When your lender has confirmed how much you can borrow, add your deposit money to this to work out your price range. You should take into consideration other homebuying costs as well. These include the valuation fee, survey fee, legal fees, stamp duty, Land Registry fee and removal costs.
The Estate Agent
You should be clear about the estate agent’s position. He or she is working for the seller of the property and receives a fee based on the price paid for the property – remember this when it comes to taking their advice on what to offer.
It is a criminal offence for estate agents to leave out something important or make false statements about any property. Any misdescriptions by an estate agent should be reported to your local trading standards office.
The costs involved in buying a new home soon add up. Solicitor’s fees are often around £400, plus VAT; the lender’s valuation fee is likely to cost upwards of £150, depending on your lender; a Homebuyer’s Report can cost around £450, depending on the size of the property; and then there’s stamp duty to consider. Sometimes, particularly for capped and fixed-rate mortgages, lenders charge an arrangement or booking fee. These can vary from £60 to £2,000+.
All these costs have to be accounted for when deciding how much you can afford to pay for a property. Make sure you obtain a quotation in advance of instructing a solicitor or surveyor to carry out work for you.
One of the biggest costs associated with moving home is stamp duty. This is paid to your solicitor who passes it on to the Stamp Office. There is no stamp duty to pay on property purchases below £125,000. The duty is 2 per cent of the price of properties costing between £125,001 and £250,000, 5 per cent for those up to £925,000, 10 per cent for properties costing between £925,001 and £1.5 million, and 12 per cent for properties over £1.5 million.
However, there are some areas where property purchases up to the value of £150,000 do not attract stamp duty. Your solicitor should be able to tell you if your chosen property is exempt.
Higher lending charge (HLC)
When a mortgage exceeds a certain percentage of the valuation of the property – usually 90 per cent, although it could be higher – you may be required to pay a one-off fee. This is the HLC which covers the lender if you default on your mortgage. The fee varies from lender to lender but can be substantial. The fee is normally paid on completion, although in some cases it can be added to your mortgage.
Another outlay to consider when buying a new home is the cost of insurance.
Homebuyers should consider the following types of insurance cover:
Buildings and contents insurance – your lender will insist the property is covered by buildings insurance, and you will be asked to provide evidence this is the case. Contents cover is optional. If you buy household insurance, you will get both types of cover.
Life insurance – this can be set up to pay off your mortgage in the event of your death. If the policy is set up purely to cover your mortgage you can cut your monthly premium by opting for term insurance rather than a whole-of-life policy.
Mortgage payment protection insurance (MPPI) – this will cover your mortgage repayments if you have an accident or are sick and unable to work, or you are made redundant. The cover usually lasts for up to 12 months
Choosing a home
Once you have an idea of the amount you can borrow and have considered your mortgage requirements you can start looking for a place to buy.
When househunting, bear in mind what a lender will look for when it values a property. Mortgages will be given on most buildings provided they are structurally sound. However, if basic amenities are lacking, the lender may retain some of the mortgage until the work is done.
To reduce the amount of money needed upfront you could take advantage of special deals offered by lenders. Some let you add the cost of the HLC or arrangement fee to your mortgage so you don’t have to find cash in advance. This can be good news if you lack ready cash, but remember interest will be charged on anything added to your loan.
Over the term of your mortgage the real cost of any fees added to your loan will grow.
Some lenders offer to reduce the upfront costs of a deal. Popular incentives include free valuations and money to put towards legal fees.
Another way to raise the cash for your costs is to take a cashback mortgage. These give a lump sum payment on completion. If you redeem your mortgage early you may have to repay the cash, as well as any redemption penalties. This may also be the case if you have received money to cover legal fees. Ask about this before signing up for a mortgage.