Budgeting For My New Mortgage – A Definitive Guide

Free Mortgage AdviceIn the excitement of buying a property, it’s easy to forget to delve into the possible fees involved, over and above the purchase price, this can sometimes lead to people getting a surprise or, as happened recently to pull out of the purchase – they hadn’t checked the amount of Stamp Duty due.

This is a short article to highlight the fees/expenses you should budget for when buying a property. When remortgaging, there may be an arrangement fee and/or survey costs but more and more lenders now offer ‘fee-free’ remortgages and, if you are receiving free, independent, mortgage advice, with no adviser fees, there should be no outlays.

Purchasing a property

Whether a First Time Buyer (FTB) or moving home you should factor in the following fees:

 Independent Mortgage Advice: To look at the widest range of mortgage options open to you, you should take independent mortgage advice, from advisers regulated and authorised by the Financial Conduct Authority (FCA). Adviser fees can vary widely, we’ve seen an adviser charging £250 and another, just a few doors down, in Edinburgh, charging £995. If you are paying for advice ensure that you get the fees in writing and, very important, when they are payable. An adviser we came across, Bristol-based, were charging £495, payable at Application stage – and non-refundable. Things can still go wrong at Application. Ensure any fees for advice that you are being charged are payable only when Mortgage Offer Papers have been issued.

Our mortgage team have waived their normal adviser fees: free, independent, mortgage advice, contact us:

Freephone – 0800 644-4223    Email: info@starmortgages.co.uk

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 Deposit: The most obvious. Try to aim for at least 10% deposit – there are lenders who may let you put down only 5% but a big point to remember, the bigger the deposit you can put down, generally, the better the mortgage deal a lender will be inclined to offer.

 Arrangement Fee: There is likely to be a lender’s Arrangement Fee, they charge this for particular products, it can vary from £250 to £1,500 and lower (unlikely) or higher; sometimes worked out by the lender as a percentage of the amount you’re borrowing. Some lenders may not charge this fee for borrowers opting for their standard variable rate – very few borrowers opt for this.

 Valuation/Survey: A lender is likely to require that you instruct a valuation on a property – they may instruct it on your behalf and charge you for it. Some mortgage deals may include a free valuation, your adviser or the lender, if going direct to a lender, would go through your options. If paying you should budget for around £200 to £400 for a Basic Valuation or £350 to £700 for the more in-depth Home Buyers Report.

Scotland: The sellers are responsible for producing a Home Buyers Report, consisting of three parts:

*Single Survey – description of the property, the condition it’s in. *The Energy Report: the surveyor’s assessment of the energy-efficiency of the property. *The Property Questionnaire: the seller provides more info on the property – Council Tax band, for example.

**Very Important: If instructing your own Valuation, ensure that the surveyors you’re using are on the panel of the lender you’re using, if not, the lender won’t accept the report.

Specialist Surveys: If any ‘problems’ such as dry rot, damp, small cracks showing, etc, you may require a specialist survey, from specialist firms, such as dry rot/dampproof specialists or structural engineers, etc.

**In most cases, we’ve dealt with over the years, we’ve advised the clients to ask the sellers to either pay for the survey and correct any faults before the purchase completes – or to reduce the purchase price by the survey cost and the work required. In any case, get an estimate of costs upfront.

free mortgage adviceLegal Fees – known, in property purchase, as Conveyancing Fees: Depending on the complexity of the case these can range from £500 to £1,500, these are the fees paid for the solicitor’s efforts.

Legal Outgoings: You will have some other legal outgoings, such as Land Registry Fees, Local Searches, etc – your solicitor will detail these for you.

Important: Get as detailed a quote as possible from your solicitor/several solicitors at the outset, so you avoid surprises.

Stamp Duty (SD). Pure Tax: Nice and simple these days, though no less galling for many:

£0 to £125,000 – nil (3% for Buy to Let – BTL)

£125,001 to £250,000 – charged at 2% (5% for BTL), so, £75,000 by 2% = £1,500

£250,001 to £925,000 – charged at 5% (8% BTL), so, buying for £350,000, for example, £100,000 by 5% = £5,000.

£925,001 to £1.5 million – charged at 10% (13% BTL)

Example: Buying for £350,000. £125k to £250: £1,500 SD due, plus £250k to £350k: £5,000 SD due. Total Stamp Duty due on a £350,000 purchase: £6,500.

Moving Costs: These vary widely, do some research on local firms and get several estimates to compare. Important: Check out online reviews – get actual customer feedback, this can really help you decide who to use and can save some heartbreak.

Buildings Insurance: Your lender will require you to have this in place by time of exchange. Shop around.

Important: You need to insure the property for the ‘Reinstatement’ (rebuilding) value, so, if your property is valued at, say, £300,000, your survey report will state the Reinstatement value – it could be a £million, here’s why: A brand new, stand-alone property, valued at £300,000 may only have a Reinstatement value of £250,000, it can be rebuilt for £250,000. A flat valued at £100,000 on the 4th floor of a block of 8, may have a Reinstatement value of many more times this, perhaps a £million.

Check your survey report – it always has the Reinstatement value and this is the cover your lender will require.

Contents Insurance: Always advisable to have adequate cover in place but your choice about level of cover – and what items/situations you want covered.

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