenders will give you the very best interest rates possible.
Most mortgages nowadays are repayment mortgages. This is where part of each monthly payment goes towards paying off the principal debt – and after a certain number of years (the “term” of the mortgage), you will have paid off the loan and own the property outright.
The other mortgage payment option is an interest-only mortgage, where you only pay the monthly interest accrued by the loan. This means the monthly repayments are much lower – but you’ll need to prove to the lender that you have some way of paying off the principal amount at the end of the mortgage term.
Other mortgage costs
There are potentially further costs linked to having a mortgage depending on your individual circumstances and how you manage your mortgage.
If you miss a mortgage payment your lender may charge a fee, and if you miss multiple payments your home is at risk of being repossessed. Missed mortgage payments also impact your credit rating.
Some lenders may hit you with a higher lending charge if you have a small deposit – say, less than 10% of the property’s value. A higher lending charge is essentially a form of insurance for the lender: it’s an additional lump of money that protects the lender from losing money if they’re forced to repossess and sell your house at a loss.
Overpayment and early repayment charges can be applied by the lender if you overpay your mortgage by more than a certain amount, or pay off your mortgage completely. Each lender will have its own rules but check because penalties can be severe, particularly on fixed rate and discounted rate mortgages.
Lenders make money on the interest and fees attached to a mortgage – so you can imagine why lenders don’t want you to exit a mortgage before they’ve made some money. If you can, overpaying on your mortgage is a good idea and can save you a lot of money over the mortgage term – but you must do it within the agreed limits (usually up to 10% per year, but check with your lender!)
The final potential cost of a mortgage is an exit fee which can be charged when you have repaid your mortgage – even if you’re not exiting the mortgage earlier than expected.
Leasehold not freehold
One last thing to bear in mind is whether you’re buying a leasehold property, particularly if it’s a flat in an urban area. There could be some extra, recurring costs, including ground rent, service charges and regular maintenance charges for repairs to the building, usually shared by all owners in the building. This will vary a lot from property to property, but it could add up to thousands of pounds per year.