Unfortunately there are a whole load of extra costs that go with buying or selling a home. It's not just a case of finding the deposit and knowing how much your mortgage payments will be each month. This is where lots of people come crawling out of the woodwork and mug you for all sorts of additional costs so it's as well to be aware of them and to make sure you've got a means of financing them.

Administration/application/arrangement fee

This is charged by your lender, and it essentially covers their administrative costs for setting up the mortgage. Usually the fee is about £200 and you're required to pay it up front. Some may refund it when you're finally installed in the house but please note that you won't get it back if the deal falls through. However, be aware that they like to confuse you with different terminology just to throw you off the scent about what they're actually charging you for! Sometimes it will include the cost of sending round a valuer to check that your proposed new home isn't going to fall down before you've paid the mortgage off. If it's not included, there will be a separate Valuation Fee. So check what's included in this fee!

Estate agents' fees

These only apply if you are selling your property. An estate agent will usually charge between 1% and 2% of the value of your home for the costs of advertising it and showing people round the property. Your solicitor will act as the middle-man in passing on their fees once they've received the purchase money from your buyer. Don't forget though that it is now possible to sell your home yourself on the Internet and it's cheaper too. However, most prospective buyers will go to the local estate agents to find out what's on the market.

Homebuyer's report

This is where you pay for your own valuation and survey of the property so that you can find out if it's likely to fall down around your ears. The report usually costs between £300 and £400 and will point out possible subsidence, woodworm and rotting problems although the surveyor will often suggest you pay for a structural engineer to check for the seriousness and causes of the defect. It will also tell you incredibly useful things (Not!) such as the bathroom window won't open properly or the property has no gas or that there are three plug sockets in Bedroom 2.

Legal costs

You're probably looking at about £300 to £400 for your legal costs depending on the value of your house. If you're buying one for a million pounds then the fees are likely to be much higher! But, basically, the conveyancing process involves things like checking with the Land Registry that the seller of the property has a right to actually sell it, that any alterations that have been made to it were permitted under planning regulations, and carrying out searches to make sure the local authority doesn't have plans to bulldoze the house to make way for a motorway. It also involves drawing up the documents that will transfer the freehold or leasehold of the property to the new owner. Your solicitor will also handle any payments due to the estate agent (if you're selling) or stamp duty (if you're buying).

Mortgage indemnity insurance/guarantee

Also known as the Lender's Risk Fee, this is a cunning trick that mortgage companies sometimes use to get you to pay for protecting them against the risk of you defaulting on your mortgage debt. They'll get their money - it'll just be the insurance company coming after you instead of the lender! Not all lenders charge this - and you should try to avoid it if at all possible. They are not cheap and payments are usually tacked on to your mortgage so you don't really realise just how expensive it is.

Mortgage payment protection insurance

This sort of insurance covers your mortgage repayments for a certain period if you become ill or unemployed. However it tends to be expensive and may not cover what you need it to. For example, the policy will probably only cover your payments for a year or so. If you have been a good Fool for a while and have plenty of savings, you might be able to absorb a couple of years' worth of payments without the need for insurance.

Redemption penalties

This isn't an up-front charge but one you may have to pay later should you wish to switch lenders. Fixed rate, discounted or capped rate mortgages tend only to last for a few years, after which you can be locked in on a more expensive variable rate for a further couple of years or so. If you want out, you might well have to pay them to get out. This is the infamous redemption penalty.

Reservation fee

This is separate to an Administration Fee and is usually applied when the lender has got a special deal on offer for a short period of time. You pay them to reserve the funds for you so you can take advantage of a special fixed interest rate deal, for example.

Stamp duty

A Government tax on the purchase price of the property (Well - surely you must have guessed that Chancellor Gorgeous Gordon would want a piece of the pie!). No stamp duty is payable on properties costing less than £60,000 but the charges are 1% for those over £60,000, 3% for those over £250,000 and 4% for those over £500,000. So if you buy a house for £100,000, you'll have to find £1,000 to hand over to the Treasury.

Structural report

Whereas a Homebuyer's Report will tell you that the property's got signs of, say, subsidence, the Structural Report will tell you why and what needs to be done to sort it out. Frankly, you might as well go direct to a specialist for the particular problem, get a free assessment and a quote for resolving it, rather than paying a structural surveyor.

Valuation fee

Your lender will want to know that the house is actually worth at least as much as you want to borrow and that it has no major defects. This is so they can sell it over your head if you default on the mortgage. However, although you pay for the cost of the survey, you won't be allowed to see what it says. Most lenders now have a non-disclosure clause, so you can't sue them if their valuer has messed up. It puts the onus on you to get your own survey done (at extra cost to you of course)!

Finally

Having read all of the above, you'll realise that you need rather more than just the deposit. It gets worse I'm afraid because there's also the house and contents insurance to think about as well as moving costs. And don't forget that the Homebuyer's Report might have revealed the need for certain essential repairs, not to mention your own desperate urge to spend money painting over all that orange flowery Sixties wallpaper that the previous owner very kindly left behind for you.

But we don't want to ruin your day, so we'll leave those for another time…

Where Next?
• Remortgages
• Back to Homeowning Main Page