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What are the costs of buying a property?

As an estate agents in Birmingham, we’ve noticed that some buyers underestimate the costs involved in buying a property. Other than the purchase price and deposit, there are several compulsory and optional costs that buyers might not be aware of. Therefore, this article aims to shed some light on these costs so that potential buyers can budget more effectively without any nasty surprises.


 

1. Mortgage Broker

An optional cost that you should seriously consider before you even begin viewing properties is a mortgage broker. There are several benefits to using a mortgage broker which includes:

  • The knowledge and expertise to ensure your mortgage application and purchase doesn’t fall through.

  • Access to exclusive rates and products that the general public don’t get offered from mainstream lenders.

They also:

  • Suggest the most appropriate lender for your given circumstances.

  • Offer free advice and only charge to arrange your mortgage which includes full support from application to completion.

  • Accurately determine the properties you will be able to buy as many people either overestimate or underestimate what they can afford. This prevents any time wasting for yourself and everyone else involved in the process.

  • Address any potential problems early so that you can avoid the heartache of issues arising at the point where you’ve found your dream home.

Fortunately, many estate agents in Birmingham will be able to recommend a very reputable mortgage broker that they have a long-standing relationship with. A mortgage broker may charge either a fixed rate between £250 - £600 or a percentage of the loan you wish to acquire. However, our opinion is that the benefits far outweigh the cost.


 

2. Product Fees A product fee is the upfront cost for the mortgage deal that a lender is offering. This fee would normally be in the region of £1,000 - £1,500, and while some lenders will insist that you pay the product fee upfront, most banks will allow you to add the product fee to your mortgage payments instead. We would recommend taking this option if it is available because if your mortgage application is rejected, or if you later decide you no longer want to use that lender, some lenders may not give you a refund.

Alternatively, if you are certain that your mortgage application will be approved, and if it is an affordable option for you, paying a product fee can result in significantly lower interest rates. We recommend speaking to a mortgage broker to compare a range of products and allow them to determine if it is worth paying the product fee or not.


 

3. Valuation Fees

Once you’ve found the property you wish to buy and your mortgage application has been successful, your mortgage lender will want to conduct their own valuation of the property to determine if it is worth the seller’s asking price. This is a mandatory cost and is used as a precaution in case for whatever reason you are no longer able to make your mortgage payments. If that circumstance were to occur, the mortgage lender would be forced to sell the property with the aim of recovering the money they spent to buy the property for you.


The cost of a valuation will depend on the size of the property you wish to buy but on average will cost £200-£300, unless your mortgage lender provides a valuation for free as part of their package.


 

4. Survey Fees

A survey is an optional cost and is simply an inspection of a property’s condition. Despite being optional, I believe the majority of estate agents in Birmingham would recommend paying for a survey so that you can have peace of mind with the state of the construction and condition of the property before you buy it.


The are several types of survey available which vary in terms of how comprehensive they are. These include: Condition Report

  • Appropriate for properties less than 5 years old

  • Cheapest survey option usually costing approximately £250

  • Highlights obvious defects, damage, possible future repairs and potential legal issues

  • Doesn't advise on how to remedy the highlighted issues

Home Buyer's Report

  • Appropriate for properties in reasonable condition up to 125 years old with no significant alternations.

  • Most common survey and usually costs approximately £400.

  • Highlights any major issues such as damp or subsidence, legal issues, as well as anything that may affect the properties future value.

  • Will make suggestions on what repairs are required as well as any maintenance that could prevent any serious issues in the future.

  • Only covers visible areas of the property that can be accessed such as structural problems. The surveyor will not inspect beyond the floorboards or behind the walls.

Full Building Survey

  • Appropriate for properties over 125 years old and properties either in poor condition or altered significantly.

  • More expensive and comprehensive than the previous surveys costing approximately £600.

  • Provides a more in depth inspection of any structural issues, defects, repairs and maintenance issues including underneath the floorboards, behind the walls and above the ceilings.

  • Will advise on the cost and timings of any recommended repairs as well as any potential consequences if they aren’t carried out.


 

5. Stamp Duty

Stamp duty is a mandatory cost paid to HMRC upon the purchase of either a freehold or leasehold property. It must be paid within 14 days of completion, however, in most cases your solicitor will take care of this on the day of completion.

The amount of stamp duty to be paid will vary based on the value of the property you wish to buy and your buyer status. This is highlighted in the table below:

stamp duty rates

For example, if you went on to purchase a property advertised by an estate agents in Birmingham with an asking price of £275,000, the following breakdown indicates how much stamp duty you would pay:

  • You would pay 0% on the first £125,000 = £0

  • You would pay 2% on the next £125,000 = £2,500

  • You would pay 5% on the remaining £25,000 = £1,250

Therefore, your total stamp duty payment would be £0 + £2,500 + £1,250 = £3,750.

However, this isn't the case if you are a first time buyer. First time buyers are exempt from stamp duty tax on properties up to £300,000. If the asking price is between £300,001 and £500,000, a first time buyer must pay 5% stamp duty on the portion above £300,000.

For example, if a first time buyer purchased a property for £400,000, they would pay:

  • 0% for the first £300,000 of the asking price = £0

  • 5% on the remaining £100,000 of the asking price = £5,000

No relief is available for first time buyers on properties with an asking price over £500,000.


 

6. Legal Fees

In our buyer’s guide, we recommend hiring a solicitor as soon as possible to prevent any unnecessary delays in the buying process. They will be responsible for carrying out any legal paperwork involved, as well as, exchanging contracts with the seller upon completion of the purchase. This is a mandatory cost which will usually be in the region of £500 - £1500, depending on the value of the property.

At an additional cost, usually between £200 - £400, solicitors will also carry out local searches to determine if there are any issues which could affect the property’s value in the future. For example, there may be plans to use nearby land for the HS2 project. Other searches include; a flood risk search, a drainage and water search and coal mining searches. While operating as an estate agents in Birmingham, we have unfortunately heard of buyers that decided against paying for these searches to then have the value of their property significantly reduced later on. Any potential buyer should consider this cost mandatory.


 

As a conclusion, we wanted to create a hypothetical situation to combine all of the above costs, to clearly demonstrate the costs involved in purchasing a property. In our example, our buyers decided to hire a mortgage broker to arrange their mortgage for them. This cost £400. However, while applying for a mortgage, the buyers decided not to pay the product fees upfront, and instead added them to their mortgage payments.


After contacting several estate agents in Birmingham, the buyers finally found their dream home and had their offer accepted. The lender charged the buyers £200 for a valuation and as the property was relatively new, the buyers only paid £250 for a survey. In this example, the couple are first time buyers and purchased the property for £350,000. As a result, they paid £2,500 stamp duty. Upon completion of the purchase, their solicitor charged the couple £800 for their services, and an additional £200 for conducting the searches prior to the purchase. In total, the couple paid £4,350 in costs which doesn't include the deposit and purchase price of the property. Please not however, the costs we have discussed in this article are not an exhaustive list. Therefore, there may be over costs involved which we haven't mentioned and we invite our readers to let us know if they can think of any in the comments below.

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Tel: 0121 358 0008
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Phone: 0121 358 0008
Email: admin@matthewsestateagents.com
Address: G.N. House, 119 Holloway Head, Birmingham. B1 1QP.

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