Purchasing your first home is a monumental life moment. However, first-time home buyers are often caught off guard by the costs associated with their purchase. Beyond the initial deposit payment and mortgage, several other expenses must be factored into your budget. Understanding these costs upfront will help you to avoid unpleasant surprises and ensure that you are fully prepared for the financial responsibility of homeownership.
1. Deposit
One of the more obvious costs that first time buyers will have to consider is the initial deposit amount required for the purchase. For most lenders the required amount for a residential mortgage will be 5% of the property price, although some lenders may require a larger deposit.
It is worth noting that any amount over the minimum deposit that you can contribute will impact your loan-to-value ratio, which you may find results in more favourable interest rates being offered by lenders.
2. Stamp Duty Land Tax
Stamp Duty is a tax paid when buying a property over a certain value. Fortunately, the rules surrounding Stamp Duty are favourable to first time buyers.
First time buyers do not pay stamp duty on properties up to £425,000. If the property exceeds this, 5% stamp duty is owed on the amount between £425,000 and £625,000.
Properties over £625,000 are liable for stamp duty between 5% and 12%, depending on purchase price.
It should be noted that as of April 2025 it is expected that the stamp duty threshold for first time buyers will reduce to £300,000. You can find out more about how stamp duty affects first time buyers here.
3. Mortgage Fees
Various costs come into effect throughout the mortgage application process which are important for first time buyers to be aware of. These include:
Arrangement Fees: These are charged by the lender in order to set up the mortgage. They can range from £0 to £2000, depending on the product. However, it is not necessary to pay these fees up front as they can added onto the mortgage amount.
Valuation Fees: While many lenders offer a free standard valuation, some lenders may charge you for a property valuation to ensure that the home is worth the loan amount. This can cost between £150 to £1,500, depending on the property value.
Broker Fees: Some brokers may charge a fee for their services. This can be anywhere between £300 and £1000. At Cooper Associates, we are proud to be a fee-free broker, so you will never pay for our services.
4. Solicitor and Conveyancer Fees
Every property transaction requires legal work, and this requires the assistance of a solicitor or a licensed conveyancer. Fees for this work typically range from £1,000 – £2,000 depending on the value of the property and the complexity of the transaction. This fee covers:
– Property searches
– Drafting contracts
– Registering the property with HM Land Registry
– Some queries, such as property boundaries
5. Survey Costs
Prior to completing the purchase of your property, it is important to identify any structural issues with the home. Surveys vary in scope and cost, with the key options including:
Condition Report: £400 – Typically recommended for newer properties
HomeBuyer Report: £800 – Suitable for standard properties.
Building Survey: £800 – £2,000 – Suitable for older, more complex properties.
While surveys are not mandatory, they can save you significant expenditure in the future by flagging potential costly repairs prior to purchase.
6. Home Insurance
Before you complete on your property, most mortgage lenders will require you to take out buildings insurance to cover the structure of your home. This protects you from the cost of repairing or rebuilding your home should anything happen. Depending on the size and location of your home, this typically costs in the region of £150-£300 per year.
Buildings insurance only covers the structure of the property itself, so you may want to consider adding contents insurance to cover the possessions inside the property. This typically adds another £50-£200 annually, depending on the possessions covered.
7. Personal Protection Costs
Owning a home is an enormous financial commitment, and it is very important to ensure that you are able to fulfil that commitment no matter what life may throw at you. For that reason, many people opt to take out personal protection products to ensure that their financial well-being is ensured. Examples of personal protection products include:
Life Insurance: offers a lump-sum payout in the event of your death. The amount paid out of dependent on the level of cover you buy.
Critical Illness Cover: offers a lump-sum payout in the event that you are diagnosed with a critical illness, subject to a 14-day survival period.
Income Protections: in the event that you are unable to work for whatever reason, income protection will cover a percentage of your revenue stream. This amount is typically 60% but is capped at 80%.
Family Income Benefit: offers regular payments of 100% of your salary throughout the duration of your term in the event of your passing, ensuring the financial
security of your family. The amount paid out is not capped and is not limited by your salary amount.
It is important to note that the above is a general overview of each protection product, and that each comes with a variety of types, terms and options. We recommend getting in touch with a mortgage and protection adviser who will be able to tailor your personal protection to your unique situation.
Planning to buy your first home is a huge and exciting moment, but it is vital that you ensure you have the necessary information to help you make smart decisions along the way.
At Cooper Associates, our team of expert mortgages advisers are happy to assist you throughout the entire process of buying your first home – from initial consultation through to completion.
If you would like to kick start your house buying journey, get in touch today.
