For the vast majority of people a home is the largest single investment they’ll ever make. Nothing else really comes close. Yet there are few who are aware how expensive the house of their dreams will actually wind up being. They believe that if they offer X pounds for a house and that offer is accepted then that’s what they’ll wind up paying. In reality your accepted bid is just the tip of the iceberg.
Because there are a plethora of hidden or otherwise unexpected costs, fees, service charges and more that will get tacked on at every stage of the process. If you’re not ready for them they could wind up sinking your ship which often results in people seeing debt help and advice.
Beware Those Hidden Costs
With the average price of a single family home in the UK now topping £200,000 many first time homebuyers have a steep mountain to climb if they want to achieve their goal of home ownership. In reality though that £200,000 only represents a starting point and it’s the hidden and tacked on costs that wind up undermining many people’s dreams. But just what are those hidden costs?
The days when lenders would give a mortgage to a kid with a lemonade stand ended in 2008. Today, in order to purchase a home you’ll need to come up with a standard down payment of 5 to 10% of the purchase price. With the average price of a home now more than £200,000 that means you may have to pony up £20,000 – £30,000 or more. Also, if your credit score is less than perfect you can expect to pay a higher interest rate on your mortgage. In fact, if your recent credit history is spotty the financial institution may simply refuse to offer you a mortgage at all, or require an even larger down payment; perhaps as large as 20% or more.
The Stamp Duty
The Stamp Duty gets its name from the time when a physical stamp – often quite an elaborate hand-carved seal that was pressed into hot wax poured onto a document – was required in order to certify that a document was authentic. Today the Stamp Duty is a form of sales tax tacked on to the sale price of a home. The Stamp Duty can be as high as 10% which, when the home in question costs several hundred thousand pounds, can add up to quite an imposing amount.
No home sale is considered valid until the particulars are written down in an officially recognized document and that document is registered with the Land Registry. This process will typically require the involvement of a solicitor or conveyancer and may wind up costing you £1,000.
It would be foolhardy indeed to purchase anything as expensive as a home without first having it inspected. The survey will draw your attention to any significant issues that could affect your decision to purchase the property or, at the very least, cause you to reconsider the size of your offer. You wouldn’t purchase a second hand car without thoroughly inspecting it first; the same goes for a house or apartment. There are 3 types of survey: the Condition Report, the Homebuyer’s Report and the Buildings Survey. Depending on which you choose you can expect to spend anywhere from £300 to £1,000.
The Arrangement Fee is one of those things that leaves a lot of home buyers scratching their heads. The Arrangement Fee is paid to the lender and the official excuse is that it’s necessary to “set up” the mortgage. But why is that? Don’t the lenders already receive a salary to do their job (which includes setting up mortgages)? And isn’t all the interest they stand to gain enough of a fee? Questions like these have defied logical answers since time immemorial. Nonetheless, you’ll need to pay this fee (typically about £1,000) if you wish to purchase a home.
The further you move from your current residence and the more things you have to move, the more it will cost. If you are simply moving down the road or across the street you can likely do it yourself with the help of a few friends and neighbours. However, if like most people you are moving across town, out of town or even across the country your removal expenses will be substantial. It’s in your best interest to shop around and get as many quotations as possible before deciding on a particular removals company.
The process of buying a house and relocating can take a lot of time. Depending on your job and/or how understanding your boss is (if you have a boss) you might wind up missing quite a bit of work before all is said and done and you are settled into your new home. All of those lost wages must be added to the cost of buying the house.
These are the things no one wants to contemplate but must be taken into consideration when buying a home. For example: Let’s say that everything has gone swimmingly and now the time has come to move into your new home. You load up the removal lorry with all your prized possessions and head off to your new life in a faraway town. However, half way there the removal lorry is involved in a serious accident and your possessions wind up broken and scattered across the M40. Thankfully you and your family are fine but who’s going to cover the cost to replace all your furnishings? Or let’s say that after you move in you discover problems that eluded the survey. What then? The fact is the unexpected happens. You should have some money set aside to deal with it when it does.
Buying a home is an enormous step and one that should never be taken lightly. Be sure you’re ready to deal with the real cost of buying a home before you get involved in the process and are torpedoed by unexpected costs.
Disclosure: This is a collaborative post.