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First-Time Buyers: Caution Advised in Budgeting for Property Purchase Costs

Learn why first-time homebuyers are being warned to budget carefully for property purchase costs and why a third do their sums incorrectly.

18 July 2023

A study published this month by The Mortgage Lender has found that almost a quarter – 24% – of first-time buyers in the UK have mistakenly assumed they are exempt from Stamp Duty on property purchases, with 14% pausing their homeownership plans as a result.

Buying a home for the first time is undoubtedly exciting and possibly nerve-wracking, but whatever your position, it is imperative you do your sums correctly and understand the total budget you will need to proceed with your planned purchase.

Following a survey that reveals the extent of misunderstandings among first-time buyers, we recap all of the costs and outgoings involved in your first property purchase and how these might affect your total borrowing requirements.

Understanding the Costs of Purchasing a Home as a First-Time Buyer

As these statistics show, a significant proportion of first-time buyers are unaware of the variety of costs linked with buying a home. While 21% had not included Stamp Duty at all, the more concerning factor is that 24% made incorrect assumptions about their exposure to the tax.

Further, only 30% had accounted for the costs of electronic payments applicable to mortgage financing, and only 23% recognised the need to budget for mortgage advice.

Think Plutus is an independent private broker and can assist every step of the way – from compiling a detailed budget, advising on areas of your purchase costs you may not have considered, and providing guidance to ensure you have covered solicitor’s fees, Stamp Duty, insurance and mortgage arrangement fees before you make any plans.

To clarify, we have run through all of the major costs associated with buying a home and welcome any first-time buyer to get in touch for a friendly chat to get the ball rolling. You can also access further information through our First-Time Buyer Mortgages section, which works through the purchase process step by step and answers a host of frequently asked questions we receive.

Our Mortgage Guides are another free, open-access resource where you can browse articles and explainers to learn more about how the property market works.

What Does it Cost to Buy Your First Home?

Many buyers focus on the agreed purchase price of their first property – but this is only one of the associated costs, albeit the largest.

Here are some of the other costs to include within your budgeting, with careful planning key to selecting the right amount of mortgage borrowing to apply for and impacting your necessary deposit, cash budget and timeframe.

Stamp Duty for First-Time Buyers

Stamp Duty applies to any property purchased in England by a first-time buyer from £425,000 and above. The tax is calculated at 5% on the purchase value between £425,001 and £625,000.

For example:

  • A home costing £400,000 would be exempt and have no Stamp Duty payable.
  • A property worth £500,000 would attract a 5% Stamp Duty charge on the £75,000 balance above the first-time buyer threshold, so £1,500.
  • A higher-valued home worth over £625,000 would attract the standard Stamp Duty rates, with no first-time buyer allowances or exemptions.

Buyers other than first-time purchasers pay no Stamp Duty on properties up to £250,000 and then 5% on the value from £250,001 up to £925,000.

Legal and Professional Costs

Every property purchase will necessitate legal services from a solicitor or conveyancer. They will help with searches run against the property, such as obtaining reports on the title, planning permission regulations and other areas, such as whether the home is on a flood plain.

Legal fees will naturally vary depending on the complexity of the conveyancing work, but the average is around £850 to £1,500, including VAT.

Most property purchases will also include an electronic transfer fee of roughly £50, charged to transfer the money forwarded from the mortgage lender to the solicitor.

Estate agents also charge a fee, although this is normally payable by the seller rather than the buyer. Any services offered by an estate agent for a charge must be included within your budget.

Valuations and Surveys

Valuations are a necessary part of applying for a mortgage. The valuer will assess the property to determine whether it is worth the agreed purchase price and might note any major concerns, such as signs of structural damage or deterioration.

Some mortgage lenders offer free valuations as part of a mortgage offer. However, we would always recommend you instruct a surveyor to carry out your own survey before you proceed with a purchase since a lender’s valuation does not confirm the property’s condition or if it is a good investment.

The average cost of a property valuation ranges from £150 to £1,500 – the more expensive the property and the larger the home, the more a valuation or more in-depth survey will cost.

Product Fees and Mortgage Advice

Product and application fees may apply, depending on the mortgage you select and your preferred lender. As your broker, we can analyse direct like-for-like comparisons to help you make informed decisions about which mortgage products offer the best solution in terms of immediate, monthly and overall repayment costs.

Standard arrangement fees can vary up to £2,000, and booking or arrangement fees could start at £99 and extend up to £250. In many cases, these costs are rolled up into the mortgage repayments rather than paid upfront but still impact the overall cost of borrowing.

Our mortgage advice is provided on a fixed-fee basis rather than charging per hour or week – we appreciate that uncertainty makes budgeting a very difficult task.

Please get in touch for more information about our advisory services and the fee structure applicable to your intended property purchase.

Insurance Costs for First-Time Buyers

Finally, first-time buyers should not forget about the general overheads associated with property ownership. Buildings insurance is often a mandatory requirement for a mortgage lender to finalise an agreement, but you should also account for:

  • Council tax
  • TV licensing
  • Utilities and water
  • Broadband connections
  • Service charges for leasehold flats
  • Maintenance and repairs

As always, if you need professional assistance working through all of these cost considerations, working out whether you have the finances to proceed with your first property purchase, or would like to crunch the numbers and see whether a product offer you have received is financially viable, the Think Plutus team is on hand to help.

Written By

Dave Relfe MCSI DipPFS CertSMP

Dave is the principal mortgage and protection adviser at Think Plutus. He has more than 15 years of experience in financial services and holds the Diploma in Financial Planning from PFS, Investment Advice Diploma from CISI, and the Certificate in Advanced Mortgage Advice from the Society of Mortgage Professionals. He has devised the unique Think Plutus approach that has helped many clients, from first-time buyers to buy-to-let investors and property developers, to people looking to remortgage or release equity from their property. Connect with Dave on LinkedIn.

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