Expat Mortgages – Costs of Buying a Home

Costs of Buying a Home

Costs of buying property in UK

Buying a property whether for your own residential use or as an investment such as a Buy to let property or HMO property is a serious undertaking. The property itself may be anything from a new build property which only requires you to add your furnishings, to a property requiring major renovation work. Having established your initial costs, the next thing is your financing costs and the considerations for that should you require a mortgage to complete the purchase. Apart from the normal mortgage payments you will have to make you will need to consider the amount of deposit you will need and the lenders fees for arranging the mortgage which may or may not include the survey fees for checking the property condition.

Then there are the legal fees your lawyer will charge for arranging the purchase, including any searches that will be required and if you use a mortgage broker to arrange your mortgage there may be fees to pay.

After that, and depending on your situation, you might need to consider some of the following:

  • Moving costs – if you are relocating from your current home you will probably need to engage the serviced of a home removal firm and depending on the distances involved, this can vary greatly from case to case.
  • Home insurance – If you are buying a residential property you will need to consider buildings and contents insurance to cover you for losses in the event of fire, flood or Where the property is intended for investment purposes as in Buy to let or an HMO, then only buildings insurance will be required.
  • Protection insurance – This is the time to review your risk of failing health, loss of income and even death. It is therefore sensible, particularly if you have dependents that could not maintain the mortgage payments were something to happen to you, to insure yourself against these risks.

Expat Mortgage Payments and Fees

When you take out an expat mortgage, you will normally repay the loan buy making set monthly payments as calculated by the lender. All lenders use the same calculation to establish what this will be taking into account the remaining term of the mortgage and the interest rate that is currently applicable.

When the applicable interest rate changes, as it will over time both upwards and downwards, the lender will recalculate the monthly payments that you will be required to make. Should you fail to make these payments on time, you will be in default to your lender and if you continue to fail to pay, your lender may decide to foreclose on the mortgage.

Fees associated with expat mortgages

When you apply for a mortgage, your lender will probably charge you certain fees which are usually required to be paid prior to the mortgage being offered. Sometimes, one or more of these fees can be added to the mortgage loan but in this case, the borrower should be aware that this will increase the cost of the mortgage through having to pay back a slightly higher amount of capital but also the interest charges on that extra capital over the term of the mortgage.

  • Expat mortgage arrangement Fees – This is usually the main fee that a lender will charge for setting up the mortgage. Sometimes it can be referred to as a product fee, a booking fee or an application fee. When deciding on a particular mortgage you should consider it in conjunction with this fee as lenders can sometimes apply quite a large fee as a way of reducing the interest rate they charge, giving the impression that their mortgage offer is very competitive when it is not. This fee can vary considerably but usually come in around £900 to £1,200 but can be much higher depending on how the lender is using them.
  • Valuation fee – Your lender will want to obtain proof that the property is worth the purchase price being paid. They usually do this by engaging a firm of surveyors to look at the property and provide them with a report on its condition and estimated value. You as the borrower will be charged for this but will have no entitlement to see the report. This cost can vay considerably depending on the value of the property and its condition but in general terms, you should budget on paying £300 to £400.
  • Home report – This is a special rule that applies to property sales in Scotland where any property being put on the market will require a home report to be made available for the property by the seller. This is a fairly comprehensive report which will comment on the condition of the property and any work that would require to be done. It also gives an energy rating for the property and will be used by the buyer to assess whether to purchase or not. As the purchaser, this is free to you but if you are buying a property that requires extensive work, you should still commission your own survey for peace of mind.
  • Expat mortgage broker fees – If you decide to arrange your mortgage using the services of a mortgage broker, they may charge a fee for this work. Mortgage brokers are paid a procuration fee directly from the lender as a small percentage of the loan. This is usually between £350 to £500 per £100,000 of loan amount but is often insufficient income for the broker to remain profitable so they may charge an additional fee depending on the value of the loan and the complexity of arranging it. This can be anything from a fixed fee of £199 to 1% of the loan amount.

UK Stamp Duty Land Tax

When a property or land is purchased in the UK, The government at Westminster or the devolved parliaments of Scotland, Wales and Northern Ireland, will require the payment of a property tax which will be applied to the purchase price of the property in a series of stepped amounts.  These together can amount to quite a substantial sum which will be due to be paid on completion of the purchase of the property. Stamp duty is normally paid by your solicitor on your behalf, from the funds you have deposited with your solicitor.

The stamp duty bands and rates shown below are those that apply in England. These are fairly reflective of the stamp duty required by the other devolved parliaments but will vary.

Main residential property – Where the property to be purchased will, on completion, be the only property owned then the duty payable in the financial year 2018 to 2019 will be as shown below:

Note that it is only the amount within each band that has the band rate applied. Each band calculation is then added up to give the total payable. For example, a single property valued at £300,000 would pay zero on the first £125,000 Plus 2%x £125,000 plus 5% x £50,000 giving a total payable of £5,000.

Second or additional properties – Where the property is a buy to let, a second residential or a holiday home, the stamp duty rate increases by 3% in each band. However, where several properties are owned and the main residential property is being changed, the additional 3% will also apply to the new residential property.

Property Value Only property owned Additional properties
Value up to  £125,000 0% 3%
Value between £125,001 – £250,000 2% 5%
Value between £250,001 – £925,000 5% 8%
Value between £925,001 – £1,500,000 10% 13%
Value over £1,500,001 12% 15%

 

 

First time buyers – Special arrangements have been put in place to reduce first time buyer costs to enter the property market. Where first-time buyers are purchasing a residential property for £300,000 or less they will be exempted from having to pay stamp duty. First-time buyers paying between £300,000 and £500,000 for their property purchase will pay will only pay stamp duty at 5% on the amount of the purchase price in excess of £300,000.

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