First time buyers have been given a hand from the government as they cut stamp duty on properties up to £500,000. But this isn't the only fee you have to pay when buying a property. We’ve compiled a list of all the costs you need to know before you can even think about getting a new set of keys.
The 'New' Stamp Duty
For properties up to £300,000 first time buyers pay no stamp duty. For properties up to £500,000, 5% is paid on the portion from £300,001 to £500,000.
For example, if you buy a £400,000 property you won’t pay tax on the first £300,000 but will pay 5% on the next £100,000. That is £5,000 stamp duty to pay (before the 2017 budget this would have cost you £10,000).
If buying a property over £500,000 there is no releif, you will pay exactly as before. You can find the rates here.
Bigger is better when it comes to dogs, chocolate chip cookies and your closet storage space. Same goes for your house deposit. The bigger the deposit, the cheaper your mortgage repayments. It’s that easy. Twenty percent is a good target to aim for however 15 or 10 percent is not uncommon (so don’t be defeated).
Here’s an idea of how much you’ll need to save for the deposit…
|Average house price*
|Rest of UK £226,000
*Data from gov.uk House Price Index (HPI) for August 2017. You can find a full list of house prices here.
Side note: It’s wise to cap your house price at four times your household income.
Mortgage Broker Fees
To find the cheapest mortgage rate you can look at banks online or go to an independent broker who will give you an idea of rates offered by the whole market. A broker may also be useful if you have problems getting a mortgage with a bank, for example buyers with a low 5% deposit are more likely to be rejected.
There is a catch, though. Brokers don’t work for free. They either charge a flat fee or a percentage fee, which varies depending on your circumstance. The more complex your application, the higher the fee. As a guide, a flat fee is usually around £500 and a percentage fee around 0.35%, which is £350 for every £100,000 borrowed.
So is the fee worth it? If the broker secures you a lower mortgage rate, then YES! Your mortgage is an annual percentage and most last at least 25 years, making even a small rate deduction a huge money saver over time. Independent brokers tend to also offer more sound advice since they’re fully qualified to do that specific job. But, before you speak with a broker do your homework and research the cheapest rates direct from banks.
Other Fees to Consider
The fees don’t stop there (we said there were a lot!). Here are the extras you’ll need to save for too:
Arrangement Fee (aka Product Fee) charged by the mortgage lender, costing from £0 - £1000.
Valuation Fee charged by the mortgage lender to value the property and check that it’s worth the amount you wish to borrow. The cost is from £150 - £1,500 depending on the property value.
Surveyor Fee charged by a surveyor to check there are no major problems with the property before you commit. The cost is from £300 - £700 depending on how in-depth you want to go. It’s worth asking your lender if the fee can be tagged on to the valuation at a reduced price.
Legal Fee charged by a solicitor who prepares all the paperwork, this includes the transfer of ownership - aka conveyancing. Costing £1,000 - £1,800 depending on the value of the property.
All in, the ‘other’ fees cost between £1,450 and £4,000.
Surprised by all the upfront payments involved? So were we! One way to reduce the initial blow is to open a Help-to-Buy or Lifetime ISA to receive a 25% bonus from the government on money saved towards buying your first home. Using a Help-to-Buy you could get a £1,450 bonus over two years of saving (multiply this by two if your partner also opens an ISA). But there are rules you need to follow so read our guide before you go ahead.