tax costs property

Knowledge is power: what’s the true cost of buying a property?

When it comes to buying a property, whether as an investor or a homeowner, getting your budget and finances in order is crucial to ensure you don’t hit any bumps in the road. 

Anyone who has purchased property in the UK in the past will be aware that there are a range of additional costs involved on top of the initial purchase price. These all need to be taken into account when working out your budget at the outset.

With new research from The Mortgage Lender revealing that huge numbers of first-time buyers are unaware of many of these extra expenses, the importance of being armed with as much knowledge and insight as possible before investing in property is highlighted further.

What’s more, the study found that 14% of people who were not aware of these additional costs had to put their purchase plans on hold, while 14% had to rely on family members to foot the unexpected bill. Others took out a separate loan (11%), looked for a cheaper property (11%), or decided against buying at all (7%).

What are the additional property buying costs?

Once you’ve decided on your budget for the actual property, depending on your income, deposit amount and what mortgage you can secure, you next need to think about anything else that will need to be paid as part of the purchase.

The Mortgage Lender’s survey revealed a total of nine additional fees and taxes that large numbers of first-time buyers either weren’t aware of at all, or did not factor into their budget, as well as two extra expenses that only apply to Wales and Scotland:

Cost Didn’t factor it into budget Wasn’t aware of this cost
Stamp duty 21% 24%
Legal/ solicitor’s fees 15% 11%
Valuation fee 21% 23%
Surveyor’s fee 19% 15%
Electronic transfer fee 30% 35%
Homebuyer survey 21% 24%
Mortgage product fees 20% 22%
Mortgage advice fees 23% 34%
Indemnity insurance 28% 37%
Land transaction tax (Wales) 29% 24%
Land transaction tax (Scotland) 20% 37%

Who pays what?

For home movers and property investors, stamp duty can be one of the biggest expenses. It is calculated based on the value of the home you are buying with an additional 3% if it’s a second or additional property, and an additional 2% if you’re a buyer from overseas.

However, first-time buyers are exempt from this tax for properties up to £425,000. For any purchases valued above this amount, they are then charged 5% on the portion between £425,001 to £625,000. Above this amount, they are exempt from the relief.

It is possible to add your stamp duty bill onto your mortgage, but this will incur interest over the mortgage term and will affect the loan to value ratio on your mortgage.

All of the other fees on the list will generally apply to any buyer type, whether first-time buyer, home mover or property investor, and the amounts will vary from case to case. Lenders will offer varying product fees, as well as some incentivised mortgages where no fee is payable, so it’s advisable to shop around.

Learning the hard way

Steve Griffiths, COO at TML, said of the findings: “Buying your first property is a big life milestone as well as a huge financial commitment. In addition to securing a mortgage and getting a deposit ready, there are an array of other associated costs involved with getting on the property ladder.”

He added that the fact that these extra costs can sometimes be forgotten or not factored in at the outset can lead to a financial shock for buyers when they are hit with the bill.

“What is clear is that there is evidently a knowledge gap when it comes to what’s involved with buying a house, with many learning the hard way when they’re either on or have already been through the home buying process. More than ever, this highlights the need for professional advice.

“Brokers are not only expertly equipped to support their clients in getting the best mortgage deal for them, but can also ensure that buyers are well prepared in knowing what their affordability is and understanding what other costs may come their way.”

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