Whether you like it or not, buying a new home requires the services of a number of professionals and other intermediaries. It is also subject to significant taxes. These costs fall into 4 groups: vendor's costs, mortgage lender's charges, buyer's costs, and tax charges.
Vendor's Costs
Most of us have to sell one property in order to buy another. You'll pay an estate agent's commission for selling your home. You'll also pay a conveyancer to manage the legal aspects of this sale.
Estate Agent's Commission: This pays for marketing your property, managing viewings, and negotiating on your behalf with any interested buyers. It is charged as a % of the sale price agreed, payable on exchange of contracts. You'll pay lower commission for a "sole agency" agreement appointing a single firm. Some agents offer revenue sharing deals allowing you to benefit from dual agency arrangements for single agency fees. Agents can still officially expect fees as high as 2-2.5% บ้านมือสอง for single agency. In reality you should seek to negotiate to around 1.5% or lower. Local independent firms are often more flexible on price than national chains. Sadly, VAT at 20% will be added to this commission. In theory you can reduce this cost by selling privately, through classifieds or dedicated websites. In practice only about 1 in 100 sales successfully bypass agents. To do so, you must be prepared to do the estate agent's job yourself, making potentially huge demands on your time.
Conveyancing: Your conveyancer will handle all enquiries before contract from your buyer's representative, to ensure your sale is legally valid, and manage the transfer of funds. Generally you will be using the same conveyancer to handle your sale and your purchase. If not, expect to pay £200-300 for this element.
Mortgage Lender's Charges
Cash buyers can avoid all these costs. The rest of us are less fortunate.
Mortgage Arrangement Fee: Once a modest administrative charge for setting up a mortgage, these have progressively increased alongside rate-led marketing. Charges vary hugely by lender and deal, from £200 to well over £1,000. Higher charges may be good value in the longer term for lower monthly payments or fixed rates, but you'll need to find the fees upfront to benefit. It's hard to avoid fees completely. If no fees are charged, do check you're not simply paying uncompetitive interest rates instead.
Valuation Survey: You'll pay between £100-300 for a survey to satisfy the lender that your new home is worth the amount you've asked to borrow. This report will offer you little insight into any defects the property may have.
Mortgage Indemnity Guarantee (MIG): Even when your valuation survey passes muster you may be expected to pay an indemnity (typically £500 - £1,000+) for properties with a loan to value (LTV) of 90% or more. MIG exists to insure the lender against any shortfall in the value of your property in the event of repossession or forced sale. This highly questionable practice is an infuriating but unavoidable cost for most first time buyers.
Buyer's Costs:
Buyer's Survey: This will assess the structural condition of your potential home more thoroughly than a Valuation Survey. You may choose a Home Buyer's Report for standard or modern properties or the more exhaustive Building Survey for unusual or period properties (or those where you plan major renovation). Prices are banded according to the price of the property on the basis that larger properties demand more of the surveyor's time. Expect to pay £300 - £900 for a Home Buyer's Report, and £500 - £1,500 for a Building Survey. This cost is avoidable since you are not obliged to commission your own survey. But it will protect you against costly mistakes and enable you to reduce the sale price to reflect major or minor work required. When it comes to buying a new home, ignorance is not bliss.
Conveyancing Legal Fees: These costs reflect the time spent by your solicitors in ensuring the legal validity of the sale and transferring ownership of the property to you. Fees are often banded according to property price - whether this reflects proportionate increases in workload is debateable. You'll get best value for money by checking that fees quoted are all-inclusive, fixed-fee and ideally operate on a 'no-deal no-fee' basis. Any providers advertising implausibly low basic fees of the "£99 + VAT" variety will invariably end up charging you more for 'extra' work which in reality is routine and predictable. Ensure your quote includes disbursement costs itemised separately from legal fees. Most conveyancing is not legally complex. But trying to save money by doing it yourself is unwise as there's a lot of unfamiliar detail and seemingly trivial mistakes can easily place your purchase at risk. Expect to pay anything from £400 to £800, exclusive of VAT.
Conveyancing Disbursements: A long list of 3rd party costs incurred by your lawyers including local authority searches, searches to check drainage, land registration fees, bankruptcy check, and telegraphic transfer fee. Individual items vary in cost between local authorities. Expect to pay a total of £400 -700, including VAT. Watch out for disbursement costs tiered according to the sale price, and check these do not simply disguise aggressive mark-ups. Land Registration fees are the only item where direct costs increase according to sale price.
Removal Fees: Unless you have very few personal effects you'll find it well worth while paying someone to move your possessions. Prices will vary depending on the size of your house, the distance of the move, and whether you opt for a packing service or not. Check your removal firm has adequate insurance (not all the "man with van" providers do!), and book well in advance.
Contingency Budget: Not a compulsory cost, more of a prudent provision for any renovation/ maintenance costs your new home will present (unless it's a new build or in immaculate condition). I personally have yet to buy a property where the boiler has more than 18 months' working life left! No doubt you can cope with painting and decorating yourself, but costly tasks such as re-wiring will require professionals. Think in terms of 1-3% of the house price over the first year or so. Price any priority works identified by your survey and do your best to ensure the sale price reflects these. Remember surveys take no responsibility for assessing the central heating.
Tax Charges
Agents and lawyers fees will be quoted exclusive of VAT, currently 20%. VAT will seem modest as soon as you consider 'stamp duty' charged as tax on all property purchases. Few exemptions exist, none of which reduce this punitive cost for middle-income earners and above.
Stamp Duty and Land Tax (SDLT): SDLT is payable on completion, as a percentage of the purchase price, with rates banded according to the sale price. The basic rate is 1% but higher bands (3% at £250,001+, 4% at £500,001+ and 5% at £1,000,001+) apply to the entire price. So a buyer for a property at £500,000 will pay £15,000 SDLT, while a buyer paying £1 more will face a bill of £20,000.
Two options exist to reduce this cost.
For any purchase with a sale price just over the stepped rates, you can seek to agree a price under that threshold, and pay the balance as a private contract for fixtures and fittings. In the unlikely event of any investigation you would be expected to demonstrate that this contract valued such items fairly and was not just a tax evasion ploy (paying £5,000 for a second-hand fridge or cooker is not very credible!). You will need the co-operation of the vendor's solicitor, not always a given. In practice the stepped SDLT rates have distorted asking prices, meaning properties are rarely marketed at just over the threshold points. So this opportunity rarely arises.
For any property with a sale agreed at £250,001 or more you may take advantage of several highly sophisticated tax planning schemes. These reduce your SDLT liability to zero by changing the tax status of your purchase. The providers generally charge you about half the tax reduction saving entailed as their fee, reflecting their high costs of development and compliance. This still leaves you with a net saving sufficient to meet most of your other home buying costs. Such schemes are not aggressively marketed to avoid more robust government efforts to close the complex loopholes involved. None of these schemes are altogether smiled on by the authorities. However the only ones worth pursuing will always be officially recognised as legitimate tax avoidance options. When you consider any such scheme do establish what liability would exist if the tax authorities challenged you.
All in all, buying a decent family home in Southern England can easily cost you upwards of £30,000. So don't forget to include these costs in your budget at the start of your search. Choose your providers well, and manage their charges as best you can.
All indicated costs are for illustration purposes only. While the author has made all efforts to ensure these figures are fairly representative as of May 2011 he cannot accept any responsibility as to their strict and absolute accuracy, now or in the future.
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