There are a number of costs associated with buying a house. You need to take these into account when deciding how much you can afford to borrow.
These can be incurred if your mortgage is repaid or changed before the end of an agreed period, known as the redemption period. The fees are to cover the lender’s cost of releasing the security over the property, and to cover the consequential interest rate risk to the lender, which occurs in such circumstances.
A Standard Redemption Fee is charged if you elect to repay your loan prior to the end of the agreed term. In the event of an early repayment fee being applied, the standard redemption fee will be waived. It should be noted that different mortgage products carry different redemption fees.
These are applied to cover costs incurred by the institution in setting up your mortgage.
A fee that may be payable, depending on the type of mortgage product and the lender used. Loan monies need to be allocated for each application received, and the fee covers the cost of reserving the funds.
A one-off payment to cover the lender’s costs in preparing documentation and communicating with your Employer, Solicitor, Estate Agent or Mortgage Broker. It should be noted that every lender does not charge this fee. It may have been waived as an incentive to choose them.
The fee is payable prior to the release of the loan monies and can be added to it. If your application does not proceed for any reason the arrangement fee will usually be refunded.
Higher
Loan to Value Access Fee or Mortgage Indemnity Guarantee
This is a fee that is charged for what may be called ‘high
risk loans’. The fee allows lenders to lend amounts greater
than, in most cases, 75% of the property value. It is a one-off
payment, which may be added to your loan.
The fee is necessary to cover the increased risks associated with higher loan to value mortgages and is arranged solely for the benefit of the lender. If there is a forced sale of the property, the proceeds are unlikely to cover the outstanding loan and administration costs. In the event of a default by the borrower and if a claim has to be made by the lender, their Insurers have the right to take legal action against the borrower(s) to recover any moneys paid.
An acceptable mortgage valuation report is required before any mortgage can be agreed. Each lender will use a panel of qualified Surveyors and they will arrange the valuation. You are responsible for paying the fees for this work.
The Mortgage Valuation Report is not a survey but identifies obvious defects. You may wish to pay for a more detailed ‘House or Flat Buyers Report and Valuation’ which reports on the general condition of the property. For very old or unusual properties, you may wish to consider a more comprehensive Structural Survey. On occasions the Building Society may need a more detailed survey than is provided by the Mortgage Valuation Report. They will require that the cost of this be met by you.
The valuation confirms to the lender that the property provides acceptable security for the loan. It does not make any guarantee as to the condition of the property.
These can be a major cost in the purchase of a house. The legal work, which transfers the ownership of a property, is called conveyancing and a solicitor usually completes this. Costs will vary but most solicitors charge according to the purchase price of the property. You should always ask a solicitor for a quotation prior to instructing them to do the work.
You will also incur Legal Fees in the preparation of documentation which provides the lender with security over the property (called a Standard Security in Scotland and a Legal Charge in England and Wales) and any other security, such as a life assurance policy. To minimise the cost, most lenders will endeavour to use the same solicitor that was engaged for the conveyancing.
You will also incur disbursement charges, which can include Local Authority Search Fees, Office Copy Entries, Coal Mining Searches and Land Charges Search Fees. Your solicitor will advise which searches are required and their costs.
The APR calculates the total amount of interest, which will be paid on a loan and adds to this any other charges which the borrower, has to meet. This total cost is then divided by the number of years in the loan term to find out what the borrower will be paying per year. This amount is then expressed as a percentage of the loan - the annual percentage rate.
This is a Government tax, which is currently charged at:
Property
Value |
New
Rate |
Up
to £125,000 |
Nil
|
£125,001
-£250,000 |
1%
|
£250,001
-£500,000 |
3%
|
Over
£500,000 |
4%
|
This charge will be handled by your solicitor and will be included in the invoice of legal fees.
This must be considered carefully. Lenders will insist on a Buildings Insurance Policy to be set in place prior to the release of your loan funds. You should also consider very carefully taking out some form of Contents Insurance since the value of your house contents is likely to be many thousands of pounds. A good insurance policy will provide cover against theft, fire, flood and domestic accidents.
This is recommended to protect you against the loss of income due to unemployment, sickness or accidental injury. You need to ensure that you can always meet your mortgage and insurance payments. It is important to consider Mortgage Payment Protection as government aid has been reduced significantly.