Mortgage blog: Three costs to look out for when you buy your new home

When buying a new home, what would you expect the costs to be? Well, the answer is often: "higher than you think". A 2010 report found that a quarter of first-time buyers had no idea what fees they would incur when buying a property. And, one in ten thought the costs would total no more than £1,000 which can be the cost of legal fees alone.

So, if you're thinking of buying a new home, it's vital that you budget for all the extras and fees. Our guide explains three of the main fees to consider.

Stamp duty

The most common large bill that you'll face when you buy a new home is stamp duty. Stamp duty is charged on the purchase of all homes values at over £125,000 and the more expensive the property, the higher rate of tax you'll pay. The current stamp duty rates are:

• Purchase price £0 to £125,000 - 0%
• Purchase price £125,001 to £250,000 - 1%
• Purchase price £250,001 to £500,000 - 3%
• Purchase price £500,001 to £1 million - 4%
• Purchase price over £1 million to £2 million - 5%
• Purchase price over £2 million - 7%

The stamp duty is based on the full purchase price of the property. So, if you buy for £275,000, you'll pay 3% of the purchase price (£8,250).

Mortgage arrangement fee

If you're taking out a mortgage to buy your new home then you are likely to pay a mortgage arrangement fee. Most mortgage products - fixed, tracker and discounted rates - come with fees. These can vary from £299 to over 1% of the mortgage amount. Typically, mortgage product fees are between £500 and £1,000 and most lenders allow you to add them to your mortgage.

When taking out a new mortgage it is important that you take into account both the interest rate on offer and any associated fees. For example, it may be better for you to pay a higher interest rate and a lower fee. Taking advice from a mortgage broker in this situation can be useful as they can work out what deal is best for you.

Property valuation

When you buy a new property you will need to pay for a valuation. This serves two purposes. Firstly, the valuation will establish that the property is worth what you are paying for it - essential for both you and your lender. Secondly, a valuation will establish whether there are any structural defects with the property such as damp, dry rot or subsidence.

The cost of a valuation typically depends on the purchase price of the property and the type of survey that you want. A basic valuation can cost as little as £100 but a more thorough ‘homebuyers report' may set you back several hundred pounds. You can also obtain a full structural survey on your new home, although this is likely to be more expensive again.

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