By Steve Smethurst
‘I’m never moving house again’ is a common refrain and with costs averaging £10,000 on top of the purchase price, it’s no surprise. From buildings insurance to stamp duty, what do you need to factor in?
Buying a home is stressful the world over. It routinely reduces one in three Americans to tears and causes an average of four arguments along the way 1. The UK fares little better, with the process rated more stressful than having a baby, starting a new job and planning a wedding 2.
Nor is it beyond the realms of possibility that you will put more research into buying a TV online than you will a purchase that will set you back several hundred thousand pounds (the UK national average is £226,234 3) and which will take 25 years to pay back. Just two 15-minute viewings and you could be saying yes to a lifetime of mortgage repayments. At least with the TV you can read 500 user reviews and get your money back if you’re dissatisfied. With house buying the stakes are far higher.
Stamp duty is taxing
While most people generally have a budget in mind for their purchase along with an idea of what they need to get from a sale or their deposit, they are often tripped up by the additional costs that accompany moving house. These have been estimated at around £10,000 when buying and selling 4. However, this is an average and it will vary according to the purchase price and whether you need to transport all your worldly goods from one end of the country to the other. As a general rule of thumb though, the higher the purchase price and the greater the distance you’re moving, the higher the costs.
While the £10,000 figure provides a good starting point, the villain of the piece is undoubtedly stamp duty. Originally introduced in 1694 as a levy to pay for a war with France, it began as a tax on legal documents that required a physical stamp to show that the sum had been paid. In more recent times, it’s become a tax on house buying and its official title is ‘stamp duty land tax’ (SDLT).
Government rules on SDLT currently favour first time buyers who pay nothing extra on properties that cost up to £300,000. But if you’ve previously bought and are now purchasing a three- or four-bedroom property in London, for example, your duty will be eye-wateringly higher. Take a deep breath at this point, because an £800,000 purchase will set you back an additional £30,000 in stamp duty 5.
Other variable expenses
The other major variable comes on the selling side and it’s estate agency fees. These typically range from 1% to 3.5% and are often negotiable. Bear in mind, however, that you will typically need to add on VAT. The traditional estate agency model has been disrupted in recent years by online-only agencies and given that most people now search online and receive email alerts on every property that goes for sale in their preferred area, it may seem a great way to save money. Just compare a fixed fee of £1,000 with 3.5% plus VAT on an £800,000 house and you’ll soon see why. However, bricks and mortar estate agents do have good local knowledge and a database of people actively searching for properties like yours. They are also incentivised to a greater extent by commission.
Other costs you’ll need to be aware of include removal costs (approximately £600 for a two-bedroom house 6), which will be much less if you do all the packing yourself and hire a man with a van – and vastly more if you employ a national brand with a full packing service and require shipping containers to be freighted to the Isles of Scilly.
There’s also the question of the deposit. Generally, this should be around 10% of the accepted offer for a house. But remember that the higher the deposit, the less you’ll be paying each month on your mortgage.
Fixed fees and charges
Other things you’ll need to factor in are a mortgage valuation, your own survey, conveyancing fees and an energy performance certificate 7, which cost from £35 8. Your mortgage lender will need to be sure the property exists and is worth the money you’re paying for it and will either charge a fee for this service or add it on to your mortgage.
When it comes to your own survey, you could take a risk and not have one done. This isn’t usually recommended. Most buyers will pick the survey that best suits their needs from a condition report to a full structural survey. The Royal Institute of Chartered Surveyors’ website has full details 9. Most property surveyors will charge £250-600 for an evaluation, depending on which survey you take.
It might also be necessary to undertake other precautions such as a survey of drains or to seek professional advice if there is asbestos on the property. Again, these will incur extra costs.
Talking of which, no property sale or purchase is complete without legal fees. Conveyancers (the solicitors you employ when buying or selling a house) charge a basic fee with a variety of add-ons depending on what searches they undertake (for example on planning permissions or flood risks). Their fee is usually linked to the property’s value and it typically costs more for a leasehold property due to the increased paperwork involved.
Don’t forget about insurance
You might think you have everything covered at this point, but one crucial element remains: insurance. As Jonny Cracknell, Aviva Customer Underwriting Manager, explains: “One thing that people don’t often realise is that buildings insurance needs to be in place on the new property from the point of exchange. This is to make sure you’re covered for the main perils that the lender would expect to be covered, such as fire, flood, theft, escape of water and storm damage.
“This process ensures you have sufficient cover on both properties until you have moved. Once that then happens, customers just need to ensure that their contents cover is still sufficient in the new property.”
“Our Home Insurance also covers removals, providing it is by a professional removal company, although they should have their own cover. Aviva also offers specialist cover if you’re doing your own removal, or if you wanted to insure your sale against it falling through.
All that remains after that is for you to relax, sit back and enjoy your new dream home. Once you’ve forked out for any repairs, redecorating, new bathrooms and kitchens, of course.
What’s that you say: “Never again…”?