Buying your first home? Congratulations – there’s nothing quite like the satisfaction of owning your own place! But amidst all the paint and Pinterest-related excitement, remember to pay attention to your wallet, too. Purchasing a property involves a myriad of fees, both little and large, so it's important to budget accordingly to avoid any nasty surprises down the line. Here, we break down the essential costs you need to budget for when getting your foot on the property ladder.
From 1st July 2021 in England and Northern Ireland, first-time buyers will receive a Stamp Duty discount, which means you’ll pay no tax, as long as the purchase price is £500,000 ($693k) or less. If you happen to be buying a property that exceeds this amount, then you can use the UK government's Stamp Duty Land Tax calculator to work out how much you might need to fork out. In the US, the Real Property Transfer Tax (RPTT) applies in most states. Depending on the location of the property, the Transfer Tax can be paid either by the buyer or seller. Ultimately, the decision can be influenced by local custom as well as the real estate market.
In the US you’ll not only need to pay your mortgage every month, but also additional property taxes. Some lenders will simply add this to your monthly mortgage payment, but it’s important to ensure you know exactly how much the tax will equate to in advance of signing any paperwork. Property taxes vary greatly depending on where you live and is usually based on the value of the home and any land. Property tax can range from $200 (£144) to $10,000 (£7.2k) a year, according to NextAdvisor.
When it comes to buying a house, the deposit amount will differ depending on where you choose to buy and the size of the property. In the UK, the average deposit amount is 10% of the home's value, while in the US the minimum down payment can be as little a 3%, if you have a good credit score. That's a $6,000 (£4.3k) down payment on a $200,000 (£144k) home, making buying a home far more achievable. If you're able to put down a larger deposit, even better, as you'll be able to get a lower interest rate.
In the UK, most lenders will charge a booking fee upfront, which covers the cost of processing your application. It can also be known as an application or reservation fee. It usually costs around £99 (£137k), according to MoneySuperMarket, though it can be higher. Some lenders don’t charge anything, so make sure you compare mortgages to see who charges what before you sign-up.
In many cases, UK lenders will charge an arrangement fee to set up your mortgage. Also called a product fee, you can usually either pay the sum upfront or add it on to your mortgage. The downside of adding it on the mortgage is you’ll pay interest on it for the duration of the loan. Given many first-time buyers in Britain opt for 25-year loans, that could rack up quite a bit of interest! These fees range from a hundred to thousands, so ensure you know what's what before signing up.
When it comes to securing funds for a new home, many buyers opt to use a mortgage broker, as they’re able to scour the whole marketplace for the best deals and generally simplify the process. However, research by One 77 Mortgages found that UK brokers charge an average of £400 ($554) for this service, and in the United States brokers can earn up to 2.75% of the total loan amount, so make sure you factor in the extra cost.
No matter where you live, your mortgage provider will want to make sure the property you are purchasing is worth the amount you are paying for it, in order to minimise the lending risk. This is a simple valuation survey and won’t highlight issues, such as structural problems. The amount varies considerably depending on the lender and the purchase price, and some mortgages even come with free valuations, so it's always worth doing your homework.
It might sound like an unnecessary expense, but property surveys are extremely important – not least because they will help you to establish whether the property is structurally sound. Home surveys vary in cost and there are different options available, depending on how extensive you want to be. Buyers can opt for a basic valuation, a condition report, a homebuyers report, or a full structural survey, which is far more thorough. According to Compare My Move, in the UK you can expect to pay anywhere between £380 ($525) and £800 ($1.1m).
To guide you through the legalities of purchasing a property, you’ll need to hire a solicitor. They’ll be on hand to do everything from drawing up contracts to local searches and liaising with your sellers’ solicitors to agree on a date for exchanging documents, money and finally, the keys. Fees will vary from firm to firm, and country to country, but Zoopla recommends that you should allow up to £2,000 ($2.7k) for this.
