Buying a house is rarely a straightforward process. There can be so many moving parts – before you even start moving your belongings: long onward chains, concerning survey results, frustrating contracts. In the end, when you’ve got the property you wanted, and you’re toasting to your new home, it’s all worth it. But that’s usually not without some bumps in the road.
There’s a saying that goes ‘you don’t know what you don’t know’. And it can certainly ring true when you’re buying property! Each home has a unique history, insurance needs, building regulations and more, and the only way to find out is by ‘doing’. Even if you’ve bought many properties over the course of your lifetime, you could still find yourself confronted with new circumstances. Let’s take a look at some of the unexpected quirks of house buying to have on your radar.
Hidden house buying costs
Most of the financial conversations around buying a home surround your deposit and your mortgage. But there are several other payments that you should factor into your budget. These include your:
Mortgage arrangement fee – what you pay your lender for arranging your mortgage loan. This can vary but expect to pay around £1,000. In some cases, this is non-refundable, even if the purchase falls through.
Valuation fee – what lenders charge for their valuation to check the property exists, and that it offers sufficient security for the loan. The cost can vary, but factor in around £400.
Legal fees – if you pay for your own conveyancing (it can sometimes be included if you purchase a new build home), budget to pay somewhere around £2,000 for a £350,000 property. The price will vary depending on the property and which solicitor you use, so it’s important to obtain quotes.
Stamp duty – you normally pay stamp duty when buying a property for more than £125,000. However, if you’re a first-time buyer, you pay zero stamp duty on the first £300,000 of any home costing up to £500,000. If you’re in Wales, there’s the Land Transaction Tax too.
Surveys – a crucial part of any purchase, to help you understand the property’s condition. Typically, these cost £400-1,500, but budget for two or three surveys, as your first one could reveal information that makes you rescind an offer.
The majority of home insurance policies are purchased by those who own the property. However, there are a few exceptions – one of which is when you’re in the midst of buying the home.
As soon as you exchange contracts, you become legally responsible for the property – even though you won’t be handed the keys until the sale is complete. It’s usually a condition of your mortgage lender to have buildings insurance, and even if you aren’t required to, the seller is under no legal obligation to keep the property insured once contracts are exchanged. The only exception is if the property is leasehold. Then you need to check with the freeholder what buildings cover they have, and whether it’s included in the service charge.
Taking on the building insurance before you’re through the door can feel counter-intuitive. But there is an upside for you, the buyer. Buildings insurance quotes could flag up any issues, such as flood risks, that could give you leverage on the price – or dissuade you from a risky investment altogether.
Buildings insurance covers the bricks and mortar of a property, and crucially how much it would cost to rebuild it from scratch. But how do you go about insuring somewhere that you aren’t living in? Your surveyor, solicitor or conveyancer can provide answers to insurers’ questions. Alternatively, your estate agent can check with the seller. Don’t just guess; the wrong information could invalidate your policy if you had to claim.
The type of property you buy can, understandably, mean you need to watch out for different ‘trip hazards’. For example, if you’re looking at buying an ex-commercial property, it may not have been fully converted for purpose, even boxes are ticked on paper. Pay close attention to the survey, to see if it has proper dampproof coursing, insulation and more that makes it suitable to live in.
Additionally, is the property you’re buying a leasehold? If it is, you need to know that it has at least 83 years left of the lease. When flats have 80 years or less left, extending becomes very pricey, and homes more difficult to sell. Estate agents may promise easy extensions, but they can’t guarantee it. You must have owned the flat before two years before you can extend. It takes between 3-12 months to extend, hence the vital 83-year figure.
And, if you’re considering a new-build with a leasehold, be even more wary. In 2016, a scandal broke about new-build leasehold houses where the freehold had been sold to an agency or investment company. This led to spiralling ground rent fees and rendered some properties virtually worthless. The Government announced new measures to tackle this problem, but it will take some time for these to become law. In the meantime, tread very carefully!
Mortgage refusals beyond your control
It’s common knowledge that you need your ducks in a row when you apply for a mortgage loan. That means having a healthy credit score to help you get a more favourable rate. You need to demonstrate that you can afford the property and ongoing payments. Lenders can refuse your application on a property if they deem it too risky.
But you can be refused for reasons beyond your control too. As one prospective buyer told BBC News, the bank declined her mortgage application on a flat, because too many other flats in the building were renting. Some mortgage lenders can be jumpy if there are lots of private rentals or Airbnbs in the building, as it means the property would probably be harder to resell if you aren’t able to keep up with payments. Other ‘risks’ for mortgage lenders can be the type of concrete a building is made from.
It makes sense to speak to a whole-of-market mortgage broker as they know each lender’s criteria inside out, including what types of properties they are happy to lend on and how much they are willing to lend. Their expertise can help mitigate the initial concerns and confusion often associated with looking for a new mortgage.
Paying up and pulling out
Until you have exchanged contracts, you and the seller aren’t legally bound to complete the purchase. You can pull out up until this point, and though you may have forked out for a survey and other legal costs, this is nothing compared to the price of changing your mind after exchanging.
Conversely, if the seller pulls out before you exchange contracts, you have no legal right to recover any costs from them. You can ask your solicitor about indemnity insurance for wasted costs, which could protect you in this case.
Until exchanging, you could be at risk of gazumping – a tricky practise by which another buyer offers more money than you, and your seller reneges on your deal. You can ask for the property to be taken off the market as a condition of your offer, but it’s not fool proof.
As we’ve iterated before, exchanging contracts is a very significant milestone in the house buying process. It’s also when you put down a portion of your deposit, and pulling out after this stage can be very costly indeed.
When you’re almost ready to exchange contracts, you need to get your deposit to your solicitor. Your exchange deposit is usually 10% of your total mortgage deposit and locks you into the deal. Your mortgage deposit affects your mortgage deal loan-to-value, or LTV, and equates to the portion of equity you’ll outright own.
Your exchange deposit is locking you into the deal – pulling out at this stage means you’ll incur major penalties.
Depending on where your savings are, you might find it easiest to marshal your deposit funds into one bank account (or two if you have more than £85,000 to deposit, so it’s protected by the FSCS) ready for when you need to send it to your solicitor. If you’re transferring more than £250,000, you’ll likely have to call your bank to arrange a Clearing House Automated Payment System (CHAPS). It’s worth notifying your bank anyway, as well as your solicitor when you plan to transfer the money. Triple check you have the right bank details for the transfer and email your solicitor once you have sent the money so they can monitor it and confirm they have received your funds.
Exchanging also means you agree a competition date, so it’s a sure step towards getting the keys in your hand and walking through the door as the new owner.
We’re here when you need us
Insurance is a key part of your home ownership journey, from the purchasing through to protecting your possessions once you’ve got the keys! And as a broker, we have great relationships with a wide range of insurers, to help find a tailored policy to suit you.
We also work closely with SPF, a whole-of-market mortgage broker who can help you find the most suitable and cost-effective mortgage for your circumstances. An SPF mortgage broker can manage the mortgage transaction on your behalf from start to finish, taking the stress out of the whole process.
For more tips for you home, take a look at our new Money Savings eBook. You see, we’re on a mission to not only help you save money on your insurance, but also on your shopping, energy bills and more! Click here to download your copy for FREE.
Sources: BBC News, MSE, Property Price Advice, HOA, Citizens Advice, The Law Society