Hidden costs to buying property that first-time homebuyers should look out for

We all know that getting the first foot on the property ladder often involves frantic saving for a deposit.

But you’ll need a bit more in the bank than that.

Here are some of the costs that home buyers need to factor in…

Stamp duty

Stamp duty is levied as a percentage of the price of the property you buy, although as a first-time buyer you get more leeway, and cheaper properties do not attract the tax at all.

The rates are changing as of October 1, and these are the new thresholds.

First-time buyers do not pay the tax on the first £300,000 of any property worth under £500,000, and 2% of the property’s value after this.

No one pays the tax on the first £125,000 of their new home’s value. After that it is levied at 2% up to £250,000, then 5% on any proportion of the property up to £925,000 and 10% above this.

First-time buyers – as well as all other home buyers – pay these rates on any property priced at more than £500,000. There are higher rates for those buying second homes.

Fees levied by your mortgage lender

While many will be paying a mortgage repayment for 25 years or more, there are upfront costs to consider as well in many cases.

You may find yourself paying a valuation fee. Even if you do not choose to have a survey on the home you are buying, your mortgage company will want to satisfy itself that the property is worth what you are paying for it, and will do this by conducting its own valuation.

Some lenders will charge for this as an upfront cost, with consumer advice group Which? putting the average cost of this at £295 for a £250,000 property, rising to £615 for one worth £750,000.

There’s also a mortgage arrangement fee and booking fee to deal with.

Sometimes known as a ‘product fee’ or ‘completion fee’, the arrangement fee is the price you pay for getting a mortgage.

Expert Rachel Springall, of financial information group Moneyfacts, says the average mortgage fee is now £1,067, having risen from £1,032 this time last year.

A booking fee, paid to reserve a mortgage, costs £99-£250 and is not usually repayable if you decide not to proceed.

The money transfer fee is a smaller charge, sometimes known as a ‘telegraphic transfer fee’ or CHAPs fee, of around £25, to transfer money from your mortgage to the solicitor to buy the house.

Surveys

There are three levels of survey that home buyers can choose from, depending on the age of the property and their need for peace of mind.

A condition report should flag any major issues, while more thorough homebuyer report, or a detailed level three building survey will give more detail. According to the HomeOwners Alliance you’ll need to set aside at least £300.

Conveyancing

According to estate agent comparison website GetAgent.co.uk, the average conveyancing cost is £860.

Be prepared for extra fees, including anti-money laundering checks (£6- £20), the cost of title deeds from the Land Registry (£6), and an ownership transfer fee to the Land Registry of £200 or more.

You should budget up to £450 for local authority searches.

Removals

According to Really Moving, the average cost of moving a one to two-bedroom flat is between £300 and £430, while this rises to £850 for a four-bedroom house.

Getting set up

Furnishing a home is something you can do gradually and while using Freecycle and eBay can significantly bring down the costs, many people want to get started as soon as possible with stamping their own style on their new place.

Money blogger moneytipsblog.co.uk calculates that it costs just over £2,000 to furnish a one-bedroom flat with simple, basic pieces from retailers such as Ikea and Dunelm, and obviously this cost will rise if your new home is bigger.

Running costs

As well as the cost of getting set up in their new home, buyers need to be aware of the ongoing costs of being a homeowner, says Colby Short, founder and chief executive of estate agent comparison site GetAgent.co.uk.

‘We all know how hard it is to secure that first foot on the property ladder. However, what we often fail to consider when buying a new home are the ongoing costs of actually owning one,’ he says.

‘While mortgage rates are currently favourable, an increase is inevitable. Many will face far higher monthly repayments if they aren’t benefiting from a fixed rate.

‘Then there are the increasing costs of council tax and utilities, as well as the money required to maintain a home.’

GetAgent’s survey of the annual costs of home buying suggests that it costs an average of £18,203 to own a property, and this figure has jumped by more than 11% since last year.

This includes the cost of a monthly mortgage repayment, council tax, energy, water and property maintenance (which GetAgent estimates is 1% of the value of the property every year).

There are significant regional variations in these figures, with London homeowners needing to factor in nearly £30,000 a year as the cost of ownership, compared with those in the North-East who need to find £11,000.

Those with smaller properties will pay less council tax and may face lower utility bills, but owners of flats may also have to factor in annual service charges and payments to the freeholder.

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