Setting a Budget

Costs of Purchase

In setting a budget take account of the costs of purchase which include the following:

• Stamp Duty (tax):
  for properties up to £125,000, stamp duty = 0%;
  for properties over £125,000 and up to £250,000, stamp duty = 1%;
  for properties over £250,000 to £500,000, stamp duty = 3%;
  for properties over £500,000; stamp duty = 4%.
  Bizarrely the rate quoted is payable on the ENTIRE purchase price, eg a house priced £251,000 is liable for £7,530 stamp duty, whereas one at £250,000 is liable only for £2,500. It follows that it is very well worth negotiating a reduction to take a property just below a stamp duty threshold.

• Legal fees - generally consisting of solicitor's fee plus those of any searches carried out
• Land Registry fees
• Valuation/snspection fees
• Mortgage "arrangement" fees (essentially an up-front payment in return for better rates)

Costs of Ownership

As well as the costs of purchase it is also necessary to consider the ongoing costs of ownership in assessing the affordability of a property.

Every property in the U.K. is liable for Council Tax. Each property is allocated to a band (A-H) according to its value in 1991 (this is estimated for newer properties). The amount of council tax is set by each local authority for each band each year. Reductions are available for certain categories of people, eg a 25% discount for single householders, and benefits for those on low incomes.

Flat owners usually have to pay some kind of maintenance / management / service costs. These cover shared expenses eg buildings insurance, communal lighting, gardening etc. These should be identified before agreeing to buy.

Although freehold properties do not attract maintenance changes, the prudent owner will put a sum aside weekly or monthly to cover repairs and maintenance as necessary.

A mortgage lender will generally insist the building is adequately insured to protect their security. Depending on the loan and lender they may also insist upon life insurance, payment protection insurance etc. It is usually advisable to take out contents insurance alongside buildings insurance.