Buying A Home: A Guide To Fees

When buying a property it is easy to fixate on the asking price. Yet have you considered how various fees could impact the total amount that you might pay? The costs of taxes, insurance and other payments can add up to £1,000s. Below, we offer a short guide to the fees you might pay – helping you to budget accordingly and possibly lay some plans to make savings.

Upfront costs

As a property buyer, there is a range of costs that you will face for particular pieces of work or services that you receive. A crucial one may be Stamp Duty Land Tax (SDLT) – sometimes called “stamp duty”, for short. First-time buyers pay no stamp duty on a property worth up to £425,000. Other buyers face a £250,000 threshold for residential properties. You can check stamp duty rates on the UK government’s website, which can rise up to 15% (if you count 3% on top of the rates if you own another residential property). You pay stamp duty on properties over the tax-free threshold regardless of whether you buy outright or with a mortgage, whether leasehold or freehold.

The mortgage deposit is another important cost to consider during the buying process. As a general rule, the higher your deposit the lower your interest rate is likely to be. A common deposit is between 5% – 20% of the property purchase price (e.g. £20,000 to £80,000 when buying a £400,000 property). Mortgages involve more than just the deposit and monthly payment, however. You also may need to consider booking fees (up to £250), an arrangement fee (e.g. £2,000) and evaluation fees (e.g. £150).

Your lender will want to establish the value of the property before giving you a mortgage. This is called a “valuation fee” and may cost between £150 – £1,500 (although some lenders may not charge this, depending on the mortgage product).

You should also use a professional surveyor to check the property before buying it. A basic home condition survey might cost £250 whilst a full structural survey may be over £600.

Legal fees also need to be factored in. Paying solicitors and conveyancers could add up to £1,500 (including VAT) and local searches (to find potential problems) could cost £250-£300. Electronic transfer fees might be £50, which covers the process of your lender moving the mortgage money to your solicitor.

Ongoing costs

Once the property is yours, there will be costs involved to keep it running. Maintenance and repairs may need to be made. Issues that were not picked up in the original survey will start coming to light as you live there. A starting rule of thumb is that 1% of your property value may be spent annually on fixing things. For a £500,000 home, for instance, your yearly bill could be around £5,000.

Insurance will also be a good idea. Neither buildings insurance nor home insurance (contents insurance) is required by law, but they are a good idea in case of fire, flood, theft or another unforeseen disaster. The average home insurance bill is about £190 per year.

Council tax will need to be paid. This varies depending on where you live and the property value. Manchester properties, for instance, fall into one of eight tax bands. The annual charge for Band A is £13,12.99 whilst the costliest band (Band H) is £3,939.

Running costs also should be considered. These include electricity, TV and broadband, gas, water and other utilities. Bear in mind that these may vary over time depending on economic conditions. In 2023, for instance, UK inflation is running at 10.4% (a 40-year high) and these sorts of costs have become much more expensive since 2022.

Costs when moving home

If you move house then the costs mentioned above – e.g. for a mortgage, solicitors and so forth – come into play once more. There are also the costs that come with leaving one property and entering a new one. These can add up quite high, often to the surprise of first-time buyers. It is wise to be aware of them ahead of time so you are not caught off-guard.

One less-known cost of moving is dedicated insurance for an empty home. Most standard home insurance policies will not cover this. If you have a break-in whilst your property is unoccupied, then you may struggle to succeed with a claim.

Using a removal company will, of course, come with its own costs to cover the service and labour. Yet be sure to check that the business is covered by insurance in case things go wrong (e.g. if anything is lost or damaged during transit).

You may need to place certain items in storage during your move, such as furniture. These need to be paid for. Also, you may want to pay the Royal Mail to redirect your post to your new address. Professional cleaning could be required (e.g. renters looking to avoid breaking tenancy agreements). Pets and children may need professional care during moving day, too.

The content in this article was correct on 26 June 2023.

You should not rely on this article to make important financial decisions.

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