Apart from the cost of the house you intend to buy, there are other expenses you must account for in your budget. These expenses might be overwhelming, especially if you didn’t include them in your financial plan. The main ones include the solicitor’s fees, estate agent’s fees and stamp duty. Research on these costs and add them to your budget to determine if you still afford to move.
Fees you Should Pay when Buying a House
1. Deposit
When buying a house, you have to pay a deposit of at least five percent of the total amount to secure the house. However, a ten percent deposit is more convenient. The deposit may vary depending on the seller thou you can always negotiate. If a house is going for £400000, your minimum five percent deposit will be £20000.
The deposit can be in cash or through the bank. However, there is an equity option where the payment is made using equity from another house sale. That is, if your house worth £300000 has an outstanding £200000 mortgage, you have £100000 equity in the home. Therefore, if you sell the house, the money is yours and you can use it to purchase another property.
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Stamp Duty Land Tax: update 2022
Reduced rates of Stamp Duty Land Tax (SDLT) will apply for residential properties purchased from 8 July 2020 until 31 March 2021 inclusive are no longer in effect.
| Property or lease premium or transfer value | SDLT rate |
|---|---|
| Up to £125,000 | Zero |
| The next £125,000 (the portion from £125,001 to £250,000) | 2% |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% |
| The remaining amount (the portion above £1.5 million) | 12% |
This is a tax imposed on the transfer of property. It is paid to the government as ownership of a property like a house is transferred to another person. However, stamp duty is imposed on properties worth exceeds a specified amount of money. When buying a home, you will pay the sum to your solicitor, who will then shell it out to Her Majesty’s Revenue and Customs (HMRC). This will be upon completion of the purchase.
The sum of your stamp duty depends on the cost of the house you are buying. A lot of people underestimate the value of the stamp duty and disregard it in their purchase budget. Such mistakes may delay the process of acquiring your new home when you find out you can’t afford the amount. However, if you are buying a house below £125000 in the UK, you will not pay the stamp duty.
According to regulations, houses worth £125000.01 to £250000 will pay 2 percent stamp duty. Those ranging from £250000.01 to £950000 pay 5 percent while those worth £950000.01 to £1500000 pay 10 percent. Any house over £1500000.01 will pay 12 percent stamp duty. Note that stamp duty will only be charged on property worth over £125000. Therefore, a house worth £225000 will be free of stamp duty on the first £125000.
Calculating your stamp duty shouldn’t be complicated. Take the purchase price of your house and deduct £125000 since it’s free from stamp duty. Note the remaining figure and identify where it lies. Calculate the correct percentage on the noted figure, depending on your percentage bracket.
From 2017, any first buyer will not pay stamp duty for houses up to £300000. If the purchase price ranges from £300000 to £500000, the first £300000 is free of stamp duty.
3. Legal fees
To buy or sell a house, you need a solicitor to help with the paperwork. A solicitor will guide you through the legal process and make sure you draft and sign all the necessary documents. Besides, the solicitor will do local research to make sure there is no hindrance in the process. For all these services, you will pay a solicitor a certain fee. You can always negotiate with your solicitor on the legal fee.
4. Estate agent’s fee
An estate agent will come in handy when you are selling and buying a house simultaneously. You will have to include the estate agent’s fee in your budget if you are in such a state. There are currently two agent options to sell a house. Online estate agent and high street estate agent. However, online agents are cheaper because they charge a one-off fee at the start. The fee is not refundable when your house doesn’t sell.
High estate agents charge according to the sale price. On average, calculate a one to three percent range as their fees. Since you can’t predict their exact figure, check with local agents. Every estate agent option has advantages and disadvantages. Weigh all the pros and cons before settling on one.
5. Surveyor’s fees
It is advised you pay to have a survey in your new home. A survey will outline any house concerns, such as woodworm, dry rot or roof damage. You will also learn if the property is an area that experiences frequent flooding or any natural calamity. Such issues significantly affect your choice; hence you must understand them before making a purchase. Surveyors will charge differently depending on the state of the building. New buildings will cost less to survey while ancient buildings will demand more fees.
6. Land registry
A land registry registers your new house under your name. You will pay a certain amount of money for this service, depending on your home’s price. You also need to present the necessary documents for a successful registration.
The total fees when buying a house
Excluding your deposit, you will pay an average of £8650 for a house worth £225000 in the UK. However, this is just an estimation of all the fees you need to pay. The estimate is broken down to:
- Legal fees-£1500
- Stamp duty-£2000
- Land registry-£300
- Estate agent-£4500
- Surveyor’s fees-£350
It is also a good idea to include property insurance before you complete the purchase process. The house becomes yours immediately; you exchange contracts and with insurance, you are instantly covered from any damage.
Must you have a Solicitor when Buying a House?
No law obliges you to a solicitor when buying a house. However, having one saves you a lot of unnecessary mistakes and gives you an easy time as you acquire your new home. You must present the correct information on all the paperwork involved and doing this alone is not advised. A licensed conveyancer is an alternative if you are operating on a tight budget. They will still do the task for you.
When to Pay a Solicitor’s Fee when Buying a House
This will depend on the solicitor. Some may request an initial fee at the beginning, where you will pay the remaining amount at the end of the process. The amount is mostly ten percent of the full fee amount. Otherwise, your solicitor may request payment in small amounts during the process to cover the incurred expenses.
Other Essential Costs to Budget for when Buying a House
The last thing you want is to complete the buying process and remain in your previous house. This can happen, especially if you didn’t budget for the costs in the new house. Besides, you also need to move to the new home hence moving costs. All these costs may translate to huge figures, so it’s essential to include them in your calculations. Some of them are:
1. Removals costs
You will need to move from your current location to the new house. It is essential to include the removal cost in your financial plan so that you are set to move after the process. Removal costs vary depending on distance and belongings. Besides, if you want professional packaging, you will have to pay more.
2. Council tax
Properties are categorized into bands. The estate agent or seller will tell you where your new house lies. If they are not sure, check it online on the government’s website and calculate how much to pay. Calculate your council tax, depending on your band. There are online council calculators to help you with this. Research what your new neighbors are paying to make sure you are paying the right amount.
3. Maintenance and house repair costs
If you were living in a rental house, these might be new to you. Such costs are catered for in your rent and you only liaise with your caretaker when you need a repair. However, you will have to cater for these costs as soon as you become a house owner. Therefore, include all these costs in your budget as your new house may need repairs.
You may also need to upgrade some items. Set some money aside to make sure you can finance such costs. A boiler may breakdown requiring instant repair. All these are new financial responsibilities you must cover.
4. Contents insurance
As you move from your old house to the new home, you may damage some items. Contents insurance covers such costs. As much as it’s optional, it’s good to have one. However, you can combine it with buildings insurance to get home insurance.
5. Renovation costs
A house may be convenient in location and everything else but feels off. Everyone needs to make a home perfect for them and match their desires. You will therefore have to make renovations for the house to appeal to you. Renovations will demand quite an amount; hence it’s essential you budget for them.
6. Utilities
Budget for at least three months’ utilities. This gives you time to settle in your house while enjoying the water, electricity, cooling, heating, among other utilities. Consider the number of people in the house while accounting for water bills as it affects the amount of water used.
Recap
Although it’s exciting to own a home, it’s an expensive process that demands preparations. There are so many expenses to cater to, so you need a perfect financial plan. While it may sound unrelated, including your food budget in the plan is a good idea. The process may drain all your money and budgeting for food in the first few months will save you a great deal.
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