4 What are the costs of buying?

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This cartoon shows five figures: Ms Deeds, Mr Cash, Mr Scales, Mrs Lands and Mr Stamp.

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It’s a good idea to secure an offer of a mortgage before you put in an offer on a property. Once your offer on the property has been accepted you can proceed with the purchase. In addition to the deposit, this is where homebuyers rack up other bills as well.

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When you buy a property, it's not just the cost of the property itself that you have to stump up for. There are additional costs. So let's suppose you buy a property for 200,000 pounds. What are the additional costs that you could incur?

Well, you may have to pay a mortgage arrangement fee if you use a mortgage to buy the property. This is particularly common with fixed-rate, capped, and discounted mortgages. This fee could be, say, 500 pounds.

There will certainly be legal costs involved in the purchase, including local searches and the land registry fee. And these costs would typically be at least 800 pounds. It's sensible to get a survey and valuation. In fact, you need these in order to get your mortgage. And these will cost you, say, 350 pounds.

Then there's the matter of stamp duty land tax paid on property purchases. Now in 2017/18, the marginal rates of stamp duty land tax on residential property purchases were up to 125,000 - null percent, 125,000 to 250,000 pounds - two per cent, 250,000 to 925,000 pounds - five per cent, 925,000 to 1.5 million - ten per cent, and above 1.5 million - 12 per cent.

So that means that for a property costing 200,000 pounds in England stamp duty land tax of 1500 pounds would be payable. This is two per cent of the difference between the purchase cost of 200,000 pounds and the starting point for paying the tax of 125,000 pounds, so two percent of 75,000 pounds. The equivalent of this tax in Scotland is land and buildings transaction tax.

Don't forget you'll end up paying removal costs as well. Let's say these amount to 1200 pounds. So in this example, the grand total of other costs in addition to the property price of 200,000 pounds is 4350 pounds. There may also be a fee to pay to the mortgage broker if you've used one to help choose and organise the mortgage.

But the largest cost will be the price of property itself which you, the buyer, can try to negotiate down from the seller's asking price. This may be difficult in a period when house prices in the region you're buying in are rising, but easier when prices are stable or falling. For the seller, the only similar costs incurred will be legal costs and removal costs. Sellers will, though, incur other costs, for example, the estate agent's fee if an agency is used to market the property. And the cost of an energy performance report that sets out how energy efficient the property being sold is.

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To show you how these costs might add up, let’s suppose you’re buying a property for £200,000. What additional costs do you incur? The animation leads you through the workings including:

• mortgage arrangement fee (common with fixed rate, capped and discounted mortgages)
• legal costs including local searches and Land Registry fee
• survey and valuation
• Stamp Duty Land Tax (SDLT): (note that SDLT is applied at different rates (or ‘marginal’ rates) depending on the value of the property). SDLT is levied in England and Northern Ireland. In Scotland the equivalent tax is Land and Buildings Transactions Tax (LBTT). The equivalent tax in Wales is called Land Transaction Tax (LTT).
• removal costs.

There might also be a fee to the mortgage broker if you’ve used one to help choose and organise the mortgage.

The largest cost will be the price of the property itself, which you, the buyer, can try to negotiate down from the seller’s asking price.

For the seller the only costs incurred in the list above will be legal costs and removal costs plus the cost of an energy performance report that sets out how energy efficient the property is.