The Costs of Buying and Owning a Home

Buying a house is a significant financial commitment. The costs extend beyond the deposit and mortgage required to fund the property’s purchase price. They also include various fees, taxes and ongoing post-purchase expenses. Whether you are a first-time buyer or an existing owner looking to move, the aim of this guide is to help you plan and budget effectively.

Initial Costs of Buying a House

Deposit

Your deposit is one of the most substantial initial costs when buying a house. Typically, lenders require a deposit of 5-20% of the property’s value, depending on the borrower’s financial circumstances, including their income, expenditure, debts, and credit history and credit status. Usually, a larger deposit can help secure better mortgage rates.

Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) is a significant cost that buyers must budget for. The standard incremental SDLT rates are: 0% on the first £250,000 of the purchase price of the property, 5% on the £250,001 to £925,000 band, 10% on the £925,001 to £1,500,000 band and 12% on the portion of the purchase price that is above £1,500,000. If a first-time buyer acquires a property for £625,000 or less, lower SDLT rates apply: 0% on the first £425,000 of the purchase price and 5% on the £425,001 to £625,000 band.

Survey Fees

Instructing an independent survey by a qualified RICS surveyor is important to assess the condition of the property. Basic surveys, such as a Home Buyer’s Report, typically cost around £400. More detailed surveys, such as a complete structural survey, can cost up to £1,500 or more. These surveys help identify potential issues that might require attention​​.

Mortgage Fees

Several fees are associated with securing a mortgage:

Arrangement Fee

This fee, also known as the product fee, can range from £0 to £2,000.

Valuation Fee

Lenders may charge this fee to assess the property’s value. It typically ranges from £200 to £700, but can be much higher depending on the location, size and value of the property. Valuation fees are sometimes limited or waived by lenders.

Booking Fee

Some lenders charge an upfront fee when you apply for a mortgage, but usually no more than around £100.

Broker Fees

Mortgage brokers can usually help find the best mortgage deals suited to your circumstances. Some charge a flat fee, possibly around £500, while others may work on a commission​​.

Legal Fees

Legal fees cover the conveyancing process, including property searches, contract handling and transferring registered ownership of the property. Conveyancing fees typically range from £850 to £1,500 plus VAT.  

Disbursements

Disbursements are additional costs paid to third parties that your solicitor will incur during the property buying process. These include fees for local authority searches, typically ranging from £40 to £250, drainage and water searches costing between £35 to £50, and environmental reports priced around £30 to £60. Land Registry fees can also add up, varying from £45 to £1,105 depending on the property’s value.

Removal Costs

Moving your belongings to the new property can be costly. Hiring a professional removal company can range from £350 to several thousand pounds, depending on the distance and the amount of furniture. DIY options like van renting can save money, but involve rental fees and effort​.

Recurring Costs After Buying a Property

Mortgage Payments

The most significant recurring cost post-purchase is the monthly mortgage payment, which includes the principal repayment and interest payment. The exact monthly mortgage payment amount will depend on the outstanding mortgage balance, mortgage rate and repayment period. As mortgage rates can change quite significantly, over time, it is worth considering how much you could comfortably afford if they were to rise steeply and determine your borrowing amount accordingly.

Council Tax

Council tax is a local tax set by your local authority based on the property’s value and the number of occupants. Council tax bands range from A to H. On average, council tax can be around £1,500 to £2,000 per year​​. There can also be significant variations from one local authority area to another.

Utilities

Utilities include water, gas and electricity. The monthly cost depends on your usage, property size and provider. On average, combined utility bills can range from £100 to £150 per month.

Insurance

Two types of insurance are essential for homeowners:

Buildings Insurance

This covers the cost of repairing damage to the property’s structure. Annual premiums typically range from £100 to £300, but this depends very much on property price and location.

Contents Insurance

Covers personal belongings inside the property. Annual premiums can typically be between £50 to £150​​, but can vary widely depending on the value of the contents.

Maintenance and Repairs

Regular maintenance includes servicing boilers, repairing leaks and general upkeep. Unexpected repairs can be costly, so it is advisable to set aside funds for emergencies. Annual costs can range from £500 to £1,500, depending on the property’s size, condition and age​.

Service Charges (for Leasehold Properties)

For leasehold properties, service charges include the maintenance of communal areas and buildings insurance. These charges vary widely, typically between £1,000 and £3,000 per year. Additionally, leaseholders may need to contribute to significant one-off repair or maintenance projects, known as major works​​.

Ground Rent (for Leasehold Properties)

Leaseholders pay ground rent to the freeholder. This annual fee can range from £50 to £300, with some leases allowing for periodic increases​.

Broadband and TV

Depending on the services chosen, monthly costs for broadband, TV licenses and streaming services can range from £30 to £100​​.

Home Security

Investing in a home security system is optional, but recommended. Costs for home security systems vary, with initial setup fees and monthly monitoring fees if you opt for professional services. Basic systems can cost £20 per month upwards​.

Gardening and Landscaping  

If your property includes a garden, regular maintenance costs, such as lawn care, pruning and seasonal planting, should be considered. DIY options can reduce costs, but professional services can range from £30 to £100 per month​​.

Conclusion

Buying a house involves a range of initial and ongoing costs that prospective homeowners ought to consider carefully. From deposits and legal fees to mortgage payments and maintenance, understanding these costs can help you plan effectively. Budgeting properly for the financial commitments involved ensures a smoother home-buying experience and long-term financial stability. By understanding the costs involved, you can make informed decisions, avoid unexpected expenses and enjoy the benefits of homeownership with confidence. Consulting with financial advisors, mortgage brokers and solicitors can provide personalized guidance tailored to your specific situation, ensuring that all aspects of the home-buying process and beyond are well-managed and financially sound.

FAQs:

Q. What are the initial costs involved in buying a house?

A. The initial costs of buying a house include the deposit, stamp duty, survey fees, mortgage-related fees (arrangement fee, valuation fee, booking fee and broker fee), legal fees (including fees for searches) and removal costs. Some costs can vary enormously. For example, the higher the purchase price, the higher the deposit and stamp duty. Similarly, removal costs can vary with the amount of furniture and distances involved.

Q. What are the ongoing costs after buying a house?

A. Ongoing costs post-purchase include monthly mortgage payments, council tax, utilities (water, gas and electricity), insurance (buildings and contents), maintenance and repairs, and service charges (for leasehold properties).

Q. What are disbursements and how much do they cost?

A. Disbursements are additional costs paid to third parties during the property buying process. These include fees for local authority searches (£40 to £250), drainage and water searches (£35 to £50), environmental reports (£30 to £60), and Land Registry fees (£45 to £1,105). These costs ensure there are no legal issues with the property and typically range from a few hundred to several hundred pounds​​.

References:

Stamp Duty Land Tax | GOV.UK

The Cost of Buying a Home Explained | Zoopla | Published 7 May 2024