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The hidden costs of buying a home

Deposit, check. Legal fees, check. But is that all? Or are there other home-buying costs you forgot to account for? | ClearScore

22 December 2017Andre Spiteri 5 min read

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Buying a home is a big deal. Not only does the process tend to be long and involved, but it’s probably the most expensive thing we’ve ever bought.

Yet, despite all the careful planning that goes into a home purchase, many first-time buyers underestimate the total cost by as much as £44,000. Not only do they end up paying more for the property itself, but they also forget to budget for the other expenses related to buying a home. So what exactly are these hidden costs and how much could they end up costing you?

Surveys - the cost of uncovering hidden issues

Before you make a final offer on a property, the majority of people will opt to conduct a survey on the house. For this you'll have to pay fees and while it's not compulsory it’s usually worth doing. It can save you from buying a property that needs thousands of pounds in repairs, or at the least give you leverage to negotiate a lower purchase price should any issues arise. Consider this: one in four home purchases fell through in 2015 because of bad survey outcomes.

Most lenders will also carry out a valuation survey for themselves when deciding whether to give you a mortgage and you’ll generally have to cover this cost too. This is to confirm whether the property is worth what you’re paying for it (it doesn’t look at its condition). In contrast, a home survey will check specifically for defects or other problems.

There are four main types of home survey, which one you choose will depend on budget, the level of risk you're willing to take and the age of the house:

  • Snagging survey

    This checks for issues in newly built homes. Ideally, you should get this survey done after the building is finished but before your legal completion date. that way the developer can fix anything before you move in. However, you can get it done up to two years after your move-in date, and the developer will have to fix any issues for free.

  • Condition report

    This highlights any urgent repairs, for example a gas or water leak. It’s quite basic, so it’s usually suitable if the property has been recently built.

  • HomeBuyer’s report

    The most common type of survey, this gives you more in-depth advice. Aside from urgent repairs, you’ll learn whether there are any issues you may want to investigate further, such as damp patches or possible faults in the heating system.

  • Building survey

    This is the most comprehensive type of survey. The surveyor will check the foundations, investigate damp patches, look under the floorboards and even test for asbestos. It’s usually a good idea to go for this if you’re buying a home built 50 years ago or more.

A home survey can cost £350 and up, depending on the type of report and the size of the property. You can find a surveyor near you through the Royal Institute for Chartered Surveyors’ (RICS) website.

Mortgage arrangement fees and administrative charges

On top of the actual cost of the mortgage, there's a number of fees that you have to pay to your lender to arrange your mortgage.

  • Booking Fee

    This is an application fee, and it’s non-refundable, even if the mortgage falls through. Not every lender charges it, but those that do usually charge between £99 and £250.

  • Arrangement fee

    This covers the cost of setting up your mortgage, and it can amount to upwards of £2,000. As a rule, mortgages with a high arrangement fee have a lower interest rate, while those with a low arrangement fee have a higher interest rate. Learn more about getting the best mortgage rate.

  • Valuation fee

    As mentioned above, this covers the valuation survey, which lenders carry out to make sure the property’s worth what you’re paying for it. It can cost £150 and up, depending on the value of the property.

  • Telegraphic transfer fee

    This pays for the cost of transferring the money you’ve borrowed to your solicitor. It’s usually between £25 and £50.

  • Mortgage account fee

    This covers the cost of maintaining and, eventually closing your mortgage. Not all lenders charge this. Typically, it’s charged instead of an exit fee. It can cost between £100 and £300.

Paying the Taxman

The UK government recently announced it abolished Stamp Duty for first-time buyers, to much fanfare.

Stamp duty is a percentage of your home’s purchase price. You can find out how much you’ll have to pay using this stamp duty calculator.

But, depending on your circumstances, you may still have to pay up.

In particular:

  • The exemption only applies to the first £300,000 on homes costing up to £500,000. It doesn’t apply at all on homes costing over £500,000.

  • If you’re buying with a partner, you both have to be first-time buyers

  • The exemption doesn’t apply in Scotland, which has a different system called Land and Buildings Transaction Tax

Getting insurance

Buildings insurance will probably be a condition of your mortgage. It pays the cost of repairs or rebuilding if your home is damaged by one of the events covered in the policy.

Cover varies from one insurer to another. However, you’ll usually be allowed to claim if the damage happens because of:

  • Vandalism

  • Subsidence (when the ground under your home collapses or starts sinking and takes part of the foundations with it)

  • Falling trees

  • Fire, smoke or explosions

  • A vehicle collision

  • Water damage from leaking pipes

  • Oil leaking from your heating system

  • Natural events such as storms and floods

According to the British Association of Insurers, the average cost of home insurance in 2016 was £308 per year.

The hidden costs of owning a home

Costs don’t end once you sign on the dotted line. Home-ownership has both one-time and ongoing costs you might not have thought about.

  • Before you move in

    While a home survey may give you enough leverage to negotiate a lower price, you’ll still have to fork out the money for repairs yourself (unless you’ve bought a new build, in which case there’s a 2 year Developer’s Warranty).

    The average first-time buyer spends £3,727 on essential repairs when they first move in — £1,680 more than planned.

  • The cost of apartment living

    If you buy a flat, you’ll have to pay a service charge. This covers the cost of maintaining the common parts. The average Brit pays £1,863 a year in older properties and £2,777 a year in new builds.

  • Ground rent

    If your property is a leasehold, that means you only own the property for a fixed period. So you’ll also have to fork out an average of £371 a year on ground rent.

In conclusion

We know there are a lot of costs to contend with, but having a better idea of what they are will help ensure you're not met with any nasty surprises and allow you to budget accordingly. Nothing beats the feeling of holding the key to a place you can truly call your own - so good luck with it all.

Next step: Get your free credit score from ClearScore to see personalised mortgage offers from leading lenders today.

Andre Spiteri Image

Written by Andre Spiteri

Financial Writer

Andre is a former lawyer turned award-winning finance writer.