In the UK, conveyancing disbursements are extra legal fees which are charged by third parties. Your solicitor will collect these charges from you and pay on your behalf. Additional fees can include processes such as ID checks and Land Registry checks.
In the UK there's often confusion over the difference between freehold and leasehold, with some homeowners complaining of being mis-sold the latter. If you purchase a property as leasehold, you'll usually be required to pay annual ground rent which on average costs £319 ($441), according to Property Reporter. How much you pay will depend on the property you’re purchasing, so it’s worth finding out before moving day.
In the US, buyers may need to pay monthly or annual homeowner’s association fees. These fees fund such things as ground maintenance and community facilities. In the UK, those buying in apartment complexes may find themselves paying annual service fees for the upkeep of the garden, corridors and elevators. Of course, these fees differ greatly depending on where you buy, so inquire about hidden extras before signing on the dotted line.
CHAPS fees, or electronic transfer fees, can sometimes be charged to cover the cost of the mortgage lender sending the agreed funds to your solicitor. Money Helper recommends you budget between £25 ($35) and £50 ($70) for this, but the price could be higher depending on your solicitor and where you're sending the money to.
Most mortgages tend to be offered for a limited time, after which prices may go up and you might want to consider shopping around for a new deal. But be aware that if you leave your current deal before the fixed-term, you’ll be responsible for paying an Early Repayment Charge, usually calculated as a percentage of the loan. These fees can vary from hundreds to thousands, so ensure you know what you're getting yourself into.
Don't forget to factor in the cost of moving your belongings. You could hire a van and do it yourself, or you could pay a team of professional movers. Van hire will be cheaper, but if you’ve got a lot of stuff it can be pretty exhausting work. Professional movers will charge depending on the number of items you’re moving and the relocation area. Search site Compare My Move estimates that moving the contents of a three-bed property in the UK could cost as much as £1,181 ($1.6k).
Most lenders are quite strict about having home and contents insurance in place on the day of the move, just in case the worst should happen. With that in mind, you’ll need to factor it into your moving budget. The average price in the UK, according to MoneySuperMarket, is around £140 ($194) a year, though most providers will allow you to pay in monthly installments. In the US, the average annual cost is much higher, $1,445 (£1k), but premiums vary greatly by state.
Even if you’ve notified all relevant parties of your change of address, it’s worth setting up a mail redirection service for the first few months for peace of mind. In the UK, you can set this up directly with Royal Mail at a cost of £33.99 ($47) for three months, while The U.S. Postal Service (USPS) can forward your mail to a new address, or hold it at your local post office for a limited time. Check with your post office for more details.
If you’re moving to a larger home, or historically have always split the utilities with a room mate, then you might be in for a shock when you receive the first bill through the mail. Annual utility costs can range significantly, depending on the location of your home, its age and its size. Remember, it costs more to cool and heat a larger space, so your utility bills will inevitably go up.
Make sure you budget for any additional services you’ll need on the day of your move. Depending on your circumstances this could be anything from childcare to pet sitting, or even storage units. If you're moving out of a rental property, you may even be required to pay for an exit inventory, a professional deep cleaning service, and any damage caused to the property during your tenancy. These costs can soon add up, so ensure you keep a contingency budget to one side, just in case.
If you've factored in a survey, you’ll know of any repairs that need attention. Likewise, if there are any cosmetic changes you want to make it's worth budgeting for them, so you can get cracking right away. Roll up your sleeves and attempt some DIY, or hire a professional to help. In the UK, the average hourly rate of a handyman is around £30 ($41), however in London the rates are higher. Over in the US, a handyman can charge between $50 (£36) and $80 (£58) per hour.
And finally, the fun bit – decking out your new place! If this is your first home there is a good chance you’ll need to factor in a few big purchases like a sofa and white goods. If you're on a budget, local neighbourhood recycling sites can provide you with budget furnishings to tide you over. While some things can wait, there are a few essentials you’ll require straight away – including a refrigerator for that very first glass of celebratory champagne!
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