Further Costs
The additional costs you should consider before deciding how much you can reasonably borrow include other fees that are unrelated to the mortgage itself (see Mortgage Fees), but must be paid if you wish to purchase a property. These include: stamp duty land tax, survey and legal fees.
Stamp Duty Land Tax
Stamp Duty Land Tax is a tax charged when you buy property above a certain value. Currently, you must only pay stamp duty if you purchase a property worth over £125,000. The amount of tax you pay depends on the value of the property. The current rates (as of September 2008) are:
- 1 % of the property's value if its worth £125,001 – £250,000
- 3 % if £250,001 – £500,000
- 4 % if £500,001 or greater
In some cases, these rates will not apply. So-called 'zero carbon homes' worth less than £500,000 are exempt from this tax, whilst properties worth more than £500,000 receive a £15,000 discount on the usual four percent rate.
If you are buying property for residential purposes, that is, you are not buying it for business purposes, you may be entitled to 'tax relief'. If your property is situated in an area which is considered to be 'disadvantaged', stamp duty land tax does not have to be paid as long as your property is worth less than £150,000. If your house costs you more than this, the standard rates shown above apply. Although your solicitor or conveyancer (who manages the purchase) will usually complete the necessary forms for this relief, you should ensure that you understand what is required from you, because failure to complete certain forms within a certain number of days can lead to a penalty. To find out exactly what is required in your case, contact HM Revenue & Customs (HMRC).
Surveyor's Fee
Although your lender will require you to pay for a valuation (see Mortgage Fees) as part of the mortgage application process, this valuation is usually only basic. The Council of Mortgage Lenders therefore advise that you commission a full building survey yourself. This is a much more detailed survey that can examine more serious structural problems with the property, which could prove expensive to resolve later on. It is estimated that only one or two percent of buyers choose to carry out their own survey.
If you have your own survey done, inform your lender; in some cases they are able to arrange for their own surveyors to carry out the survey at the same time as your valuation is done. Not only does this save time, as there is usually just one visit required, but it is often less expensive too. If you wish to opt for this combined valuation, you should be aware that choosing your own surveyor, as opposed to accepting the mortgage lender's 'approved' surveyor, may result in a delay. Remember that although the valuation and survey is carried out at the same time, they are completed independently.
The cost of a survey depends on the value of the property, which means that prices vary widely. Although an independent surveyor's report does not carry an extra administration charge, combining your mortgage lenders compulsory valuation and your own survey will more than likely reduce the overall cost.
There are two types of survey you can choose to commission: a homebuyer's survey (sometimes referred to as a homebuyer's report) and a building survey. The latter is the most detailed report and is recommended for properties over one hundred and fifty years old, listed buildings, properties requiring renovation, and those that have already been altered extensively. In contrast to a homebuyer's report, which your mortgage lender can usually arrange through their chosen surveyor, a full building survey is usually carried out by a separate surveyor, which can increase its cost.
Legal (Conveyancing) Fees
Buying a house can be very complicated. Even if you have no property of your own to sell, you will require the services of a solicitor to help you complete the legal process, known as conveyancing. A good solicitor will help provide peace of mind when you are dealing with the stressful process of purchasing your property. Solicitors guide you through: obtaining the deeds of the property, which outline who legally owns the property; examining the contract prepared by the sellers' solicitors and agreeing a completion date; and completing the financial transaction by handling the funds between your lender and the sellers' solicitors.
