Buying a house costs involved 101

Many UK expats buy property back home. Some are homes for the future, others are for holidays, but more likely homes become investments and even pensions.

The right property in the right location can increase in value and provide income for retirement. Sure, both capital gains and income is taxable, but at the same time anyone with a UK passport should be eligible for the personal allowance meaning £12.5K (£25K) for a couple can be earned tax free.

And whilst the capital gains tax allowance has been suffered a squeeze in recent years, CGT is only paid on realized gains. The magic of remortgages means you can enjoy those gains without paying tax.

But that doesn’t mean their aren’t other costs involved in buying a house.

This week, we’ll look at what you can expect to pay. And to top things off, we tell you how much you pay and rank each cost from most to least expensive.

Here’s the main fees ranked but read on to find out how much each of these is likely to amount to.

Buying a house costs ranked

Cost type	Ranking
Mortgage interest	1
Deposit	2
Stamp duty	3
Mortgage broker fees	4
Mortgage arrangement fees	5
Conveyancing fees	6
Survey costs	7
Mortgage valuation fee	8

Each of these will cost you money. Some more than others. But let’s kick things off by taking a look at Stamp Duty.

Stamp duty

When you purchase a property above £250K (£425K for first time buyers), you need to pay stamp duty.

The actual rate you pay depends on the price of the house you buy. See below:

Property or lease premium or transfer value	Standard rate
Up to £250,000	Zero
The next £675,000 (the portion from £250,001 to £925,000)	5%
The next £575,000 (the portion from £925,001 to £1.5 million)	10%
The remaining amount (the portion above £1.5 million)	12%

There are three situations where you may pay more or less than those rates shown above.

• You pay an extra 3% for additional dwellings ie not your main home
• An additional 2% gets levied if you are a non resident. Spoiler alert. That’s you Mr Expat! (There’s a lot more on non resident stamp duty here)
• First time buyers are exempt up to £425K

And here’s a nice stamp duty calculator that will crunch the numbers so that you don’t have to.

Deposit

Though in theory you could purchase a property without a deposit. In most cases, you need to put some money down.

And even if you were eligible for a 100% mortgage, most people will get a better deal if they can raise some money themselves.

That’s because, all things being equal, the more of a deposit you can put down the lower the interest rate you can get. And as we’ll see a bit later on, mortgage interest, often goes a long way toward determining how much you end up paying for a property.

And unlike all the other fees we cover here, the deposit is the one cost you can get back. Unless you are very unlucky you’ll be able to sell your property for a profit at which point you should get your entire deposit back, and then some.

0-100% of purchase price, but 10-25% is most common.

Conveyancing fees

Conveyancing fees include legal fees and disbursements like local searches and registering change of ownership with the Land Registry.

£500-£1850

Survey costs

This is where a Surveyor checks the house for any problems. Not to be confused with mortgage valuation fees. This is a much more comprehensive survey. You could end up buying a house with serious issues if you avoid survey costs.

Even at the higher end of the range, it is a small price to pay considering the costs it could save you in the long run.

£300-£1K

Mortgage valuation fee

Not all lenders make you pay a valuation fee, but many do. They typically ask a local estate to value the property, so it’s not a detailed survey.

£250

Mortgage arrangement fees

Your lender will usually charge to arrange a mortgage with them.

Some lenders make you pay this in advance. Others let you add this to your mortgage. Adding it to the mortgage is convenient but just know you will end up paying more due to interest.

Once upon a time UK residents could expect to pay about £1.5K. However, those days seem to be behind us. Nowadays, it’s not unusual to see figures of 5% of the mortgage value or more being banded about. In other words, borrow £300K and you could end up paying 10 times as much as the old average.

And I’m sorry to have to say that non residents often have to pay more than residents for their arrangement fees. Don’t be surprised if yours is at the higher end of this band.

That said, lenders aren’t trying to con you. Typically, they do this to reduce the interest rate they offer you. In most cases, this reducing the interest rate you pay on your loan is the most effective way of reducing the amount you pay overall. (More on mortgage interest shortly).

£1.5K – 5% of mortgage value

Mortgage broker fees

Some mortgage brokers don’t charge a fee. But most good ones do. This is particularly true for anything other than standard residential. Examples being buy to let and of course expat mortgages.

Expect to pay at least 1% of your mortgage. In other words, the bigger mortgage the bigger the fee.

However, a good mortgage broker can be worth their weight in gold.

