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The cost of owning property in the UK

The cost of owning property in the UK

Source: Entralon
Buying a property is, for most people, the most expensive purchase they will ever make. It can seem daunting and - for first-time buyers, especially - fraught with potential financial pitfalls that can quickly add up.

But what are the hidden (or less well-known) costs of purchasing a property, and what should you be aware of when it comes to the search for a new home? And - for those looking to take the first rung on the housing ladder - how do the costs of owning a property stack up against renting?

The buying process...

Many of the more obvious costs associated with buying a piece of real estate come at the beginning of the process, during the purchase itself.

Deposit

The first consideration for many buyers would be the deposit required to obtain a mortgage. While not everyone buys using a mortgage, it’s more common than buying in cash, which means you’ll need a percentage of the purchase price upfront - often 10-20%, and the more, the better, as it means your mortgage repayments will be smaller.

Solicitor’s fees

The legal process of buying a property - known as conveyancing - is generally split into two parts: the fee for the work itself, and the cost of requirements such as registering the new owner with the Land Registry and performing searches to discover any issues with the land and local area. This can cost up to £1,500, plus extra for searches.

Mortgage fees

Some lenders charge a fee for arranging the mortgage - which can be added to the mortgage itself in some cases - and some also charge a fee for valuing the property to assess its worth, although many offer this as a freebie, so it’s worth checking before you commit to a product. On top of this, if you use a mortgage broker, some of them charge a fee for the service - although many don’t, so shopping around can be beneficial.

Stamp Duty

After April 1st 2021, if you buy a home with a value of more than £125,000 in England or Northern Ireland, you’ll pay a form of tax called Stamp Duty - Scotland and Wales have similar schemes. First-time buyers are exempt as long as the purchase price of your property is below £500,000, however. It’s a sliding scale, so you pay nothing below the threshold, with a proportionally higher tax rate (from 2% up to 12% of the purchase price) as the price of the property increases. In practice, from April onwards this would mean the buyers of a house bought for £250,000 would pay £2,500 if they weren’t first-time buyers.

...and after the sale

So you’ve got the keys to your beautiful new home - what could be left to pay? Well, your mortgage repayments, of course, but there are some other costs too.

Utilities

Water, gas, electricity - all crucial services! While they vary, water bills average £33 a month in the UK, with electricity and gas varying more depending on the type of heating system you have, how many people live in your home, and how energy efficient it is.

Council Tax

Residential properties are subject to Council Tax, which goes towards funding services in your local area - properties are rated in a band system, from A to H, depending on the value of the home. If you live alone, or will be leaving the property empty, you may qualify for a 25% discount.

TV and broadband

Most of us are connected to the internet in our homes now, so broadband (and possibly line rental) are another cost, with phone services often included. You’ll also need to pay the TV Licence (£157.50) if you watch live television, too.

Parking

Many areas, particularly in cities and larger towns, require residents to purchase a parking permit (or, in some cases, a space in a dedicated carpark). While this can be cheap - for example, in some suburbs it is as little as £40 per year - it can also be eye-wateringly expensive in the centre of cities like London or Manchester, so if you’re a multi-car household it’s worth scoping out the parking situation before you commit to a sale.

Insurance

While most renters have (or should have!) contents insurance to protect against loss, theft or damage of their personal items, homeowners will also need to ensure they have buildings insurance. This covers you for structural issues, and the cost can vary depending on the age, type, and security of your home, so shop around.

Service charges

Buyers looking for apartment living should be aware that most shared buildings will have some kind of fee for maintaining shared areas, such as lobbies or lifts, and dealing with structural issues such as roof repairs. Beware punitive fees or contracts which allow for fees to be hiked annually, as these can quickly become very expensive.

Leasehold costs

If you buy a leasehold property - i.e. one where you buy the right to occupy the land or building for a particular length of time, which includes most flats and some houses - you will be liable to pay fees. If your property is nearing the end of its lease (which is generally accepted as any lease with fewer than 80 years remaining), you might struggle to sell it on: this can mean you’ll need to extend the leasehold on your property, which can be expensive. Make sure you check any leasehold on a property before you sign on the dotted line to avoid extortionate fees in future.

So, it’s expensive, then?

Well, yes - owning a property can be very expensive. However, with sensible expectations and some prior planning, savvy buyers can find themselves paying much less than renters.

Mortgage rates have been low for some time while rents have continued to spiral upwards, so homeowners paying £500 a month on their mortgage could be paying two or three times that in rent for the same property. Renters are still liable for bills such as utilities, parking and broadband, so there’s no disadvantage to owning on that front.

It’s also important to remember that owning property means you are gradually acquiring equity: every mortgage payment brings you closer to owning the asset outright and (if recent years are anything to go by) house prices are still on the up, meaning you’ll be increasing the value of your investment as you go. Renting, while it gives certain freedoms, does not have this very important benefit, and homeowners will often reap the rewards of investing in their property further down the line, as well as having the security of their very own home.

 


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