Simple Pound

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The further the year progresses, the nearer the time comes that my boyfriend and I have set ourselves for buying our first property. And since I love planning and organising stuff I also have a tendency to get overly involved before it’s even necessary. For example, I started to monitor rental prices in London at least weekly (if not daily!) almost a year before we would actually have to move. That meant that I wouldn’t just waste hours sifting through property websites (which is fun!), but also panic about things that were completely out of my control (e.g. whether we’d ever find a flat that I liked within our price range).

Despite the assumption that human beings are capable of learning and hence avoiding past mistakes, I’m doing it again. I get weekly property updates from a range of websites and spent hours more searching for places that might fit our criteria. However, this time, I’m trying not to panic too much in advance, but simply use this flood of information to be as prepared as possible in order to avoid nasty surprises. By now (almost a year before we’re planning to make this buying commitment) I already have a reasonably good idea of the property prices in the area I’m considering, the mortgages that are available and the maximum amounts we will be able to borrow. Yet, beyond saving for a deposit, I’ve never had a closer look at what costs we’ll be facing as part of the process.

And I’m horrified.

The list is seemingly endless: moving costs, legal costs, surveys and mortgage fees all have to be researched and compared in order to cut the best deal. And trust me, it’ll be absolutely crucial to get the best deal possible as the costs can mount up to almost 4% of your property’s purchase price. That is a lot of money. All along, I was hoping we could commit to a deposit of roughly 10% of the property’s purchase price. After my cost analysis, it looks more like 5% unless I start saving so much more aggressively than I have done in the past. Especially as there are further implications with not hitting the 10% deposit mark – many mortgage lenders won’t be willing to offer you their most competitive interest rates unless you can commit at least 10% of the purchase price.

In any case, check out the following list for an estimate of the magnitude of the costs you’ll be facing if you’re considering the purchase of a property. The property I’ve based the calculation on is a flat with leasehold and a purchase price of £400,000. Bearing in mind that the average house price in London is somewhere around £375,000 (depending on which source you query), it’s not that extortionate and probably represents the maximum amount we could afford anyway (optimistically speaking).

Moving costs

• Insure possessions against accidental damage during move (the following calculation is based on an estimated premium of 50% - 100% of our current contents insurance – I haven’t actually checked with them but I doubt it would be more than 100% our annual premium) - £50,- to £100,-
• Hire medium-sized van for a weekend (this will be cheaper than hiring a removal company, especially as the flat we are currently renting is furnished which means we will have very little heavy furniture to move – just tons of DVDs and books *grins*) - £120,- to £200,-

Legal costs

• Conveyance solicitor fees (this will depend hugely on whether you’re looking to buy a house – i.e. freehold – or a flat which is commonly on leasehold; to a certain extent it will also depend on the value of the property you’re looking to buy) - £300,- to £700,-
• Local authority searches (this search has to be carried out to establish whether any matters such as planning, environmental problems, building regulations etc. affect the property) – £100,- to £120,-
• Land Registry fee (this fee is payable to the Land Registry for them to put down your name as owner of the property in their records; tedious but important) – £220,-
• Land Registry search (as far as I can tell this search is conducted to purchase the registry plan and registry title (at £3,- each) from the Land Registry to ensure the property you’re being sold actually belongs to the seller) - £6,-
• Bankruptcy search (to ensure that the property you’re buying has no history of bankruptcy or financial difficulties which could affect your credit rating) - £2,-
• Stamp duty (this is by far the largest chunk of the costs you will have to put up with and is calculated as 3% of the purchase price for any property above £250,000 and below £500,000) - £12,000,-

Survey costs

• Home buyers’ survey (the main purpose of this survey is to ensure you’re paying a fair price for the property; you’ll be told about any defects that might affect your decision to proceed with the purchase or which may affect the price you’re willing to pay – a useful tool for price negotiations later on!) - £480,- to £550,-
• Valuation report (survey conducted by your mortgage lender to establish whether the price you’re quoting them for the property is justified and whether they feel save accepting the property as a collateral for your loan) - £525,- (you might be able to get this free as part of a mortgage deal)

Mortgage costs

• Deposit (as discussed, ideally you want to put down at least 5% - 10% to get the best interest rates from your lender of choice) - £20,000,- to £40,000,-
• Product fee (covers the initial mortgage setup and whatever else the bank can come up with to possibly justify a further grand of expenses) - £500,- to £1,000,- (possibly less depending on what mortgage you pick)
• Application fee (because they can) - £100
• Bank transfer fee (and more costs just to get the money the seller’s account asap) - £35

This brings us to a whopping total of between £14,440 and £15,560 in fees for the purchase of a £400,000 property. That number obviously doesn’t cover the additional 10% you want to put down as a deposit. If I include the 5 – 10% range, we reach a final sum of anywhere between £34,440 (with 5% deposit and all the best deals the street offers) and £55,560 (with 10% deposit and higher fees).

That is a lot of free capital you need to have available before committing to a house purchase. I will seriously have to review my savings pattern to assess how I can possibly squeeze more money out of my budget for savings…

In case you want to read more about this evil topic, I suggest the following sites:

• 4Money’s guide to buying a home
• WhatPrice (actual cost estimates slightly outdated)
• Adviceguide (for a description of the whole buying process)
• DirectGov
• Complete Guide to Homebuying (the clue is in the title; slightly outdated but informative)

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