cost of house purchase

The principal costs involved with house purchase are as follows:

  • Valuation fee: Lenders want to see that that the security for their money (namely your house) is adequate and will conduct a valuation of the property, which will cost you in the region of £250 +VAT. Even though you have to pay for this valuation, it is actually for the benefit of the lender.
  • Survey: You should always commission your own survey in order to verify that the property is structurally sound. A good surveyor will point out serious defects such as dry rot, damp, subsidence and so on which may either prompt you to withdraw from the purchase or enable you to knock thousands of pounds off the asking price. Surveys can cost anything between £500-£1,000 +VAT depending on the size and nature of the property.
  • Legal fees: You will also need to pay for conveyancing (the legal work of transferring the property into your name), which depending on the complexity of the transaction, could cost anything from £300-£1,000 +VAT.
  • An arrangement fee: Lenders often charge arrangement fees on discounted and fixed rate mortgages as a way of subsidising the special rate you receive. Arrangement fees can vary from £100 to several thousand pounds.
  • Removal costs: These will vary according to where you  are moving to and the amount  and nature of your  possessions.
  • Search fees. Your new lender may want to check for new developments in your area that may have an impact on the value of your property. These searches can cost £150-£200.

Some lenders offer ‘fee-free’ remortgaging, which means they will pay your valuation and legal fees.

But bear in mind that ‘free legals’ are often on condition that you use the lender’s own solicitors. If you want to employ your own solicitor, the lender may cap the amount it is willing to pay, to typically £250.

Even when valuation and legal fees are marketed as ‘free,’ they are usually payable by you on completion of the mortgage, which means you will still have fund these costs upfront and reclaim them afterwards.

In some cases, where the rate is very low, it is increasingly common for the fee to be a percentage of the loan. Beware of excessive fees.

A Northern Rock two-year fixed rate mortgage with a 3.99 per cent pay rate once charged a staggering 2.5 per cent of the loan. So a £200,000 mortgage would cost you £5,000 for the privilege. Arrangement fees can usually be added to the loan, but bear in mind that this means paying interest on the money for the term of your mortgage.

Other costs

The costs don’t stop there

Broker fees. Since financial advisers became regulated in 2004, there are three ways in which a mortgage broker can charge you:

  • Fees only: This is where you pay an hourly rate to the adviser. A retainer may also be agreed whereby you pay a certain amount each year and then pay a reduced rate on hours of advice given.
  • Commission: You do not pay the adviser directly but he or she receives commission from the lender which is typically a percentage of the loan. If you pay nothing direct to the adviser, you may well pay indirectly via a higher arrangement fee or interest rate.
  • Fee offset: This is where the adviser offsets the commission or‘procuration’ fees received from the lender against his fee to you for advice.
  • All advisers – whether independent, tied or multi-tied – are legally obliged to disclose up front how they charge. However, only an IFA is legally required to scour the entire market. To find an IFA local to your area, visit the IFA Promotions website at http://www.unbiased.co.uk/
  • A deeds release fee. Your existing lender may .charge you an exit fee to release its legal charge over your property, costing around £50-£300.