It’s not just about getting the mortgage and being able to pay it. There are a number of costs that you will additionally incur as you take ownership of your new home.
To show you how these costs may add up, let’s suppose you’re buying a property for £220,000 in England – which is close to the average cost of a property in the UK.
What costs do you incur if you are not a first-time buyer and the property is to be your home (your ‘prime residence’)?
There may also be a fee to the mortgage broker if you’ve used one to help choose and organise the mortgage. Some costs arising from getting a mortgage – specifically the arrangement fee – can, subject to the lender’s approval, be added to the mortgage. The other costs will, though, have to be met upfront.
Box 1 explains Stamp Duty Land Tax in a little more detail.
The marginal rates of Stamp Duty Land Tax on residential property purchase are:
Note that first-time buyers are exempt from SDLT for properties up to £300,000 and at a reduced rate of 5% for the amount in excess of £300,000 up to a maximum of £500,000. Purchases above £500,000 do not qualify for any SDLT relief. Also note that a surcharge of 3% applies if the property is not acquired as a ‘prime residence’. In Scotland the equivalent tax to SDLT is Land and Buildings Transactions Tax (LBTT) and in Wales it is Land Transaction Tax (LTT). The Scottish Parliament and Welsh Assembly have the power to apply their own rates for these equivalents of SDLT.
The next section reviews the range of risks and challenges that come with a mortgage. It will look at how coping with the costs of a mortgage needs to be embedded into wider household financial management.
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