For most of us, becoming a homeowner is an exciting milestone that we have spent years and years working towards. So, it’s only natural that once you have saved enough for a deposit, the first thing you want to do is find your dream property!
However, while saving for a deposit and securing a mortgage is definitely one of the most important steps towards owning a home, lots of people forget to consider the additional costs that can incur once you have bought a property – costs which could start to rack up and become a financial burden if you are unprepared!
Drawing on my years of experience working in the property sector, below I have listed some of the monthly outgoings and hidden costs that can be associated with owning a home – which many people (particularly first time buyers) forget to consider before buying a property. I have also thrown in some tips on how you can prepare for these costs before taking the plunge and making an offer.
BUILDING AND CONTENTS INSURANCE
Building and Contents Insurance is a combined insurance which homeowners pay to cover any damages or losses that may occur to their property, or possessions and contents inside.
For many mortgage lenders, this insurance is compulsory as it will help to protect the money they lend you. However, even if the insurance isn’t enforced by your lender, it is still highly recommended. While the monthly payments may make a small dent to your bank balance each month, these rates are nothing in comparison to what it could cost you if you experience an unexpected problem with the property (e.g. a leak, a fire, or a burglary).
Building and Contents Insurance can cost anything from a few hundred to a few thousand pounds a year. This will depend on a variety of features attached to the home, from how old it is and what material it is made from, to the security of the area and the locks on the doors.
Do some research into the property and ask your mortgage lender what they estimate Building and Contents Insurance will cost you in advance – this cost will be coming out of your bank account regularly, so you need to be prepared for it.
Ground rent only applies to homeowners who have bought a leasehold property. If you own a leasehold property, you have a lease to live there for a certain number of years and someone else owns the freehold (the overall building and grounds). As you do not own the freehold, you may be asked to pay an annual rent fee to the leaseholder.
If you choose to buy a leasehold property then make sure you understand what the ground rent rate is before you sign the contract. Many people are led to believe that ground rent is a legal requirement for leasehold properties however, this is a myth. If the freeholder does not request ground rent then you are under no obligation to pay it.
It is also sensible to assess the requirements for ground rent before you sign any contracts, as in many cases the fee will increase after a certain number of years. For example, in a 99-year lease the ground rent could be set at £50 a year for the first 33 years, and then increase to £100 per year for the next 33 years, and then £150 per year for the final 33 years of the lease. Although the rise in fee may not bother you as you will not be living in the property for that long, it is always worth asking the landlord if he would be willing to cap the fee at a certain number as the increase could put off potential buyers when you come to sell in the future.
SERVICE CHARGE AND MAINTENANCE FEES
In addition to ground rent, leasehold property owners may also be required to pay a service charge if they live in a communal apartment block or a shared household.
Service charges are fees that leaseholders pay to cover their share of the cost of maintaining the building which they live in. These charges usually cover the cost of repairs for shared areas of the building and the outside of the building, such as the roof, external pipes, drains and windows etc.
If you aren’t a leasehold owner and you own the freehold, you won’t have to pay a service charge – however, that doesn’t mean to say that you shouldn’t take maintenance costs into consideration. From leaking pipes to uprooted fences, and broken boilers to blocked gutters; there are many of unexpected problems which can occur when you own a property, which you will have to pay for out of your own pocket.
Most new homeowners will have paid for water, gas and electricity bills while renting, and often assume that the process is very similar once you own a property. However, these bills can be costlier after you have taken the property-plunge due to the size of the property and other factors – for example; the quality of your windows and whether they are double-glazed or not will impact on the cost of your heating bills, and if you have a water meter installed, you could end up paying a lot more than you are used to.
Gas and electricity can be paid on a monthly or quarterly basis and can cost anything from fifty pounds to one hundred and fifty pounds per month. As soon as you move into the property, you are legally obliged to get set up with a gas and electricity provider so that they can start monitoring your usage. It’s important that you carry out lots of research into the best providers and what they can offer you in terms of your personal affordability, do not be afraid to switch every year to cheaper providers – as this could save you pounds in the long run.
Water bills are calculated based on either the rateable value of the property, or on actual water usage if a water meter is fitted. If your water bill is based on the properties rateable value, then this will be a fixed amount irrespective of the amount of water you use, usually costing around £20-£30 per month. However, when a water meter is fitted it can be difficult to monitor how much water you are using – so bills are harder to predict and can often equate to a lot more. So, if you have a large family or enjoy long hot showers, you might want to look for a property which charge for water on rateable value rather than racking up a large bill on a meter.
Council Tax is another legal requirement that must be paid by occupants of a property, and can range from several hundred pounds to several thousand pounds a year. Again, this very much depends on the size of the property and its location, as different counties and areas have different bands of council tax. Before buying it is sensible to consider the tax band your property falls under, as you will be legally obliged to pay this sum on an annual basis.
If you purchased a property without considering these costs, and need a quick way out, my company We Buy Any Home offers a hassle-free approach to house selling and is an ideal option for those who need to sell quickly!