FIRST-TIME buyers need to budget for hidden costs on top of the sale price – but there are ways to beat them.
Buying your first home is likely to be both an exciting and daunting experience, as well as one of the priciest commitments you’ll make.
First-time buyers are often caught out by hidden costs
We asked mortgage experts for a rundown of all the extras that come on top of the house itself – and they might come as a surprise to many aspiring homeowners.
While some costs such as legal fees and surveying are unavoidable, there are ways to make sure you’re not paying over the odds.
Below we share top tips from Nicholas Mendes, from mortgage advisers John Charcol and David Hollingworth at broker L&C Mortgages.
Mortgage Arrangement fee
A mortgage arrangement fee is a sum of money you pay to the lender to set up your mortgage.
It can often be known as the product fee or the completion fee.
Nicholas said the amount can vary significantly, but they are usually between £1,000 and £2,000.
But you could avoid this fee altogether.
Some mortgage deals come with no fee at all, David said, but you’ll likely have a higher rate of interest compared to those that do.
For example, if you borrowed £150,000 at a fixed rate of 4% for two-years, you would pay back £19,008 over that period, according to TotallyMoney.
But if you paid a fee of £999, that would take the total amount repaid to £20,007.
But if you had the same size mortgage fixed at 4.2% for two-years, but fee-free, you would pay back £19,392 – this is £615 cheaper than the first deal.
No fee means you will avoid the upfront cost, but a higher interest rate means you could pay more in the long term.
You’re typically given the option of paying the fee upfront or adding it into the mortgage.
But Nicholas says you need to be aware of potential cons.
He said: “Although you must find less money in addition to your deposit, ultimately you’ll be paying interest on it.
“On the other hand, if you pay the fee upfront, you’re at risk of losing the fee if the purchase doesn’t go through.”
Stamp duty
After finding out how much you can borrow, the next step is tracking down your dream home and putting in an offer.
But it still pays to be aware of the price.
You have to pay stamp duty on homes worth over £250,000 in England and Northern Ireland – but it’s £425,000 for those buying for the first time.
Over this amount and first-timers pay a discounted rate on properties worth up to £625,000 of 5% – but only on the portion over £425,000, rather than the whole amount.
For instance if you bought a property worth £500,000, you’d pay nor tax on the first £425,000, and 5% on the £75,000 over that amount – £3,750.
That will end in May 2025, when those thresholds go back down to £300,000 and £500,000.
If you’re not quite at the point of buying yet, keep this date in mind to avoid being stung with a larger bill later on.
David says being aware of the rules can help you to make sure you’re not caught out by “an unwelcome additional cost”.
It’s also important to know, that if you’re buying as a couple, you must both be first-time buyers to benefit from the Stamp Duty relief.
If the property you want to buy is just over these thresholds, it could be worth bargaining down the asking price to bring it under and save cash.
Broker Fees
Mortgage brokers scour the market for the best mortgage deals available, based on your personal circumstances and requirements.
Brokers can charge up to £800 – but you can get advice for free.
Instead of you paying a fee, they make their money through commission.
There isn’t really much difference between a mortgage broker paid via commission instead of a fee.
David said: “All brokers receive a fee from the lender but some will charge a broker fee on top so you should factor that cost in and consider using a fee-free broker.”
For example, L&C Mortgages, online broker Habito, and app-based MoneyBox Mortgages are fee-free.
There are pros and cons to using online mortgage brokers that it’s good to be aware of.
Using a chatbot or app can be a convenient if you need flexibility, but you might find that advice is focused mostly on finding the cheapest option, rather than what’s actually best for you and your circumstances.
Alternatively, Nicholas says you could speak to a free mortgage advisor working for your lender.
But they will only be able to advise you on products they offer, and not those offered by other lenders which could mean you miss out on the best deal.
Removal fees
“Depending on how much furniture and other belongings you have, and how far away you’re moving, you can expect to pay around £1,000 to £1,500 to move home as a first-time buyer,” Nicholas said.
This includes hiring a removal van as well as paying for postal redirection, he said.
“You’ll pay more if you’re booking a full removal service, which involves packing and unpacking your belongings,” he added.
You could see if you can pull in favours from friends or family to help you move, and potentially save thousands.
But if this isn’t an option for you, you could pack your house yourself and knock hundreds of pounds of your bill.
Try decluttering before you move so you have less stuff to take transport, saving you both time and money.
It can often be cheaper to move on a weekday as opposed to a weekend too.
Check with the company before you book and get quotes from several so you know you’re getting the best rates.
Plus, you could save even more by asking a removal firm from your new area to move you on a day they move someone the other way, saving them a trip.
Meanwhile, we reveal seven mistakes first-time buyers always make and how to avoid them.
Plus, here’s six first-time buyer schemes offering discounts on your home worth up to 75%.
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