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The total cost of buying a home

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Written by Ben Salisbury

Buying a home is one of the biggest financial transactions you’ll ever make. However, the price you agree to pay for a property is just one of the many costs associated with buying a house.

This guide explains all the costs that are linked with buying a new home. The costs of buying a home can be split into two stages: upfront costs you will face before completing the 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 about 5% of the purchase price, so £12,500 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 - or the ratio between the amount you invest and the amount you borrow from a bank. So, if you can increase your deposit to £25,000 for the example above, you’ll be paying 10% of the property price, leaving an LTV ratio of 90%. Having a deposit of 10% or 15% gives you access to better mortgage product deals that charge lower interest rates, 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 for a new mortgage. Say you sell your house for £250,000, and have £150,000 left to pay on your mortgage, you will have £100,000 to use as a deposit on a bigger mortgage, or one with a lower LTV ratio - and therefore a lower interest rate.

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When you buy a property there are a range of associated legal, regulatory and tax costs.

Stamp duty is one cost you would normally face.

However, between 8 July 2020 and 31 March 2021, buyers will not need to pay stamp duty on the first £500,000 of property sales.

Outside of this temporary holiday, First-time buyers in England and Northern Ireland are usually 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 would only pay stamp duty on the amount over £300,000. If the property costs more than £500,000, though, they would get no tax relief at all.

For everyone else, the stamp duty rates in England and Northern Ireland are usually 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+.

From 2018, homeowners in Wales and Scotland have seen stamp duty replaced by their own Land Transaction Tax that works in a similar way. Use our stamp duty calculator to work out how much stamp duty you’ll need to pay when buying a house, flat, land, or building in the UK.

Mortgage set-up fees usually include a product arrangement fee and a booking fee. 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 fees should be shown in the key facts illustration.

The 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 to pay it off in full if you can.

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. 

When you arrange a mortgage with a lender, all fees should be shown in the key facts illustration. This is a document which a lender or advisor will create in the early stages of your mortgage application. The document outlines what they have recommended for you, with the details of this loan. 

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 between 1% and 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.

Valuation fee

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 the required amount. The cost of the valuation fee varies (usually up to a maximum of £350), and sometimes the lender will do the valuation for free.

Surveyor fee

A property survey must also be completed to check if there are any problems with the property like structural issues, subsidence or damp.

There are two main types of survey to choose from. A homebuyer report looks at the general condition of the property, and normally costs between £450 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 £600 and £1,500.

For newish homes in good condition, a condition report costing between £400 and £950 may suffice. A more detailed 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.

Conveyancing fees

You pay conveyancing fees, also known as solicitors’ fees for buying a house, 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 too. 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 and can range from £30 to £910. Use the free land registry fees calculator to find out how much you will have to pay.

Post-completion costs

Removal costs

Typically, removal costs range from about £100 to £1,000. You can cut the cost by doing it yourself if you have access to a big enough van.

Household bills

While not strictly related to buying a home, it is important to think about how you will pay household bills such as gas and electricity, broadband, and mandatory costs like council tax, building insurance, and contents insurance. These are likely to cost you at least £250 a month.

Furniture

Moving into a new home can mean extra space to fill – or certainly a different space from your previous home – so you may also need to budget for new furniture.

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.  For a loft conversion, for example, the average cost is between £20,000 and £40,000.

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

For most people, mortgage payments are the biggest ongoing cost of owning a property. 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 amount of cash from somewhere.

You can lower your payments by qualifying for the best mortgage interest rates, for which you will need a deposit of 40% of the purchase price. Other ways to reduce your monthly mortgage payments include opting for an interest-only mortgage, where you only pay the monthly interest accrued by the loan. However, you’ll need to prove to the lender that you have some way of paying off the loan at the end of the mortgage term. 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 people take out repayment mortgages, with which part of each monthly payment goes towards paying off the principal debt, and you own the property outright at the end of the term.

Other mortgage costs

There are potentially further costs linked to having a mortgage.

If, for example, you miss a mortgage payment, your lender may well charge a fee. Missing multiple payments will also put your home at risk of being repossessed, and then sold to recoup its money.

This will then 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 sum 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 (usually 10% a year), or pay off your mortgage completely. Overpaying can save you a lot of money over the term of your mortgage, but stick to the limits because penalties can be severe, particularly on fixed rate and discounted rate mortgages.

The final potential cost of a mortgage is an exit fee, which can be charged as standard when you repay your mortgage – even if you’re not exiting the mortgage earlier than expected.

Leasehold costs

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. These tend to include extra recurring costs, such as ground rent, service charges, and maintenance charges for repairs to the building, usually shared by all owners in the building.

If the lease on your property goes below 90 years, you may also have to pay thousands of pounds to extend it if you want to sell.