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Author: By Ed Parry
Mortgagesorter >> Home Buyers Guide
Home Buying Costs
Moving In Costs
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If you’re buying with a mortgage, you will actually face two kinds of deposit.
First of all, you will have to make a down payment to your vendor (the person
you’re buying from) when you exchange contracts.
Then, when you complete (the property becomes yours), you’ll need to come up with the
difference between the balance of the purchase price and the amount your mortgage lender is advancing to you.
When you exchange contracts, tying both sides into the sale,
you’ll have to make the agreed down payment to the seller.
This is usually 10 per cent of the sale price.
If your lender has agreed to give you a 100 per cent mortgage,
it will arrange to pay this.
Otherwise, you’ll need to have this cash ready to hand over
This is the difference between the price of your new home and
the mortgage you’ve secured.
If your house costs £150,000 and you’ve got an 80 per cent mortgage (ie £120,000), the deposit
will be £30,000.
In most cases, you will have handed over 10 per cent of your purchase price – in this case, £15,000 –
on exchange of contracts.
This means you will have to find another £15,000, to
make up the total £30,000, from other sources when
the sale goes through.
Together, these deposits are usually the biggest up-front cost when
buying a home.
If you already have a house and are selling it to buy a new one,
hopefully once the mortgage is cleared you will have enough
cash – known as equity – left over to cover your deposits.
Ideally, if you’re a first-time buyer, you will have saved enough to meet these.
Of course, if you take a 100 per cent mortgage, you won’t have to worry about either deposit.
But this isn’t necessarily a good thing, as mortgage lenders charge more, in the form of higher interest
rates, for 100 per cent mortgages, and this can add considerably to your costs.
If at all possible, you should aim to borrow less than 90 per cent of your purchase price – even by a few pounds – as this is the threshold
above which many lenders apply a hefty fee.
This is known by several names, including Higher Lending Charge (HLC)
and Mortgage Indemnity Guarantee (MIG).
So try to save as much as you can.
If you can’t squirrel away that vital 10 per cent of your
purchase price to avoid these fees, see if you can get help
from your family or borrow the money using a low-cost personal
This can also be called an application, reservation or set-up fee, and it’s what the mortgage lender charges for organising your mortgage – although the bulk of it is actually profit.
The current average is close to a jaw-dropping £800.
Most deals now come with a fee of at least £500, and although cheaper ones are available, they may not be competitive in other ways.
Some lenders ask as much as £1,499 or even £1,999.
And a few are now charging a percentage of the loan – 3 per cent is typical, which can work out very costly if you’re borrowing a large sum.
Free-free deals are available, but these generally come with a higher interest rate, which means most of them aren’t worth having.
(For more on these, see The fee-free mortgage.)
The arrangement fee usually becomes due on completion, when the lender hands over the mortgage funds.
Most will simply add it to your loan – which means you will be paying interest on it for your entire mortgage term.
To avoid this, if you have the cash to spare, ask to pay up front.
Read More About Open and Hidden Costs of a UK Mortgage
This is another fee that comes in many guises: you may hear it described as a higher-lending charge, mortgage indemnity guarantee (MIG), additional security fee ormortgage advance premium.
But whatever it’s called, it’s basically a fee that covers your mortgage lender if you borrow a high percentage of your property’s value and then find you can’t keep up the mortgage repayments.
About two-thirds of lenders charge it and the usual threshold is 90 per cent of property value.
Costs vary dramatically, but you can expect to pay roughly £1,500 per £100,000 of purchase price.
So the MIG for a £150,000 flat might be £2,250.
And it’s not as if you benefit. If you do default, the lender will still come after you for its cash.
The best way to avoid this charge is to go to a lender that doesn’t apply it, or to come up with a slightly larger deposit.
Your mortgage lender will insist that you take out a buildings insurance policy, so it won’t lose out if your home burns down or some other calamity occurs.
Expect it to try to sell you its own policy – and be ready to say no, unless you’re sure it provides unbeatable cover for an equally unbeatable price.
It may offer to charge a slightly lower interest rate on your mortgage if you accept.
But even taking this into account, you’ll generally find it’s much cheaper shop around elsewhere for cover.
In this case, don’t be surprised if your lender slaps on an ‘admin fee’ of £25 to £35 by way of punishment.
Depending on the size of your new home, its projected rebuild cost and the risk profile of your local area, you could pay anything from £150 to several thousand pounds a year for buildings cover,
…but most people pay a few hundred.
It’s up to you whether you also invest in insurance for your possessions – known as contents cover – but you’d be daft not to, as if there’s a fire, a burglary etc, you could be left with nothing.
You’ll often find it’s cheaper to buy a combined buildings and contents policy – but get quotes for separate cover just to be certain.
To read more about this and get a quote from a good broker we know of, click here
Read more about Building and Contents Insurance
Your mortgage lender will probably try to sell you mortgage payment protection insurance(MPPI), also known as accident, sickness and unemployment (ASU) cover
– but don’t go for it !
It may even offer it free for a few months – in this case, remember to cancel the policy before it starts to charge.
You may not require MPPI, and your lender’s price is likely to be horribly inflated.
This cover is designed to meet your monthly repayments if you are too ill to work or lose your job, but you won’t need it if you have other insurance or a good level of emergency savings.
Also, these policies don’t tend to suit contract workers, the self-employed and various other groups.
If you do want this kind of cover, you’re likely to get it for half the price or less from an independent provider.
Expect to pay less than £2.50 for every £100 of monthly cover with an independent insurer.
That means protecting an £800 repayment should cost a maximum of £20 a month.
Read more now about Mortgage Payment Protection Insurance
The Land Registry is responsible for registering all properties in England and Wales.
Its records show who owns every house and flat and which mortgage lender, if any, has a ‘charge’ on the property (in other words, has provided any outstanding mortgage).
Naturally, there’s a fee for changing the register to show the new details each time a property changes hands – and as the purchaser, you have to pay it.
The cost depends on the property’s price.
Typical Purchase price / Registration fees
up to 40,000 = £40
40,001 – 70,000 = £60
70,001 – 100,000 = £100
100,001 – 200,000 = £200
200,001 – 500,000 = £300
500,001 – 1,000,000 = £500
1,000,001 and over = £800
For exact up-to-date Land Regisrty fees please seehttp://www.landregistry.gov.uk/professional/fees/fees-calculator
Your solicitor or licensed conveyancer will commission a range of searches on your behalf, to ensure there are no potential problems facing the property you’re buying.
Your mortgage lender will insist on a local authority search, which will cost you between £100 and £200 – up to £250 in London – depending on the authority involved.
It will also want to see the results of a water search, costing about £50.
And depending on the property’s location, your solicitor or conveyancer may also recommend a coal or other mineral, metal or environmental search – and you’d be wise to agree.
This may cost another £50, but it’s better to know before you buy if, for example, an old mineshaft might one day open up under your house.
To be on the safe side, budget around £400 for searches.
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