buying a house

Costs To Account For When Buying A House

Are you considering buying a house, flat, or apartment?

That’s great! 

And a wise investment.

The thing is, though, buying yourself somewhere to live can often come with unforeseen costs.

Costs you are best being aware of now before committing yourself financially.

And that’s important, as buying a house will be one of the biggest investments you are likely to make in your life, and any further costs that you weren’t expecting can really hurt your bank account.

Unfortunately, buying a home isn’t as simple as laying out a bunch of money upfront.

On top of the price of the property, there is a wide range of associated costs both before and after settlement.

Never fear though, as we are going to detail some of these expenses so you can be super prepared.

Eliminating any unnecessary stress when making your big purchase.

The Real Cost Of Purchasing A Home

The Deposit

The very first cost you are going to incur when buying a house is, of course, the deposit. If you’re a first-time buyer that is likely to be 10% of the total cost of the property. So if the prospective property is worth £200,000 then the deposit will normally be £20,000.

It is important to note, the more you have saved for a deposit right now, obviously, the less you will have to pay later. This affects something that is termed your loan-to-value ratio or LTV. Using the example above, your LTV ratio would be 90% for a £20,000 deposit on a £200,000 property. If you instead dropped £50,000, your LTV ratio would be 80%.

And what is the advantage of having a lower LTV ratio?

There are a couple of advantages. The most obvious of the two is you won’t have to pay back as much in the long run. The second, you will have access to better mortgage product deals which charge lower interest rates, and again, will lower the overall amount of money you will have to pay back long-term.

Stamp Duty

Unfortunately, when you buy property there is a wide range of associated tax costs.

Stamp duty is just one such tax and, unless you are purchasing a property in the UK that is less than £125,000, you are going to have to pay this tax. 

Good news for first-time buyers, however!

New laws passed recently in England and Northern Ireland have exempted first-time buyers from paying stamp duty on properties up to £300,000. 

But what if you buy property above this value?

Well, for purchases of between £300,000 to £500,000, first-time buyers will only pay stamp duty tax on any amount above £300,000. Unfortunately, though, if you are buying a property above £500,000, you’ll receive no relief from a stamp duty tax at all.

Bummer!

Mortgage Fees

Another major ongoing cost you will have to consider is mortgage fees. Due to legislative changes, lenders must now consolidation all mortgage fees, such as valuation fees and redemption fees, into an annual interest calculation, commonly referred to as the “overall cost for comparison”.

Within the overall cost for comparison, borrowers will find booking fees which usually cost between £75 to £250 depending on the lender, arrangement fees or completion fees which come in at between £500 to £2,000, and electronic transfer fees which are usually around £40.

Real Estate Agent Fees

The next major costs to a buyer are real estate agent fees. There are a number of these fees that are worth budgeting for as they can quickly add up if you aren’t ready for them. 

The first of these fees is a valuation fee. This is charged to buyers who wish to have their prospective home valued. It’s a good idea to do so, firstly you can be sure the asking price for the property is justified and secondly a valuation of the property by a third party will give you a rough idea of the amount you should put forth to the seller.

The cost of a valuation is usually between £200 to £350.

The second fee most prospective buyers will incur from real estate agents is surveying fees. Surveying should be carried out on properties before a buyer commits to purchasing it. This will ensure there are no unforeseen problems like structural, termite, damp, or subsidence damage.

Surveyor fees normally cost between £300 to £1,500 depending on how detailed the inspections are. The more detailed work is carried out the more expensive the fees will be.

The third fee you are likely to incur from real estate agents is conveyancing fees. Conveyancing fees are paid to licensed conveyancers to take charge of the legal aspects of purchasing a property. Often the conveyancer will charge you a flat fee or a percentage of the property’s overall value. This will usually cost prospective buyers between £500 to £2,000. 

And the last fee that you will likely pay from real estate agents is a land registry fee. Land registry fees are charged to new owners for registering the property under their name. This service will cost around £100 to £200.

Conclusion

There are many costs you must factor into your budget when buying a house, many are obvious and many aren’t so obvious.

It can be almost impossible to keep track and at times it is easy to feel overwhelmed with the amount you must keep on top of. 

This is why, here at Emma, we have developed an app that will help take some of the feelings of stress and anxieties out of managing your finances. 

Emma’s features will assist you to

  • avoid any expensive overdrafts
  • track your expenses
  • analyze your debt-to-income ratio
  • assist you in paying off any debt you may have accumulated
  • maintain your invaluable credit score
  • find any hidden bank fees
  • track any interest you are accruing
  • find easy ways to save
  • get notified when you receive a refund, direct debit from another account, or your salary clears into your bank.

Emma is available for download on both the App Store and Google Play Store.

Edouard Daunizeau

I look after all things Growth here at Emma. I come from France and have spent the last few years scaling consumer tech startups in the UK and beyond. 🚀