MSE’s Academy of Money
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5 The other costs of buying a property

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.

This is a montage of five cartoon characters: Mr Cash (the Lender), Mr Stamp (the Taxman), Mrs Lands (the Registrar), Ms Deeds (the Solicitor) and Mr Scales (the Valuer).
Figure 7 Meet the people involved in your property purchase

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’)?

  • Mortgage arrangement fee (common with discount and fixed-rate mortgages and some other products): say, £500.
  • Legal costs including local searches and Land Registry fee: £800.
  • Survey and valuation: £350.
  • Stamp Duty Land Tax (SDLT): £1,900.
  • Removal costs: say, £700.
  • GRAND TOTAL: £4,250.

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 up front.

Other transaction costs involved in property transactions are the fees payable to an estate agent (if one is used) and the charge for an Energy Performance Certificate in respect of the property. These costs are, though, met by the property seller rather than the buyer.

Box 1 explains Stamp Duty Land Tax in a little more detail.

Box 1 Stamp Duty Land Tax (SDLT)

The marginal rates of Stamp Duty Land Tax on residential property purchase in England and Northern Ireland in 2021/22 were:

  • up to £125,000, 0%
  • £125,001 to £250,000, 2%
  • £250,001 to £925,000, 5%
  • £925,001 to £1.5 million, 10%
  • above £1.5 million, 12%.

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’.

On 8 July 2020 the threshold for SDLT on property transactions was raised to £500,000. The introduction of this temporary measure, initially until 31 March 2021 and subsequently extended to 30 June 2021, was aimed at boosting the housing market and helping the wider economy recover from the impact of the Covid-19 pandemic. From 1 July until 30 September 2021 the threshold for paying SDLT was raised from £125,000 to £250,000 to help the transition back to the rate structure set out above.

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 Parliament have the power to – and do – apply their own rates for these equivalents of SDLT. Both countries applied a similar tax holiday as England and Northern Ireland applied to SDLT in 2020 and 2021 to support the housing market during the Covid-19 pandemic, although the holiday for LBTT in Scotland ended on 31 March 2021.

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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