The hidden costs of a home deposit – how much saving an extra 5 per cent deposit will actually cost you

Don't be caught by surprise by the additional costs of buying a home
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  • The hidden costs of house deposits may shock you. While we all know that buying a house has become significantly more since the pandemic, many prospective buyers are unaware of just how much more they’ll need to pay even for a 5 per cent extra on their house.

    Related: First-time buyer and applying for a low-deposit mortgage? These are 3 things you must do to succeed

    With most mortgage lenders now requiring 15 per cent deposit as standard, many first-time buyers are having to save for longer in order to secure a property. Although the government has helped reintroduce 95 per cent mortgages, not everyone is eligible for them. Also, a 95 per cent mortgage will never get you the best rates, and could end up costing more in the long term.

    So, say you have a 10-percent deposit and want to push it up to 15 per cent – how much more will you need to save?

    Hidden costs of house deposit

    Every extra 5% = £15k

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    Image credit: Future

    Budgeting fintech, thinkmoney, have done research into the average figures that now come with home ownership, on the basis of the average UK house price of £267,000 (as released by ONS on 24th March).  A 5% deposit for a house of this price would amount to £13,350, but that’s not the only cost buyers need to budget for. On average, the additional costs will come to just over £2,000, pushing the overall extra sum needed to  £15,400.

    The additional spend is based on the combined costs of conveyancing, surveys, and a traditional mortgage broker. Conveyancing is the process of legally transferring a property from one partner to another.

    There are two stages to conveyancing, with the first being the exchange (where the terms of the purchase are finalised) and the second being completion (where the property is transferred). In the UK, conveyancing costs range between £800 and £1,500.

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    Image credit: Future

    The survey will look at the structure of the property and highlight any issues (e.g. unstable walls). Surveys are optional and do not need to be completed for the purchase of a property to go through.

    However, in most cases, surveys are definitely worth the money as for a relatively small fee, they can highlight issues with a property that would otherwise cost you in the future. Surveys range in cost between £300 and £500 depending on the type you request.

    Finally, a traditional mortgage broker will charge you a fee for their service, of around £500. In addition to giving you a hand when trying to find the right mortgage for you, brokers can advise you on which one might suit you best by looking past the upfront costs and considering the long-term financial impacts. Many brokers, including most online ones, work on commission, so you won’t need to pay anything as their costs will be covered by your mortgage lender.

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    Image credit: Future

    These are not bank-breaking sums, but they do add up, and many first-time buyers are caught out by incorrectly budgeting for the extra amount they’ll need for a larger deposit.

    Related: Chancellor announces the return of 95 per cent mortgages – everything you need to know

    This proves that where it comes to deposits, you always need a slightly wider margin for extra costs rather than having just enough for the deposit.

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