A Plague of Fees
Hayes = Heathrow. That is what many people think about this west London area. Think again. This magical residential enclave on the Grand Union Canal borders a retail park and is near Hayes town centre.
A Cut for Everyone
Banks, solicitors, surveyors, removal companies, even the government takes it cut on property transactions.
Legal Fees
You pay your solicitor/conveyancer a basic fee (for their time and expertise), and you also pay costs (disbursements) associated with legal work, such as a local authority search.
Some conveyancers operate on a no-sale/no-fee basis: if your purchase falls through you don’t pay the basic fee, but you will still have to pay for any searches or surveys you have commissioned or authorised.
Typically, conveyancers charge between £250 and £500, although some conveyancers may charge as little as £100 or £150. However, these cut-rate fixed-fee deals are generally for straightforward transactions. If a complication arises, the fixed-fee arrangement can go out the window, and additional fees applied.
Legal work for leasehold properties is generally more expensive than for freeholds. The additional charge reflects the extra work involved in dealing with the lease. In the UK, most houses are freehold, and most flats are leasehold.
Disbursements
Disbursements range from small (local authority search) to potentially very large (stamp duty land tax at 4%).
Telegraphic transfer: reimbursement for wiring money (about £20 but can be higher, and you may have to pay for more than one transfer).
Land registry fee.
Stamp duty land tax.
Stamp Duty Land Tax
Properties under £120,000, no tax (there are exceptions, however; see below); for properties above £125,000, these are the bands:
£125,001 to £250,000……….1%
£250,001 to £500,000……….3%
£500,001 and up……………..4%
Note that if you buy a property for just under £250,000, you pay £2,500 in stamp duty land tax. But if you pay even a single pound more (£250,001), you move into a higher stamp duty tax bracket. Instead of £2,500 in tax, you pay £7,500.03 (the three pence is the tax on the additional pound).
That extra pound ends up costing an additional £5,000.03. In the real world, vendors and their estate agents know about this threshold, and properties priced near a stamp-duty cut-off point tend to fall just below the line, not above it.
Stamp Duty Exemptions
Stamp duty for properties worth up to £150,000 has been abolished in 2,000 council wards in the UK. For further and up-to-date information and rates from the people who know: www.hmrc.gov.uk/guidance/sd2.pdf
Mortgage Fees
Arrangement fee, sometimes called 'booking fee' or 'reservation fee': you pay for the privilege of taking out the loan (in addition to paying a great deal of interest over the years). Some arrangement fees are more than £1,000 (In October 2007 one lender introduced a loan with a £9,999 fee and withdrew it only five days later).
WARNING: You may forfeit the fee if you end up not taking the loan.
Valuation fee: for the appraiser who looks at the property to ensure that its value will cover the loan. Although you pay for this appraisal, the surveyor reports to the lender, not you. As is often emphasises on PWP, this valuation is usually referred to as a survey but should not be confused with a proper structural survey, whether full (Buildings Survey) or simple (Homebuyer's Survey and Valuation.)
Lender’s solicitor fee: your lender needs legal work to arrange your mortgage and instructs a solicitor—and you pay for it. Often, your solicitor and your lender's solicitor are one and the same person.
Mortgage Indemnity Guarantee (MIG)
This is, for many borrowers, a confusing type of insurance, a confusing kind of guarantee. You take out the insurance, but it primarily protects your lender.
If you cannot pay your mortgage and have a MIG, your insurer will pay - but you are not necessarily off the hook. You may nevertheless have to reimburse the insurer in the future when you have the financial ability to do so.
More grim details are provided by the Council of Mortgage Lenders.
A MIG is a form of insurance for which you pay the premiums but your lender enjoys the benefits.
“Mortgage indemnity is insurance which your lender may take out for its protection in case, at some future stage, you fall significantly behind with your mortgage payments and your lender has to repossess your property and sell it.”
Website find.co.uk believes that "A MIG essentially protects the bank should you default or do a runner (not that you would). Needless to say, MIGs are well worth avoiding. Some lenders make a point of not charging MIGs...."
More
Buildings insurance. Usually required—and the buyer must insure the property at exchange, not completion.
Life insurance. Life cover is automatically included with some loans, and may be required by others.
Other Fees
Mortgage Payment Protection Insurance (MPPI). This is different from a Mortgage Indemnity Guarantee. One way to remember the difference - MPPI is also known as ASU: Accident, Sickness and Unemployment.
Your lender will probably be more than happy to sell an MPPI policy to you, but you may get it cheaper somewhere else, and you may not need one at all. Money expert Martin Lewis has sharp views on this subject.
MPPI has been the subject of several 'mysterious buyer' surveys, both of which found misselling. The Financial Services Authority and Council of Mortgage Lenders websites have more information .
Despite the bad press, MPPI or ASU can be appropriate for some people. "The self-employed who cannot rely on any income at all if they are unable to work, should definitely take out sickness MPPI cover," say Nils Pratley and Lorna Bourke in Streetwise (2000, p.275). However, some MPPI policies exclude the self-employed, so examine the terms and conditions carefully.
Surveyors and Specialist Reports
This title is plural even though most buyers do not commission even one basic survey, let alone several specialist reports. But those who do get a survey often find that the surveyor has recommended further reports: to monitor subsidence, for example, or the state of the timber.
Home Inspection Packs (HIPs) are required for some properties, and may eventually apply to all properties. If the estate agent doesn't assume the upfront cost of the HIP, the seller will have to. When HIPs were first devised a decade ago, they were supposed to include Home Condition Reports. HCRs are no longer mandatory, but even if one is included, it will not be as comprehensive as a basic survey. It may also not be up to date.
Special Fees and Costs
Radon, a naturally occurring radioactive gas, is a problem in some areas. Abandoned, disused or otherwise forgotten or overlooked coal mines are a worry in others: they can collapse, often sucking in homes or gardens located above. Expect to pay additional fees to uncover the risks in these locations.
Personal Circumstances
Petrol. Pets. Furniture Storage. Child care.
Are you buying a property nearby or do you have to travel – and pay travel expenses – to view property?
Will you have to dispose of furniture because you are moving into smaller premises, or buy new furniture to fill up a bigger place?
Moving Day
Some first-time buyers can fill mum and dad’s car and move quickly, easily and inexpensively. Most home-movers can’t do it so cheaply.
If you hire a man with a van, will he definitely show up on the day, will his van hold up all day, and does his insurance extend to your possessions? If you use a brand-name big-van removal company, different issues may be relevant. For example, who is responsible if something that you packed yourself arrived broken at the destination?
Moving into a new home invariably involves other expenses, as Leaky Wallet reveals.
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