What Fees, Charges And Taxes Will I Pay When Buying A House
There are fees, charges and taxes to pay before completion on your new home
This guide explains extra costs involved in buying a home. We’ve included a list of what you’ll have to pay for, when you’ll need to pay it, and who you’ll need to pay it to.
These are paid to your lender. Most products have at least one mortgage fee. Sometimes two; the mortgage arrangement and the mortgage booking fee. Here’s how they work:
Some lenders charge an arrangement fee. In the past, this covered a lender’s administration costs. Now it’s a key part of the actual mortgage like the interest rate. It is sometimes called a product fee, booking fee or application fee.
Before you choose a mortgage, look at the fees and consider:
Oddly low rates or high fees. Lenders often use high fees to make their interest rates look better. They rise up the online comparison tables. Some charge fees of £2,000+. Expect to pay at least £1,000 to get a decent rate.
Is a Low or High Fee Best?
This depends on the size of the loan you need. Higher fees work better for larger loans. You may have the option to pay the arrangement fee upfront. This is when you pay any booking fee. You can otherwise add the fee to the mortgage. The disadvantage of adding the fee to the mortgage is that it will incur interest. If you pay the fee upfront, there’s a chance you could lose it if the purchase falls through.
So what should you do? Luckily, There is something you can do so you don’t lose the fee and also don’t pay interest on it:
“Add the arrangement fee to the loan – but pay it off immediately.” Adding the fees onto your mortgage protects you from losing any of the fee paid. It won’t affect your loan-to-value band. However, if you are at the top of a band, the lender might not allow you to do that.
To avoid paying interest on the fee, if you can, ‘overpay’ straight after the mortgage completes. You might be allowed an overpayment of 10% of the balance each year. Any more may incur a penalty.
Some lenders charge a booking fee. This may be to secure a fixed-rate, tracker or discount deal. It’s sometimes called an application fee or a reservation fee. It shouldn’t cost more than £100 – £200.
You will pay this fee as soon as you submit your application. A booking fee is non-refundable.
This is paid to your lender. This is paid to check how much the property you are buying is worth. This might be different to the offer you’ve made.
This is done for their security, so if things go wrong and you fail to repay, they can repossess the property and recoup what they have lost. Valuation survey costs vary according to lender and purchase price. Budget for about £250.
Note: This is not the survey which you instruct. It is for the lender.
This is paid to your surveyor or lender. It is not compulsory but advisable.
While a valuation is for the lender’s benefit (see above) a survey is a thorough inspection of the property for your benefit.
It will search for damp, structural problems, plumbing issues and more. Many buyers use the information gained in the survey to negotiate a better price.
If you don’t get a survey and problems occur at a later date, there are limited options. The lender’s valuation offers no protection. You can pick your own surveyor. You can ask the lender how much it’ll cost to upgrade the level of valuation. You should only need to pay the difference. You need to make this clear at the application stage. Ask the lender or your broker to check.
You could fork out for the survey and the purchase could fall through. An advantage of organising it yourself is you can leave it until the last possible minute. Ideally you’d do it after the mortgage offer is in place. It must be done before exchange of contracts or conclusion of missives.
If you’re using a broker, they may charge a fee. Or, there are brokers who get their cash from the commission a lender pays them. These are fee-free to you.
A fee can be anything from a fixed fee of £300 to 1% of the loan amount (£1,000 per £100,000), which is expensive.
Cost can also depend on whether the broker keeps the commission from a lender. A reputable broker may reduce your fee if they are getting decent commission. Always ask.
Beware of brokers who ask for the fee upfront. Like most fees paid in advance, you could lose it if you do not go ahead.
Stamp Duty (SDLT)
This is paid to the Government. It is the tax you pay to the Government when you buy a property. You’ll pay it to your solicitor. They will then pay it to HM Revenue & Customs when your property purchase completes.
There is no charge on properties of £125,000 or less. Above that, you are charged. The rates were changed in December 2014.
Stamp duty is abolished for some first-time buyers. Following the Autumn 2017 Budget announcement, ALL first-time buyers are exempt from stamp duty on the first £300,000 of homes worth up to £500,000. This does not apply to first-time buyers in Scotland and Wales. If a first-time buyer purchases a property costing more than £500,000, the new relief will not apply.
In, Autumn 2018, the Chancellor announced first-time buyers’ relief will be extended to those buying shared ownership properties valued at up to £500,000.
This is paid to your solicitor. You pay your solicitor to cover the cost of all the legal work associated with buying a home. This includes conveyancing costs, paperwork and checking environmental factors, planning permission issues or other hidden problems.
Some lenders (in England and Wales) pay fees for you. This is only if you use one of their chosen solicitors. They may just give you cashback once the mortgage has completed. If you choose your own solicitor, inform your lender.
Expect the total cost to range from £1,000 to £1,500. It depends on how much your property costs. You often pay the solicitor at several intervals during the buying process. They incur costs on your behalf.
Land Registry Fee
This is paid to the Land Registry and is a few hundred pounds. The Land Registry registers properties under their owners’ name. When you buy a property the Land Registry charges a fee to transfer the register entry into your name.
This fee is dependent on property value. Houses sold for between £100,001 and £200,000 will face a fee of £200. Those sold between £200,001 and £500,000 pay £300.
This is another fee your solicitor will call a ‘disbursement‘. They will ask for money to pay it for you when you complete the property purchase.
Once you have found a property you want to buy get quotes as soon as possible so you can budget, no-one wants to be hit with unexpected costs.