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Don’t fall foul of these hidden costs of homebuying

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26/10/2021
You might think you know the main costs of buying a home, but hidden extras can add up to thousands of pounds
Don’t fall foul of these hidden costs of homebuying

Buying a home is many people’s biggest ever purchase and there are some eye-watering costs involved.

You might know the main ones, such as Stamp Duty, survey and mortgage fees for example, but there are others you might have never considered.

Open Money has uncovered some of the biggest hidden costs that homebuyers face when purchasing new properties, from honey trap mortgages to local church repair bills.

The financial firm said that, with house prices at an all-time high and a fiercely competitive housing market, watching out for hidden fees has never been more important.

Karina Hutchins, head of Home by OpenMoney has uncovered some of the top costs that are hidden throughout the buying process:

Low interest rates that can end up costing you more

These ‘honey trap’ mortgages use clever marketing techniques to lure in unsuspecting buyers with attractive interest rates below 1%. What they don’t market is the hidden fees attached which can be up to £2,000.

If you are considering one of these types of mortgages, you can work out the cost of the fee using your own maths, or by asking the adviser to see if the fee is still worthwhile. We often find that with smaller mortgages under £150,000 it can be better to go with a higher interest rate with no fees.

Help to Buy costs

For those looking to purchase a home using the Help to Buy scheme, something to be mindful of is when it comes to paying back the equity loan. After 25 years, or upon the point of selling, the loan must be repaid at the same percentage.

An example of this is if you bought your home for £150,000 with a 20% equity loan (£30,000) and sold for £200,000, the amount you owe the government will have increased by £10,000, more than a 30% increase on the original amount borrowed.

Another hidden cost of the Help to Buy equity scheme is that you will find there are additional fees to pay when you come to remortgage (separate valuations and additional conveyancing costs). This can cost around £1,000 every time you change mortgage lender, and is also the case for Shared Ownership schemes. This is why it’s important to get advice when you remortgage so the adviser can show you how to minimise these costs.

Although these schemes are helping thousands of young people get onto the property ladder in the UK, buyers should seriously consider the repayment before committing.

Local church upkeep fee

A lesser known, but still just as important, charge to look out for is whether the property you’re looking to buy falls within the chancel liability. If it does, this means that the owner of the home could be forced to pay thousands of pounds for any repairs required on the local church.

When looking to buy a home, your conveyancing solicitor will often recommend carrying out one of these chancel repair liability checks which are relatively low cost and could save you lots of money further down the line.

Estate agent ‘recommendations’

Be aware of estate agents plugging their own mortgage advisers and solicitors.

Their advisers often charge a fee, usually £400-£1000, and they will take a referral from the solicitor which you pay as part of your solicitor fee. Be sure to look around for advisers and solicitors before deciding on the first option.

Freehold vs Leasehold

It’s important to check if the property is freehold or leasehold before committing to buying as this could come with some extra monthly or annual charges.

A freehold property means you own the land the property sits on and won’t be required to pay anything additional, however when looking at leasehold homes, these are often met with terms and conditions.

Because someone else owns the land, there is often a ground rent fee which can pay anything from £1 per year, up into the hundreds. The charges can also be fixed or subject to change so be sure to find out before committing to the sale.

Some leaseholds, in particular flats, often come with service charges which pays for the upkeep of the external building and communal areas. Some service charges can be more than £100 per month and could be the difference between whether you can afford the monthly mortgage payments or not.

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