Costs of Buying a Home
Wondering about the cost of buying a home?
Fees are possibly the most daunting aspect of the process, especially if you are a first-time homebuyer with little to no experience or knowledge of buying a house.
From solicitors to deposits, there’s a lot to get your head around – and budget for.
To help you from start to finish, whether you are a first-time buyer or have bought a home before, here is a guide on the costs of buying a home
Costs of buying a home checklist
Here’s a breakdown of some of the costs of buying a home you should expect to pay:
- Mortgage costs
- Stamp duty
- Conveyancing or solicitor fees
- Deposit
- Survey
- Removal costs
- Insurance
- Council tax
- Maintenance costs
- Leasehold fees
Costs of buying a home: mortgages
Before completion day, you’ll have to pay mortgage fees to your lender. This often consists of arrangement, booking and valuation fees.
How much can you afford to borrow?
It’s not surprising that the biggest and most consistent cost of buying a house is the property purchase price. This is mainly covered by monthly mortgage payments over many years, so it’s essential to use a mortgage affordability calculator to help you estimate how much you could potentially borrow.
This is a vital step in determining whether you can afford a mortgage. Remember, there aren’t just the upfront costs, but ongoing monthly payments too.
Find the right mortgage for you
Carefully consider your options here, don’t simply go with the first offer you see. There are many different types of mortgages, each with its pros and cons and some lenders offer specialist first-time buyer mortgages.
Speaking to a mortgage adviser will help you see what’s open to you. Tip: don’t just look at interest rates when choosing your lender. Low rates could be disguising very high fees. It’s important not to overlook this when comparing mortgage deals. It could dramatically impact how much you end up paying.
Mortgage advice fees
Some mortgage advisers will charge a fee for their services. If you choose to hire one, for arranging the mortgage or giving you advice, this can cost around £500 or a commission depending on the value of the mortgage.
Our recommended mortgage adviser offers fee-free advice!
Your home may be repossessed if you do not keep up repayments on your mortgage.
Monthly repayments
The amount you pay a month will depend on:
- How much you’ve borrowed
- Your interest rate
- The duration of the loan term
Your lender will also look at your individual circumstances, such as salary.
The longer your loan term, the smaller your repayments will be each month. Of course, the more you borrow, the longer it will take to pay it back. You’ll also be paying interest on the debt for longer – so this is something to keep in mind.
Interest rates
The interest rate will play a huge role in the cost of buying a home. How much you’ll have to pay back each month will depend on the type of mortgage you decide on. There are a number of different options:
- Fixed – rates can’t change for a set period, usually between 2 and 10 years
- Variable – interest rates can go up and down month to month
- Tracker – where the rate ‘tracks’ another, for example, the base rate (with an added percentage on top)
- Capped – the rate is variable but won’t rise above a certain level
Each has pros and cons, so speak to your mortgage adviser to find out the best option for you. It’s vital you understand how a mortgage works before going any further.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Cost breakdown
Remember, it’s not just monthly repayments – but upfront costs that will also impact the cost of buying a home. So, how much are you likely to have to pay in the beginning?
Booking fee
Also known as an application or reservation fee, paid to your lender once you’ve chosen your mortgage. Essentially, it pays for ‘booking’ the mortgage while your application is processed and will guarantee your rate for a period of time.
Not all mortgages have a booking fee while some lenders will include it as part of the arrangement fee. Others will only add it depending on the size of the mortgage.
Prices can range anywhere from £100-£250 it is always non-refundable under any circumstances.
Arrangement fee
This is what you pay your lender to set up your mortgage.
It can be added to the loan (but you will be charged interest) if the property falls through this is usually refundable, your mortgage adviser can check this for you. You can also specify to your broker that you would rather have a product with no arrangement fee if preferable, but be aware rates may be higher.
Arrangement fees vary from lender to lender, but you’re looking roughly at £0 to over £2,000. Remember, to secure the best interest rates, you may want to pay more for arrangements upfront.
This can sometimes be charged as a percentage of the loan, rather than a flat fee. However, it’s important to be aware you’ll be charged interest on this also. Particularly if taking out a big mortgage, this could make keeping up with monthly repayments harder.
On the other hand, if anything was to go wrong with buying the house, you’d likely lose the arrangement fee altogether. You need to carefully consider what’s right for you.
Valuation fee
This pays for your lender’s survey on the property you’re looking to buy. They need to value your property and make sure it’s worth the amount you wish to borrow. Some lenders won’t charge this fee on certain mortgage deals. If there is a fee it will vary depending on the value of the property. You can expect to pay anywhere between £250 to £1,500 depending on the value of the property.
Note: this survey is about the security of the loan. It gives them an independent confirmation of the property’s value. It is not the same as a property survey, so won’t uncover any issues, such as structural damage or mould.
It’s advisable to carry out your own homebuyers report or structural survey. Rules are different in Scotland.
Stamp duty
Stamp duty is a tax all home buyers must pay on properties over £250,000. It varies depending on the price of the property itself. However, if you’ve never owned a home before, it works a little differently.
Use a stamp duty calculator to get a better idea of what you’d be paying.
Legal costs of buying a home
Solicitor fees are another expense you’ll have to factor into your budget. It’s essential to find a solicitor to help you from start to finish. The conveyancing process is highly complicated, concerned with everything from paperwork to the transferring of fees.
