The cost of your mortgage is only part of the picture when it comes to buying a new home. Borrowing fees are on the up, and there are lots of extra expenses to consider as well.
If you’re about to buy a house, chances are you’re quite pleased with the cheap cost of borrowing at the moment.
Mortgage rates are at or near their lowest levels of all time at the moment, thanks to the fact that the Bank of England base rate has been stuck at 0.5% for almost seven years.
Get the big picture
But the size of your monthly repayments are only one part of the picture when it comes to the true cost of buying a property.
New research from analyst Moneyfacts.co.uk has found that, while home loan rates are falling, the fees that banks and building societies are imposing on borrowers are on the up.
Mortgage customers typically face a raft of extra charges, including arrangement fees, valuation charges and legal costs.
This month, the total fee on the average mortgage stands at £964, an increase of almost 8% on the £888 recorded back in June 2014.
‘Compensating for cheap rates’
Charges on fixed-rate loans tend to be higher than on variable deals: typical fees are £964 and £933 respectively.
“The current mortgage market boasts some of the lowest rates on record, which is great news for borrowers, but the increase in the average mortgage fee clearly shows that some of these headline grabbing rates are being compensated for elsewhere,” says Charlotte Nelson at Moneyfacts.
Nelson adds that, on some high-value loans, fees can be in excess of £7,000.
In many cases, fees can be added on to the mortgage and repaid, with interest, over the course of the loan – but this will result in higher monthly repayments.
Do your homework
There are a number of other expenses that property buyers face – and more still for those who have an existing home to sell.
It is vital to work out in advance what the total cost of your purchase will be to ensure you have enough cash to meet all the bills.
Estate agents work for the sellers, so buyers don’t pay them anything. Typically, agents charge between 1% and 2% of the sale price – that means between £2,000 and £4,000 on the sale of a £200,000 property. Bear in mind that one of the new online-only estate agent services may often be cheaper.
One of the biggest expenses on any purchase is the deposit you put down. For first-time buyers this is likely to be 5% or 10% of the property price, so on a £200,000 home this would be between £10,000 and £20,000.
The more deposit you can put down, the lower the mortgage rate you should be eligible for – this could save you a lot of money in the long run.
Read our guide for more information and tips on saving for a deposit.
You need a solicitor to deal with the paperwork on your purchase. Expect to pay a few hundred pounds at least, but bear in mind that charges can vary greatly from firm to firm and depending on the complexity of the deal.
If you need your solicitor to deal with your sale as well, the cost will roughly double.
As explained above, you can expect to pay around £1,000 in total fees. But some deals will have lower fees in exchange for a higher rate of interest.
Do your sums to work out whether a particular deal makes sense: in general, though, the more you are borrowing, the more benefit you’ll get from a lower interest rate.
If you use a mortgage broker, you may have to pay them a fee, but it is worth looking for a fee-free broker to help you save money.
Unless you are buying a new-build home, which should come with the builder’s guarantees, you will probably want some form of survey on your new property.
Your mortgage lender will order its own valuation, which is the cheapest and most basic form of survey, and then pass the cost on to you.
But a more detailed survey such as a Homebuyer Report can give you more peace of mind about the place you’re buying: expect this to cost around £250 to £400.
Take a look at our guide if you need more information about surveys and conveyancing.
The sting in the tail of any purchase is the stamp duty bill, which has to be paid on the day you complete the transaction. The stamp duty system was reformed at the end of 2014, which means that bills on most purchases are now lower than previously.
Duty is charged on the sale price in bands like income tax.
The first £125,000 is tax free, with 2% charged on the proportion of the sale price between £125,000 and £250,000 and 5% on any part between £250,000 and £925,000.
So a £150,000 purchase would incur £500 in stamp duty and a £200,000 property would generate a tax bill of £1,500.
If you’re moving into a small flat, you might not need professional help, but for larger house moves a removals service could set you back a couple of hundred pounds or so – and more if you want someone to pack for you.