John Stillwell
The property market can be a confusing and complicated minefield.
If you don’t do your homework carefully, you could be hit with surprisingly high charges and experience unnecessary stress.
This article will highlight three of the key pitfalls buyers and sellers need to be aware of when making one of the biggest financial decisions of their life.
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Sell and rent back
Sell and rent back firms buy properties from homeowners who are having difficulty meeting their mortgage repayments.
They market themselves as an attractive alternative to repossession and assure you that you can continue living in the property as a tenant, so you don’t even need to move house.
This sounds good in theory, but sadly the reality is often unpleasant. A recent Office of Fair Trading (OFT) investigation found that many of these companies were misleading desperate sellers about the value of their homes – and therefore getting the properties at knockdown prices.
Another concern was that sellers were being duped into believing they could stay in their properties indefinitely.
In fact, once the house sale had taken place, some sellers were being turfed out after only a few months to make way for higher-paying tenants.
For a long time, sell and rent back firms have been unregulated, but the Financial Services Authority (FSA) has announced plans for full regulation of the sector.
However, many experts think this regulation will not go far enough, so steer well clear of these schemes if you possibly can.
If you’re struggling to meet your mortgage commitments, speak to your lender immediately and see if you can negotiate a reduction in your monthly payments. You can also get excellent free debt and mortgage advice from the Citizens’ Advice Bureau.
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Mortgage fees
As a homebuyer, you’re likely to face a daunting array of fees associated with taking out a mortgage. Some are unavoidable, but many can be dodged by doing your research thoroughly and hunting down the best mortgage deal for you.
Here are the main mortgage fees to watch out for:
Booking fees: sometimes called application or reservation fees, a booking fees are usually around £999 although some companies can be significantly higher.
There has been a worrying increase in the number of lenders charging a fee as a percentage of the loan. With some demanding as much as 2.5%, this works out to a whopping £5,000 on a £250,000 mortgage.
Be sure to check whether the fee is refundable otherwise you might be rejected for the loan and still lose your money.
Valuation fees (also known as a survey fees): this is the fee a lender may charge to assess a particular property before letting you take out a mortgage on it. Make sure you check that this is included with your mortgage package, saving you additional expense.
Higher lending charges (HLCs): these usually apply if there is a high loan-to-value ratio involved – in other words, if you want to borrow a high proportion of the property’s value.
Lenders sometimes levy HLCs on the basis that they’re taking a higher risk getting involved with you. This can be pretty unreasonable, because high loan-to-value mortgage deals are typically charged a higher rate of interest anyway.
Early repayment charges (ERCs): these are often levied when a mortgage – or a large proportion of a mortgage – is paid off before a certain date.
While you may not be concerned about ERC when you take out your mortgage many borrowers find themselves locked into uncompetitive interest rates, unable to move their mortgage to take advantage of lower interest rates, because of these excessive fees.
Remember a competitive interest rate today may not be one tomorrow and if you don’t have the flexibility to move what started out as a great mortgage deal could easily turn out to be an expensive mistake.
Low-interest, seemingly attractive, mortgage deals often come with particularly high extra fees attached. Before you commit to a particular mortgage, you need to fully understand all the charges you could face (both now and in the future) and work out what the best deal is overall.
The estate agent’s cut
If you use an estate agent to sell your home, you can generally expect to pay them between 1.5% and 3% of the property price. This percentage fee system seems a bit unreasonable to start off with: surely an agent selling a house worth £500,000 doesn’t do twice as much work as an agent selling a house worth £250,000?
Make sure the agent you choose is a member of the National Association of Estate Agents (NAEA) or other reputable trade body.
For more tips on choosing an agent, have a look at this guide.
The other option is to bypass traditional high street estate agents altogether. A recent study by consumer magazine Which? found that the fees charged by online agents tend to be much lower – as low as 0.5% in some instances.
And some online agents levy a single upfront fee, rather than one based on the value of your home. Have a look at websites like HouseNetwork, HouseWeb and Home to find out more.
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