Don't get stung by these hidden homebuying costs!
But as well as the costs you have budgeted for, there are sneaky fees and charges you may not have even considered, and they can add up to thousands of pounds.
Therefore, it's essential to ensure that your savings pot is both bountiful and realistic.
The costs you know about
1. The biggest cost is your deposit, and it can be enormous. There are a handful of mortgage deals on the market that only require a 5% deposit, but most lenders demand at least 10% of the property's purchase price upfront. Based on Rightmove's average UK property price in February of over £233,000 that is an eye-watering £23,000. And if you want to bag the best mortgage rates you will have to stump up at least a quarter of the price as a deposit.
2. The second obvious cost is Stamp Duty, which currently kicks in if you buy a property for more than £125,000 (first-time buyers pay nothing up to £250,000 until 24th March). Most properties fall between £125,000 and £250,000 and you are charged 1% of the purchase price (up to £2,500), then the cost rises through tiers up to a whopping 5% if you buy a home for over £1m.
3. If you are selling your property as well as buying a new one you have probably considered the estate agency fees - on average between 1% and 3% of the sale price. According to recent research by Lloyds TSB, the average estate agent fee is a huge £3,377, although you can pay a fraction of that if you use an online estate agent.
They are the big three you probably already know about, but what about the homebuying costs that you may not have even considered – or budgeted for?
Rocketing mortgage fees
If you can afford the monthly repayments you can afford the mortgage, right?
With average mortgage fees having rocketed in the last year you really need to make sure you budget for the entire cost of arranging your homeloan. According to financial information provider Moneyfacts average mortgage fees are £1,300, an enormous 69% higher than a year ago.
But fees can vary widely – from nothing to a couple of thousand pounds (and sometimes more) so it is vital that you work out the total cost of any mortgage (including monthly repayments and fees) over a set period.
And just to bamboozle you, these fees comes under a range of different names, including application fees, administration fees, arrangement fees and completion fees. Make sure you fully understand all the mortgage-related fees and charges to avoid any nasty shocks further down the line.
A charge for borrowing big
When you put down a small deposit you pay for it with higher mortgage rates. But some lenders make you pay again with a sneaky fee called the Higher Lending Charge. This extra cost is supposed to protect the lender because there is a higher risk of you defaulting on your loan and falling into negative equity.
In the last 10 years most lenders have scrapped this little-known charge as it is unfair, unclear and old fashioned. But a few remain – Leek Building Society still imposes a Higher Lending Charge if you borrow more than 75% of the property's value – so check your lender's policy.
When is a quote not a quote?
The legal transfer of a property from one owner to another might seem like a straightforward task, but it can be time consuming and expensive.
However if you do a quick online search you could be forgiven for thinking that conveyancing can be achieved for as little as £100. But it is essential that you check what your quote includes, as they very often leave out a large chunk of the cost.
Most conveyancing fees are split into 2 parts – one is the actual fee for the work, and then there are disbursements, which are additional set costs including the Land Registry Fee at £200 and a Land Transaction Form at £50 among others. If they are not included in your headline quote, your costs could actually double, so double check!
Don't pay twice for your survey
Your mortgage lender requires you to get a valuation, so they know what the property is worth. This is very basic and some buyers decide to get a more thorough survey, called a Homebuyer's Report or even a full structural survey, where no stone is left unturned.
However, if you pay more for a more detailed survey, be warned that lenders often have approved valuer/surveyor panels, and if you don't use a firm on their list, you will have to pay for an additional valuation from one that is approved. In other words you may have to pay twice.
Are you covered?
When you take out a mortgage your lender will insist that you have buildings insurance to protect your home in the event of a fire or flood for example – after all the property is the lender's asset. This cover might typically cost a few hundred pounds a year, depending on the rebuild cost of your home (which is very different to the actual price paid).
The important thing to note is that you are actually responsible for the buildings cover from the time of exchange of contracts, not from when you actually own the property on completion day. In other words the lender wants to know you have insurance in place before it releases the mortgage funds to your seller's solicitor.
Steep service charges
If you are a leaseholder rather than a freeholder (a flat is usually bought leasehold while a house is often bought freehold) you may be liable to pay a service charge or ground rent to your freeholder or managing company – it covers maintenance of communal areas like lifts for example.
This charge can vary enormously from a token charge to a serious sum. Many city centre apartments have monthly service charges of £100 for example, so be sure to ask about them.
Expect the unexpected
Finally, even if you have taken into account all the fees you could possibly be liable for, do ensure you have a contingency fund for unexpected costs, because the fact of the matter is they almost always crop up.
Whether it's the survey throwing up some essential work you hadn't budgeted for, the hole in the carpet you discover after the seller's 'well-placed' furniture has been removed, or the £30 CHAPS fee your bank charges for transferring your deposit, the costs just keep on coming when you purchase property.
And that's before you even begin to think about furnishing your new home!