A Guide to the Additional Costs of Buying a House

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What You Need to Know

  1. Aside from first time buyers, most of us need to sell in order to move. On average an estate agent's fee will be in the region of 2% of the price that your house goes for. If they charge a flat fee work it out as a percentage for purposes of comparison.
  2. Going for a more detailed survey can cost up to £500 pounds but can save you thousands if a major defect is found.
  3. Beware attempting to avoid a higher band of stamp duty tax by paying extra for fixtures and fittings, as you may be investigated by the Inland Revenue.
  4. Save on removal services by avoiding booking at the end of the week or month. Alternatively, rent a van and go DIY.
  5. You can normally negotiate for indemnity insurance to be paid for by the seller.
  6. If you don't already have a policy, your mortgage provider may require you to obtain life insurance.
  7. You can save by having the same legal team work on your purchase and sale.

Estate Agents

Unless you’re a first time buyer or in the happy position of being able to buy without having to sell, you are going to need to put your current home on the market in order to move. This will mean calling on the services of an estate agent.

Estate agents have two main pricing strategies; either they’ll ask for a flat fee or a percentage of the price your home is sold for. The former tends to apply to cheaper properties, the latter to those that are more expensive. On average you’ll expect to pay around 2%. Naturally, the more you’re able to get for your house, the bigger bottom line figure this percentage will amount to for the agent. This puts you in a position of power and you should seek to leverage it by negotiating them down to closer to 1%.

If you are being charged a flat fee, be sure to convert this into a percentage of your asking price to ensure it isn’t excessive. Anything over 3% can be considered quite high. If the fee you’re quoted works out higher than this, it could pay to keep shopping around.

One solution to side stepping this cost completely would be to sell the house yourself. Though it does entail a lot of work and its own set of costs, it is achievable and there are a number of online services geared towards helping you manage your own sale.

Surveys

The cost of a property survey is related to the detail of the overview you want as opposed to the value of the property itself. If you keep things basic you can expect to pay about £200 for a home buyer’s report, whereas a more comprehensive assessment of the building will cost upwards of £500. Of course, you will be looking to save money where you can, but if it’s affordable, it’s hard to argue against going for as detailed a survey as possible.

At worst, you’ll have increased peace of mind, at best you’ll be able to dodge a serious defect that could’ve left you out of pocket down the line. Of course, if you’re still happy to buy the property in spite of any defects that may be brought to light, then you can use this as a bargaining chip to lower the price, thus saving thousands off the back of a relatively small additional investment.

Stamp Duty

Depending on the price tag attached to the property you are intending to purchase, stamp duty land tax could end up considerably altering the affordability of your planned move. Rates are arranged on a sliding scale, increasing in line with the price bracket that the home falls into. The brackets and the rates that apply to them are as follows:

Price BracketRate of Taxation
125,000 or less0%
Over 125,000 – 250,000 1%
Over 250,000 – 500,0003%
Over 500,000 – 1 Million 4%
Over 1 Million – 2 Million5%
Over 2 Million7%

It should be noted that, unlike other forms of taxation, such as income tax, you pay a single rate for the entire value of the property. So, whereas you’d only pay higher rate income tax on the portion of your earnings that are in excess of the threshold, with stamp duty if the property cost £500,001 you’d pay 4% of the total (£20,000) and if it was £499,999 you’d pay 3% (£15,000).

As you can see, a £2 swing in price can lead to a £5,000 difference to your bank balance. However, you should be wary of attempting to report a lower price than you actually paid. Since 2003 buyers have had to fill in a Land Transaction Return form, answering over 70 questions, for the Inland Revenue to look over. If you’ve paid just under the threshold for a house, alongside a hefty sum for the fixtures and fittings there’s a chance the authorities will be inclined to investigate. They have up to nine months to do so if they wish.

Removal Services

You could end up paying as much as £2,000 for help in getting your possessions to your new home. One simple way to reduce this cost is to make the job more straightforward by getting rid of anything you don’t need. Indeed, selling off items you won’t want in future can simultaneously help lower the cost of your move whilst bringing in some extra cash to help finance it.

Shopping around will pay dividends, as will picking a non-peak time in which to make your booking. If you need to move at the end of the week or the end of the month you’ll end up paying a premium. If you are looking to make a quick property sale, you may need to start thinking about making a booking near the beginning of the process to avoid problems or expense.

Of course, you can go for a DIY solution and simply rent a van. This will be cheaper in most cases, especially where the journey is short. If you’re able to physically handle the task, it’s well worth considering, but be sure to check where you stand with regards to contents insurance. Some providers will not payout for any damages that might occur in transit, whereas removal companies will often be able to provide insurance for your belongings whilst they are in their care.

Indemnity Insurance

When you take ownership of a property you also assume legal liability for the dwelling. This could be problematic as, if it later transpires that work has been done to the property which contravenes local laws with regards to planning permission or other regulations, it'll be down to you to rectify the situation.

Naturally, you can, with the help of a solicitor, seek to establish that there’s nothing untoward to worry about. However, some laws are so obscure and complex that sometimes you will be left in doubt as to where you stand. In such cases you will be advised to obtain indemnity insurance as a catch all solution to cover any legal costs you’d have to face. As this form of insurance has become more common some lenders have actually started to require borrowers to obtain cover as a condition of their mortgage agreement.

This is another cost that is linked to the price the property. Fortunately, as the eventualities you’re insuring against are, for the most part, unlikely, it’s relatively inexpensive. You can expect to pay between £50-£500 and, in many cases, you’ll be able to negotiate for the seller to meet the cost.

Life Insurance

Given that a mortgage takes many people the majority of their life to pay off, it’s important for the lender to have some assurances against suffering a big loss if anything should happen to you. As a result many mortgage lenders will require that you obtain life insurance before approving you.

How much this will cost depends largely on your individual circumstances, but there are various ways to save money. The first is to avoid over insuring. If you have no dependents then all you really need to do is cover your debts and set the term of your cover according to how long it will take you to clear what you owe. Alternatively, multiply your salary by ten for a rough idea of the sum you need to save your family from financial difficulties.

Solicitors Fees

Legal advice tends to come at a heavy price whatever the situation, and buying a house is no exception. You could pay in the region of £1,000 but significantly packages are available. (If you’re selling as well as buying you can also benefit save by having the team take care of both transactions.)

Further Reading

 

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