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The hidden costs of buying your first home

24/06/2022

Creditfix > Blog > Creditfix Debt Help Blog > The hidden costs of buying your first home

 

If you have decided to take your first step onto the property ladder, you have probably spent the past few years saving every spare penny you have for a good mortgage deposit with a low interest rate. But what about additional costs?

It is no secret that buying a home is one of the most expensive purchases you will ever make but with homeowners getting caught out by the not-so-obvious hidden costs involved in becoming a first-time buyer, your excitement could turn to shock when you’re served with a surprise bill.

The average cost of moving home in the UK, for example, is estimated to be over £10,000 (£25,000 in London), according to Which.

In this article, we’ll talk you through some of the hidden costs of buying your first home so you can budget accordingly and avoid nasty surprises.

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Mortgage fees

The mortgage deposit will be your biggest expense as first-time buyer but with booking fees, arrangement fees, and valuation fees also commanding a significant chunk of your budget, there is more than just your monthly repayments to factor into the equation.

The booking fee (also known as the application or reservation fee) will be charged upfront and tends to hover around the £99-£250 mark. It is not always required but it is non-refundable so, if the property purchase falls through, you won’t be reimbursed.

The arrangement fee (also known as the product fee) tends to be no more than £2,000 and is usually charged upfront but, in some circumstances, can be paid alongside your monthly repayments. This can protect you if the property purchase falls through but can accrue further interest.

Finally, the valuation fee varies between £150 and £300 and covers the cost of your lender conducting an assessment into the value of your property relative to the sales price.

Stamp duty

Stamp duty (formally known as Stamp Duty Land Tax) is a tax you must pay to the government if the cost of your property exceeds a certain threshold. It is known as Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales.

The amount you will be required to pay depends on the purchase price of the property, where your property is located, and whether you are an experienced or first-time buyer.

In England and Northern Ireland, for example, first-time buyers are exempt from stamp duty on properties under £300,000 and will pay a discounted rate on properties between £300,000 and £500,000.

In Scotland and Wales, first-time buyers are exempt from stamp duty on properties under £175,000 and £180,000 respectively.

Survey costs

If you have your eye on a particular property and are thinking about making an offer, a detailed inspection of the interior and exterior condition of the building can influence your decision.

This is called a home survey and can be one of your biggest expenses as a first-time buyer with costs ranging from £300 to £1,500 but with the cost of structural repairs averaging £10,000, it is a small price to pay for peace of mind.

It is not a prerequisite to purchase a property, but it can alert you to any underlying problems before you move in and perhaps even help you negotiate a lower purchase price that takes the cost of fixing the problems yourself into account.

Insurance

With most lenders requiring you to organise buildings and contents insurance as part of the mortgage agreement, it is a worthwhile cost to budget for.

It can cover you if something was to happen to your home and your property needed to be rebuilt and cover your lender if something was to happen to you and your monthly repayments were passed to your family.

The cost can vary depending on the level of coverage, condition of your home, and where your property is located, but buildings insurance should equal the cost of rebuilding your home and contents insurance should equal the cost of your total possessions as closely as possible.

Removal costs

If you have purchased your first property, you are probably too preoccupied with picking out fixtures and fittings to consider removal costs. But with prices of £1,500 not uncommon for a family home and most removal companies charging an hourly rate, costs can add up.

This might seem steep but, as a first-time buyer, there are steps you can take to keep removal costs down, such as decluttering your belongings before you move, asking family and friends to help out, and booking as soon as your moving date has been confirmed.

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