The costs of buying and owning a home

It is really crucial that you consider all of the costs before committing to buying a home, so that’s what we’re going to cover in this guide...

At OpenMoney, we’re trying to make sure finances become talked about and transparent, so though it might sound a little doom and gloom, making sure you’re aware of the true cost of buying a home is really important to us.

Let’s start with the biggie, the deposit.

Unless you’ve won the lottery or perhaps found fame, most people can’t afford the cost of a house outright. You’ll put a deposit down on a house and then borrow the rest of the money through a mortgage. The minimum deposit you can put down is 5%, which comes to £10k on a £200k home, although if you can, there are benefits to putting down more than 5%.

If you’re able to put more in your deposit, the less you’ll have to pay back through your mortgage. You are also likely to get a lower interest rate and over time you’ll will pay back less interest overall to your lender.

Mortgage fees

Mortgage fees are sometimes charged by lenders and cover the cost of setting up the mortgage or arranging a valuation, often ranging from £0-£2000. Sometimes there is no charge at all. This is why using a mortgage brokering platform, likes ours (hint hint) is really beneficial. When recommending the best mortgage for your needs, we’ll always consider these fees.

The reason they’re so important to take into consideration is that often lenders might advertise a really low interest rate to attract people in, but they will also add a fee. We do the maths for you, so we’ll look at if you paid the fee and took the low interest rate for a fixed term of two years (for example) and re-mortgaged after the fixed period ended, would that work out cheaper or more expensive to take on a higher interest rate, but with no fees. You would be surprised at how often we find this!

Information taken from HSBC.co.uk/mortgages/our-rates on 30.07.2021

If possible, we’d recommend paying any lender fees upfront, as it means you won’t have to pay back any added interest, but they can be added to your regular mortgage repayments if you prefer.

Solicitor fees

Solicitors are another up-front cost you’ll need to consider when buying your new home. These costs can really vary between each firm, but as your solicitor will play such a big role in your house move, it might be worth considering paying that bit extra to make sure you have a good one on your side.

Your solicitor will work through all the legal documentation and make sure everything is legally correct so that you can buy your home with confidence. We can recommend a solicitor for you, but you don’t have to take our recommendation if you would prefer to find your own.

What is stamp duty?

Stamp Duty Land Tax (SLDT) is a tax you might have to pay if you buy a home or a piece of land over a certain price. There are different rules for first-time buyers, so let’s break it down.

How much stamp duty do I have to pay as a first-time buyer?

From 1st July, first-time buyers will pay no Stamp Duty on properties costing up to £300,000, and a discounted rate, up to £500,000. For properties costing up to £500,000, you will pay no Stamp Duty on the first £300,000. You’ll then pay Stamp Duty at 5% on the remaining amount, up to £200,000.

So, for example, if a first-time buyer buys a house for £375,000, the stamp duty land tax would be £3,750

If the property you’re buying is worth over £500,000, you will need to pay the standard rates of Stamp Duty and won’t qualify for first-time buyer’s relief.

How much stamp duty do I need to pay if I’m not a first-time buyer?

You will pay Stamp Duty on a property if it costs more than £125,000. The rates of Stamp Duty depend on the price of the property you’re buying.

Data sourced 06.04.22

If you are buying a second property, and keeping your first, you have to pay an extra 3% in Stamp Duty in addition to the standard rates above.

Data sourced 06.04.22

What is a survey and how much will it cost?

As part of your mortgage application, the lender will instruct a mortgage valuation. Contrary to popular belief, this is not technically a survey as it is for the lender’s benefit and only the value of the home and concerning defects are reported. In many cases, a report is not provided to the customer. Therefore, if you wish to know more about the condition, a survey is recommended. The main types of surveys are:

  • Level 1 Survey (previously known as a mortgage valuation) – This is a condition report which confirms details about the condition of the property and uses a traffic light system to highlight the seriousness of them.
  • Level 2 Survey (previously known as a homebuyers report) – This is a larger report, and contains more detail than a condition report and includes advice on repairs and maintenance. It also includes a valuation of the property.
  • Level 3 Survey (previously known as a buildings survey) – This is a full in-depth inspection of the property and reports on any problems it finds. This is the most suitable type of survey for older properties and those that have been extended or remodelled.

Everybody who buys a home with a mortgage must have a mortgage valuation. The valuation is set up by the lender and costs will vary based on the lender and the value of the home. We’ll always take these costs into consideration when giving your mortgage recommendation. The other types of survey are completely up to you, but we can advise you on what might be suitable for the property you’re looking for.

Moving in costs

Phew! Well, that must be all the costs, right? Not necessarily! You’ll still need to think about all the costs involved with moving in such as:

  • The cost of hiring removal experts
  • Transporting all your belongings to your new home
  • Buying new furniture and the ‘essentials’ for your new home

It’s worth making a note and budgeting for these costs now so they don’t catch you by surprise if you’ve left them as an afterthought.

What are the extra costs of buying a home I need to consider?

It’s important to think about bills for utilities as well as the cost of living in the local area. You can do your own research online (places like Zoopla show estimates for energy, water & council tax etc) or even speak to the homeowner to get a rough idea of how much your expenses would be every month. An example of some of the costs you’ll want to think about before you move are:

  • Gas & Electric – this needs to be averaged out over 12 months  
  • Water – this can be payable over different periods so work out the monthly cost  
  • Council Tax - this can be payable over different periods so work out the monthly cost (depending on where you live and the band, it can range from about £1,000 - £4,000 per year)
  • Home insurance, income protection and life insurance – to give you peace of mind when you become a homeowner

What are the hidden costs of buying a home?

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