There is a flurry of costs involved when buying a house, it can be overwhelming, especially if it is your first time. Buying a house is one of the biggest financial decisions you will ever make, and the costs will vary based on a person’s circumstances and choices.
Whether this is your first home or you are moving to another you should at the very least be aware of these costs, and how they apply to you. These costs are:
- Mortgage Costs
- Stamp Duty Fees / VAT
- Solicitor & Estate Agent Fees
- Council Tax / Rates
- Land Charges
- Removals / Storage
- Home Improvements
- Utilities, Food & Entertainment
If, like most people, you do not have the cash to buy your home you will need a loan. Usually the buyer will pay a deposit, and the mortgage lender will lend the remaining cash. Mortgage costs include:
- Interest charges on the loan
- Arrangement fees
- Booking fees
- Valuation fees
- Money transfer fees
- Mortgage account fees
- Broker fees
- Higher lending fees for small deposits
- Early repayment fees
- Exit fees when the mortgage is ending
2. Stamp Duty Fees / VAT
Once the price of a house goes over a certain threshold the government will add a tax called stamp duty. At the time of writing the threshold is £125,000 (£300,000 for first time buyers). Any house purchased over this price will come with an extra tax charge. For more information please see here.
In addition to Stamp Duty some of the other costs or charges mentioned in this list will include VAT, this is another tax payable to the government and will already be factored into the costs you pay. Not a clearly visible cost, but a cost out of your pocket all the same.
3. Solicitor & Estate Agent Fees
As well as the buyer and seller there are usually solicitors and estate agents involved in a house sale. The solicitor takes care of the checks and legal documents, the Estate Agent brings buyer and seller together to make the sale. Solicitors and Estate Agents charge fees for their services. As a rule of thumb solicitor fees can begin at £1,000+ and Estate Agents charge the seller a percentage of the price of their house, charges vary per provider. Most important to note is when selling your current home and buying another these fees will be due on BOTH sides, i.e. as a buyer and seller.
4. Council Tax / Rates
Council tax is paid from all property owners to the local councils to fund refuse collection, education, roads, street lighting, libraries, health services, leisure services and so on. The amount due depends on the value of your house and the local council rates, it is due every year. Usually you can pay this bill in a lump sum or over the year in installments through direct debit. Usually estate agents list the estimated figure to give the buyer and idea of what to expect.
There are two types of insurance associated with owning a home; home insurance and life insurance. Home insurance protects the physical building from damage from unforeseen circumstances like a fire, and life insurance covers the ability to pay the mortgage in the event of long term sickness, injury or even death.
Unlike car insurance these are not legal requirements, however if you are planning on using a mortgage to buy the lender may refuse if this insurance is not in place. I was able to use my pre-existing workplace insurance in place of life insurance, so double-check if you have already before buying, and shop around to get the best insurance deals.
When you buy a house you may not be purchasing the land on which it is built, owned by the Freeholder. The appointed solicitor can access this information in their checks. It is important to understand who is the Freeholder because they charge you to ‘rent’ the land, they also have legal right to evict you from the land. This sound sinister but it is a common practice, our ‘rent’ is a tiny £7 a year, but more important is the legal claim to the land, check here to find out more.
7.Removals / Storage
If you have a lot of possessions to move into the new house you may choose to pay a removal company. The same goes if you have a period between your current house and a new house, if this is your scenario you may have to pay storage costs, these costs can mount up.
Even when purchasing a new build home there will be improvements or updates you would like to make to your new abode. As much as you think this will not add up to much, trust me it will. When we moved into our house we changed from oil to gas heating, painted rooms, updated the garden and countless other small improvements. These upgrades do not come for free, and add to the cost of owning a house. I haven’t even mentioned that new bathroom you would love, or Ikea kitchen that would make you so happy.
This cost is the one that can run away, even after all the costs so far it did not include the furniture and nik naks that make your house a home. When we first moved into our house we had to buy all the boring basics like white goods, bins, blinds, curtains, a lawnmower, furniture for all rooms, and so on. Yes this category could be mammoth, I even spent £100 on a toilet roll holder for goodness sake (yes I still love it). If you struggle with always wanting more things I would suggest using Marie Kondo or The Minimalist’s method of only buying things you love or will actually use.
10.Utilities, Food & Entertainment
These costs relate to groceries, electric, gas, TV licence, broadband, Netflix and beyond. This isn’t exclusive to home owners because they apply to renters alike, however it is still part of your household costs and should be on your radar. What is the point of buying the house if you cannot enjoy a basic standard of living?
I started out writing a simple list, but as you may have guessed buying a house is not an easy process to simplify. I would recommend jotting down estimates of each category and considering your next move. I understand the excitement and joy of owning your first house or even the second or third. What I am not excited about is going into home ownership without having the basic knowledge of what that involves.
Owning your own home is fantastic, being shackled to an unaffordable house or lifestyle is not. I hope to increase education and knowledge about personal finances and building wealth properly, especially to those who need this advice the most. For further reading I recommend Money Advice Service, or Money Saving Expert for free and impartial advice.
Good luck whatever you decide to do on your personal finance journey, I would love to hear from you on social media under EatSaveLiveUK. Please share this post with any friends or family who may benefit from the content.
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