There’s more to buying a house than just looking for the best mortgage, and it’s imperative that your customers know that. It’s all well and good arranging a policy for a first-time buyer who is excited at the prospect of owning their own home, but to focus solely on the mortgage aspect of buying a home is not only a disservice to them but also a threat to their long-term financial stability if they aren’t prepared for what comes next. It can be easy for mortgage brokers to forget or simply not pay attention to a customer’s journey after a policy has been successfully arranged, but that shouldn’t be the case. Make sure your discussions go beyond ensuring your customers are in a position to simply keep up with the repayments of a given mortgage policy, and that they are able to keep up with these repayments after accounting for all the additional costs which come with buying a house.
In this article, we will highlight some of the major added costs your customers will need to be aware of before they commit to a proposed mortgage arrangement. So if you want to ensure you are doing right by your customers, while also demonstrating your compliance with the latest guidelines of the Consumer Duty Act, then make sure you keep reading…
Upfront costs
Upfront costs are expenses which a new homeowner is obligated to pay before they are able to successfully finance their new property. There are a number of costs they will have to incur so it is essential that they are not only aware of what they are, but that they also have plenty of savings set aside to make sure they are able to meet all of the financial commitments associated with owning a property. As a mortgage adviser, it can be easy to focus solely on preparing your customer for having to meet the monthly credit demands of a mortgage, however these upfront costs could make a difference for your customer in how their finances look for the next few years.
1. Deposit
The deposit a customer puts down to secure their mortgage will obviously represent a significant outlay from their savings. This will likely be the area where you can be most helpful to your customers since you will play an active part in securing them the most appropriate deal based on how much they are willing to part with in order to secure their new property.
2. Stamp Duty
As well as the deposit, stamp duty might be the largest “hidden” cost when buying a house in the UK. The estimated cost of stamp duty will vary from customer to customer as the fee is based on the price of the property they are looking to purchase. Properties which are priced at less than £250,000 are exempt from stamp duty, as are first-time buyers purchasing a home worth up to £450,000. So it’s important you address this possible expense early on in the process.
3. Conveyancing Fees
Conveyancing fees (also known as solicitors fees) will add to your customers’ expenditure when it comes to the legal process behind buying and owning a property. This will normally include:
- Land registration fees
- Property transfer fees
- Local authority search fees
- Fees paid to a solicitor for drawing up contracts between the buyers and sellers
Similar to stamp duty, the amount a customer will have to pay in conveyancing fees will be dependent on the cost of their new property. On average the cost of conveyancing fees when buying a home in the UK will be between £500 to £1150.
4. Surveyor’s Fees
A building survey is a must for any interested buyer, but of course that will mean additional costs. However, in this case it’s important to demonstrate to your customers how this short-term outlay could actually save them thousands in the long run. There are actually three different types of surveys your customers can choose from, which differ in price and practicality based on the type of property they are interested in which you can learn about below. A less-than-positive survey report could ultimately save your customers thousands.
- RICS Home Survey Level 1 – This is the most basic survey which covers visible defects and any significant property issues. Suitable for modern properties, the Level 1 survey will essentially confirm that a home is fit for purpose.
- RICS Home Survey Level 2 – The more intermediary survey, the overall condition of the property will be examined here with advice on non-intrusive issues and repairs needed such as damp and subsidence.
- RICS Home Survey Level 3 – The most comprehensive survey, customers looking to buy a property that is over 50 years old, of unusual design or is in poor condition should opt for this choice. Analysis will be hands-on and thorough, with any defects reported for ongoing maintenance. Surveyors may also include estimates for the cost of repairs.
5. Electronic Transfer Fee
Fairly straightforward, the electronic transfer fee will cover the cost of bank charges when the lender transfers your customer’s funds (the sum of the mortgage) to the solicitor. This is usually a relatively inexpensive charge, costing between £40 to £50 on average.
6. Mortgage Broker Fees
This is going to be a particularly important area for you, the broker. As you’re probably well aware, not all brokers will charge for their services, and some may only charge customers for the use of certain products. If you are to charge your customers, inform them from the outset. Offer them an estimate as to what this might cost them eg. whether you are charging a flat hourly rate or a percentage of the amount they ultimately borrow.
Ongoing Costs
In contrast to upfront costs, which will require a lump sum payment before a new homeowner ever actually moves into their property, ongoing costs will come into effect after the purchase is made official. From there, ongoing costs will require your customers to regularly keep up with these financial obligations, as failure to do so may result in major consequences. Most mortgage brokers will recommend that a customer puts aside at least 3 months’ worth of their income in order to meet the monthly demands of their ongoing costs, while also having some contingency savings available should any unforeseen additional costs suddenly come into the mix. However, you may have a different piece of advice to pass on to your customers.
1. Insurance
The responsibilities of an adviser do not come to an end once a mortgage has been successfully arranged. Your customer will need protection for both themselves and their new property. These can be difficult conversations to start, but they are nonetheless essential in making sure your customers are prepared for the worst. Insurance comes in many forms, from income protection to critical illness cover, however these are considered ‘optional’. As is the case with buildings and contents insurance, yet they may represent some of the most important purchases your customer can make during this entire buying process.
2. Utilities and Maintenance
Most customers will be well aware that their utility costs will include gas, electricity and water, but may forget about additional charges for things like their mobile phone contracts, TV and broadband packages and any other amenities. Maintenance and repair bills will also be incurred by any homeowner, ongoing work likely to be required throughout the period in which they own their new home.
3. Council Tax
The cost of council tax will vary depending on the type of property and where it is located and will also be one of the most significant ongoing costs a new homeowner will have to keep up with, in order to continue legally living in their new property.
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