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First Time Buyers – What Costs to Expect!

If you are buying a property for the first time the whole process can be somewhat daunting. It is very often the case that first time buyers end up spending more on the ‘extras’ than they had budgeted for.

This article is intended to help first time buyers get an idea of what to expect during the conveyancing process in terms of finances.

Mortgage

If you are buying with the assistance of a mortgage, you will find that lenders have tightened up their lending criteria and have made it harder for first time buyers to secure a mortgage in the current economic climate. First-time buyers will find they will have to save up for a larger deposit these days since it has become much harder to get a mortgage with only a 10 to 15 percent as was the case a few years ago.

Note that you must also pay for the mortgage lender’s valuation of the property, which can cost approximately £250.

Survey

It is strongly recommended you commission a Survey on the property unless you are buying a new build which should benefit from a Builder’s Warranty. Costs of surveys vary depending on the type you go for. Click here for a Home Buyers Survey quote and more details about what you need to consider before moving ahead with your offer.

Searches on the Property

The costs of local searches are borne by the Buyer. Local searches cost a few hundred pounds depending on whether personal search agents are used or whether the searches are applied for directly with the Local Authority or Water company (for a Water and Drainage search).

The usual two searches are a Local Authority search and a Water and Drainage search. However, if it transpires that there are unusual aspects about the surrounding area or the property itself, then special searches will need to be carried out.

For example, if the property is situated in a coal mining area, then your conveyancer should commission a coal mining search or if the property borders greenbelt land, then a Commons Registration Search may need to be carried out. These searches will increase costs.

Stamp Duty Land Tax

In the 2017 Budget, an exemption to Stamp Duty Land Tax was introduced for first-time buyers. You can read about the stamp duty exemption here and check out the current rates here.

In England, first-time buyers pay no stamp duty on a property transaction worth up to £300,000 and then 5 percent on the value of any transaction up to £500,000. There is no further exemption or reduced rate on properties valued at more than £500,000. First-time buyers purchasing a shared ownership property will pay no stamp duty on any property valued at up to £500,000.

In Wales, the Land Transaction Tax (LTT) replaced Stamp Duty Land Tax in April 2018. There is no specific exemption for first-time buyers. Instead no LTT is paid on any property transaction valued at up to £185,000.

In Scotland, the Land and Buildings Transaction Tax (LBTT) replaced Stamp Duty Land Tax in 2015. First-time buyers are exempt from paying LBTT on any transaction valued at up to £175,000; 2 percent on the value from £175,000 to £250,000; and 5 percent on the value between £250,000 and £325,000.

Conveyancing Fees

Conveyancers usually ask for an initial payment on account to cover the costs of searches. The balance to complete is requested just prior to completion so you must budget accordingly.

Leasehold Properties

Your conveyancer will review the managing agent’s pack once it is received from the seller’s solicitor. It will contain information about annual service charge and ground rent and whether you will be liable to contribute towards any major works that are anticipated. You must have a note of this information in good time before you exchange so you can check to make sure you can afford these payments.

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