Whether you are a first-time buyer, or selling your current property and moving on to the next, there are a number of fees and charges that you will need to factor into your overall budget when considering the cost of purchasing a house. It’s a good idea to make a note of all these potential fees and charges when you begin the process of buying a house so that you can budget accordingly.
So, what are these fees and charges, why do you need to pay them and how much can you expect them to cost? Here’s a rundown of some of the most common extra costs you may incur (aside from your deposit) that you should budget for when looking to take out a mortgage.
It is important to note before we begin that each lender will set their own range and scale of fees for the mortgages they provide and these will differ from lender to lender and also between the different mortgage products offered. All lenders should, however, clearly detail all of the fees and charges relating to the mortgage you have applied for in a mortgage illustration document or an enhanced key facts illustration, which you should check carefully to avoid any surprises.
More than half of mortgages come with some level of arrangement fee and other charges for setting up the loan. The arrangement fee exists to cover a lender’s administration costs in processing your application, and can typically range from anywhere between £100 and £1,500. Whilst you can obtain mortgages with no fees, you may find that these deals come with slightly higher interest rates to compensate the lender.
If you choose a mortgage with a fee, you may be given the option to either pay this charge upfront or add it on to your loan. It’s generally non-refundable, so if you pay it upfront and something went wrong with your purchase later down the line, you won’t get it back. Also be aware, however, that if you add it onto your loan, you will be increasing your total borrowing and will have to pay interest on that extra amount for the term of the loan, which will end up costing you a little more in the long-run.
You may also come across a booking fee (otherwise known as an application fee), typically costing £100-200. This pays for ‘booking’ the mortgage product while your application goes through. Lenders will often charge this to secure a fixed-rate, tracker, or discount deal. This fee is due to your lender as soon as you submit your mortgage application, so can only be paid upfront.
Your mortgage lender will want to value the property you are buying before lending against it. This is to determine what the actual market value of the property is, as opposed to the price you may have agreed to pay. Just because you are willing to pay a higher price to secure the property, does not mean the rest of the market would be willing to pay a similar premium. The valuation gives the mortgage lender a professional estimate of the current market value of the property, should they have to repossess it. They will base their lending criteria upon the lower of either the valuation or purchase price.
You will normally be responsible for paying the cost of this valuation, which can be between £200 and £1,500 depending on the size and type of the property. Your lender will arrange the valuation and the fee is usually charged upfront. Some lenders may offer a free valuation as part of their mortgage deal, which could be an attractive option.
It is important to note that the above valuation produced for your mortgage lender is a very basic report (normally just one page) and is provided for the mortgage lender’s purposes only. It will not make any structural inspection, although it should comment on any clear or suspected structural issues.
If you are buying a particularly old or unusual property, or if you have any concerns at all regarding the condition of the property, then it is a good idea to get your own, more detailed survey, from a suitably qualified surveyor. This should help to pick up on any issues with the property before you commit to the purchase and may save you a lot of money in the long run.
The cost of this report will depend on the scale of the investigation required and could vary from £200 to £2000 for a full structural and/or environmental survey. The most common types of survey are:
- Homebuyer RICS valuation – examines the general condition of the property and is suitable for modern homes in reasonable good condition. It should highlight any major issues identified regarding the property and surrounding area and may recommend further, more detailed inspections and reports if appropriate. This usually costs around £350.
- A building survey – also known as a structural survey, provides a more in-depth analysis of the condition of the property, its structure and the condition of the materials used in its construction. This survey will not involve any intrusive investigation such as removing roof tiles, floor or wall fittings, wall plaster, or any groundwork, but should recommend further specialist reports where necessary to fully identify the scale of any potential issues. This can cost anywhere from £600 upwards.
- Specialist surveys – if the surveyor is concerned about a specific point of area, they may suggest additional specialist surveys such as rot, subsidence, collapsed drains or contamination. This can potentially run into several thousand pounds.
Stamp Duty Land Tax fees
Stamp Duty Land Tax is a really important charge to be aware of as it can add thousands of pounds to homebuyer’s cost. At the time of writing (December 2020), you will not have to pay Stamp Duty on properties costing up to £500,000, up until 31 March 2021.
There are several rate bands for Stamp Duty and the tax is calculated on the part of the property purchase price falling within each band. Here are the current rate bands for Stamp Duty rates in England and Northern Ireland:
- £0-£125,000 – o% to pay
- £125,001 – £250,000 – 2% to pay
- £250,001 – £925,000 – 5% to pay
- £925,001 – £1,500,000 – 10% to pay
- £1,500,001+ – 12% to pay
This tax is paid by your solicitor on the completion day of the purchase and you will have to make sure they are provided with the funds in advance of this happening. It is usually paid over a couple of weeks ahead of completion, along with any cash deposit required and with the solicitor’s own conveyancing fees.
When you purchase a property, you’ll need to engage a suitably qualified property solicitor or licensed conveyancer to handle the legal aspects of buying a property. There are a few different fees involved with the conveyancing process that are usually added together and charged to you by your solicitor upon completion of your property purchase:
- Legal fees – your solicitor will either charge you a flat fee or a percentage of the value of the property you’re purchasing. You might pay anywhere between £500 and £1,500 depending on the type of the property, it’s location and how complex the transaction is
- Land Registry fees – your solicitor will register your property with The Land Registry, a government department that keeps records of all registered properties in England and Wales. This is required whenever a property changes ownership and the process incurs a fee of between £90 and £140, depending on the purchase property
- Searches – a number of local searches are carried out by your solicitor in order to identify anything that might negatively affect the home you’re buying, such as flood risks, risks of subsidence and as a result of coal mining in the area and proposed planning applications, such as new roads or rail lines. The cost for searches typically comes in at around £200-300.
- Money transfer fees – this covers transferring cash between mortgage lenders, solicitors, buyers and sellers. Expect to pay around £30 for each transfer required in the transaction.
- Scheme fees – there may be an additional cost depending on if you are buying on a scheme (Shared Ownership or Help to Buy) or if you are buying a new property. Your conveyance will make you aware of this at the point of engagement.
Early repayment charge
This charge only applied if you have an existing mortgage deal that you are repaying early from the sale proceeds of your current property. It generally only applied where you have taken out a fixed or discounted interest rate deal and you will be repaying this before its agreed expiry date. This charge can sometimes be avoided by transferring or ‘porting’ the mortgage deal across to your next property.
Early repayment charges can be between 1% – 5% of the mortgage amount, so can run to several thousand pounds. You could check your current mortgage deal carefully first to see if this applies, before calculating the cost of moving. It may make good sense to delay any house move until the deal has expired if it saves you paying this cost.
Mortgage broker fee
Purchasing a property is probably the biggest financial commitment you will ever make, so getting the right advice and support can be vital to help avoid making costly mistakes. For this reason, it often makes sense to engage early with a qualified and experienced mortgage broker, such as us here at Mortgage Light, who will guide you through the process, help to identify and schedule all the fees and charges involved, as well as search the mortgage market for the best deals for your particular circumstances.
Mortgage brokers will generally either charge you a fixed fee for their work, or a percentage of the loan amount. Either way, they will be upfront and transparent about exactly how and how much they are being paid for the work they do.
If you turn to us here at Mortgage Light, we will explain the mortgage process in clear and simple terms and provide you with a range of the best solutions available to suit your particular circumstances. We start this process by listening to you and understanding what your priorities, concerns and aspirations are, and then tailoring our service to suit you.
Want to know more about how we can help? Contact us when you are ready to begin the exciting process of purchasing a new home.