And that’s because they can find you the deal with the lowest combination of fee and interest.

In other words, the fee you pay a mortgage broker will likely pale into insignificance if the broker in question can get you a lower interest rate.

1% of mortgage.

Mortgage interest

Most people begin by asking themselves can I afford the monthly mortgage repayments? But if you stop there you could be making a big mistake. At least if you really want to know how much a property purchase is going to cost.

There are more steps to take.

The next one is working out how much all the additional mortgage fees are. These can often be hidden in your repayments.

However, non of these are likely to move the needle like mortgage interest.

Oftentimes, mortgage interest is the biggest fee you pay when purchasing property. The fact that it is hidden within your monthly payments can be misleading.

This is especially true for repayment mortgages. But whether you opt for repayment or interest only the mortgage interest you pay will add thousands to price you end up paying for a house.

So much so that many people buy a house without really even knowing what price they actually paid.

If I ask you how much you paid for your house and your answer is the purchase price you might want to take a look at the table below.

It compares the impact of different interest rates on a £300K house bought with a 75% LTV mortgage ie £75K deposit with a £225K mortgage.

Interest rate %	Monthly Repayments £	Total interest £	How much your house really cost you
1	£848.00	£29,000.00	£329,000.00
3	£1,067.00	£95,000.00	£395,000.00
5	£1,315.00	£170,000.00	£470,000.00
7	£1,590.00	£252,000.00	£552,000.00

Even with a 1% interest rate your house still ends up costing 10% more than the purchase price. By the time we’ve got up to 7% you end up paying close to double.

Additional costs you might pay

The things we’ve talked about so far are pretty much essential but there are other fees that you may need to pay depending on you current situation. These are:

• Life insurance – Provides money to cover debt in the event of death. If you don’t know whether you need this or not, there’s a great article about it here.
• Renovations & decorating – Most homes need something fixing at the very least. Others need a professional construction team.
• Furniture & appliances – You may already have everything you are ever going to need. Others buy homes that come with just about everything included. But most people, most of the time, will have to buy something.
• Moving costs – Some do this themselves. Others get their friends involved, but most end up having to pay to move their existing furniture and possessions to their new home.
• Buy to let (BTL fees) – If you are letting out your property you’ll have an entirely separate set of fees to pay. These will depend on whether or not you use a professional letting agent and what type of property it is. We’ve gone into more detail about this here.
• Currency exchange fees – expats and non residents pay need to convert their income currency into pound Sterling. Whilst the fees involved in this aren’t likely to be a game changer, expect to pay them anyway.

Did you know: If you are classed as non resident and earn income in another currency you won’t usually be able to borrow as much as a UK resident. This is because lenders like to give you what they call ‘a haircut’ when they calculate how much you can borrow. They do this to guard against currency fluctuations.

How much do they actually costs?

Here’s an idea of what you may need to pay when buying a £300K house (which isn’t far off average at the time of writing according to the Goverment).

It assumes a 75% LTV mortgage with a 5% interest rate and shows the total interest you pay back over a full period ie 25 years.

So just to be clear the biggest fee by far is mortgage interest but you don’t pay that all in one go. You get 25 years to do it.

Similarly the next big one is the deposit but you should get this back if you sell your house. So yes you’ve got to pay it, but it isn’t really a fee when you think about it.

Cost type	Value
Mortgage interest	£170,000.00
Deposit	£75,000.00
Stamp duty	£2,500.00
Mortgage broker fees	£2,250.00
Mortgage arrangement fees	£1,500.00
Conveyancing fees	£1,175.00
Survey costs	£650.00
Mortgage valuation fee	£250.00

The bottom line

The exact costs involved when buying a house will depend on many things. However, it’s a safe bet that for most people most of the time there are three biggies:

• House price
• Mortgage interest
• Deposit

It’s also a safe bet that you are likely to pay a little more if you live overseas.

In most cases, the biggest impact on the overall price you pay for a house will come from the interest rate you pay on your mortgage.

All things being equal, the lower the interest rate, the lower the price you pay for your house.

I’m sure it goes without saying that you should shop around for a mortgage with the lowest rate available. A lower interest rate nearly always trumps higher fees.

It’s also worth mentioning that in many cases the more deposit you put down the lower the interest rate you can get.

And remember, there’s a big difference between the deposit and the other fees you pay.

You can get your deposit back as soon as you sell your house. Good luck trying to get any of the others back!