The average cost of solicitor fees is between £800-£2,000, plus 20% VAT. They may also conduct local searches that could be up to £300. Plus, the electronic transfer fee for the mortgage money from the lender to the solicitor can be between £25 to £50.
To ensure you secure a good deal, get a conveyancing quote to help you explore your options.
How much do you need for a house deposit?
Saving for a house deposit can be daunting, and involves making a few sacrifices here and there. Usually, you need between 5-20% of the purchase price of the property.
It’s recommended to save as much as you can here, as it can help you secure a mortgage with more attractive monthly repayments.
Property survey
It can feel like a cost-saving when buying a home to skip the property survey. However, this is not advisable.
While it’s another cost to add to the list, it could save you money in the long term by uncovering nasty hidden surprises that could be expensive to fix.
There are many different types of property survey, the cheapest being the least in-depth. They tend to range from £250 to over £1,500 depending on the survey. Particularly for very old properties, it’s recommended to get a full structural survey.
If you’re buying a new build like many other first time buyers, don’t assume that means all is as it should be. You should still put together a new build snagging list. ‘New’ doesn’t mean ‘perfect’!
Moving costs
An easily forgotten cost in buying a house is removal costs. These can be up to £1,000, but you’re most likely looking at around £600.
Some home buyers choose to simply hire a van and do the move themselves to save money. However, be aware that your possessions may not be insured – most insurance companies require you to use a professional removals service. Therefore, if something was to get damaged during the move, that would be another cost you’d have to cover yourself.
So, it’s best not to risk it, get a removals quote to ensure you’re protected.
You can choose different packages, for example, professional packing to be included or not included. Carefully consider the size of your home, and the amount of valuables you have, to help you make the right decision.
Insurance costs of buying a home
Struggling to get your head around which insurance to get? Let’s take a closer look.
You’ll be required by your mortgage lender to take out buildings insurance if you’re buying a freehold property. The cost of this will depend on your individual situation, e.g. where you live and the property itself.
It’s important to take this out from the moment you exchange contracts. You’ll be legally responsible for the property at this point, even if not living in it. Get a home insurance quote to find out how much you’ll be paying.
Other types of insurance
Of course, building insurance isn’t the only type of insurance you can take out to protect yourself.
Home buyers’ protection insurance can cover you should the house sale fall through for any reason, such as the seller changing their mind. It’s there to protect buyers from losing the full amount of costs already paid, e.g. survey fees. It can cost anywhere between £250-£1000.
Life insurance, crital illness cover and in some cases mortgage protection insurance are other safeguarding measures you should consider. There is no one-size-fits-all with any insurance cover and costs.
Of course, these and contents insurance policies are other added costs that some home buyers look to avoid. However, they could end up saving you money in the long term.
Ongoing costs of buying a home
Of course, there are a number of ongoing costs you need to factor in.
Council tax
The amount of council tax you’ll pay depends on where you live and how many people live with you. It’s charged per household not per person.
Check your banding to see how much you’ll be charged.
Maintenance fees
Running a property can be costly! The different fees can add up, including:
- Redecorating
- Electric bills
- Gas bills
- Water bills
- Broadband
- Damage/repairs
- Service charges e.g. maintenance for shared building
- Parking
- Television and telephone charges
When looking to buy, it’s vital you factor all of these into your budget. Don’t assume upfront costs are the only ones you’ll have to contend with.
Leasehold costs
Is your property freehold or leasehold? If it’s the latter, you’ll have to pay ground rent charges.
With leasehold properties, you do not own the land that the property sits on. The most common example is a flat. Therefore, you will be required to pay a certain amount to the freeholder (who does own the land) in order to keep your property. You will only own the property for a certain amount of time – hence the ‘lease’ part.
Before you buy, it’s always worth checking how long the lease has left on it. It can be harder to get a mortgage, or to eventually sell, properties with 50 years or less on the lease.
Average cost of buying a house
The costs involved in buying a house depend on a range of factors, such as location and property size.
It isn’t just the property price itself, but the extra costs involved, as mentioned above, that you need to factor into your budget.
Fluctuations in the housing market will cause prices to change. You should pay close attention to when you’re buying – and if it’s a good time.
How to save money
Leverage a chain-free status
When buying a house for the first time, you should leverage this status, as you’ll be more attractive to sellers.
The reason? You’re chain free. Use this to your advantage when it comes to negotiating a house price.
Some sellers have been known to accept lower offers from first time buyers as there’s more security of a sale.
Save, save, save…
The higher a deposit you manage to save, the lower your monthly repayments will likely be. So, the more you can save now, the better your position will be later.
Compare service providers
Why pay more than you have to for your bills?
Gas and electricity quotes can be compared online to help you find the best deal.
Switch energy supplier might save your money each month.
The same applies to your internet. Not only could you find a better connection, but you could also save money by switching broadband supplier.
Consider location carefully
You’ll need to weigh up what’s most important to you. City living can be significantly more expensive, but offers benefits such as good transport links.
Before you move, do thorough research on an area to determine if it’s a good place to buy. This includes everything from crime rates to local schools. Remember, you can change many things about your home – but not its location!
Get a property report to find out everything you need to know.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Last Updated: November 1st, 2024
