Buying a house is an exchange that involves a fair amount of risk, regulation, and sometimes red tape. So, most people designate a property solicitor or conveyancer to carry out the legal work for this type of transaction.
The Importance of Understanding Legal Fees
The legal work that comes with a property purchase includes checking documents, examining environmental factors and clauses, observing local regulations, checking upcoming developments and issues with rights of way, and conveyancing (i.e. handling the transfer of ownership from seller to buyer). Any one of these steps can make or break a property transfer, and not being thorough can prove to be costly.
So, a legal fee is a small price to pay for peace of mind. But it’s important to understand this fee not just because property transfer is risky business. Legal fees are generally paid upfront, at least partially, through a non-refundable deposit called “payment on account”. The remainder can sometimes be carried forward and included in the mortgage. But it will incur interest.
The solicitor is also the person who handles Stamp Duty Land Tax payments. The tax is due upon completion of the sale. This can be mere days after paying the deposit for legal fees, and many months before you take up residence in the newly bought house. This money is never covered by mortgage, and it must be paid in one lump sum from your own funds.
It’s a hefty amount. And even though it’s not a legal fee, it’s important not to underestimate it and to budget for it accordingly. Timing is crucial because any outstanding legal fees will also become due upon completion of the ownership transfer.
Not preparing properly for a quick payment, sometimes within a fortnight from the time people hire their solicitor, could explain the fact that conveyancing is the most disputed and troublesome aspect of house buying, according to the HomeOwners Alliance.
Why You Pay Legal Fees Upfront
The reason for upfront payments is that only part of the legal work is carried out by the conveyancer independently – hence the name “conveyancing fee“. The other part relies on third parties, and the conveyancer will make “disbursements” to cover these services. If a sale falls through, these disbursements will not be recovered because the work has already been carried out.
Sometimes, the full conveyancer fee can be refunded if the transaction fails. This happens with a ‘no completion, no conveyancing fee’ service. Other times, you only pay for the work carried out until the sale falls through. But disbursements are always non-refundable. The list of common disbursements includes:
- fees paid to HM Land Registry for official copies of title deeds
- fees charged by HM Land Registry to register a transfer of ownership
- fee for forwarding Stamp Duty Land Tax to HM Revenue and Customs
- price of local searches carried out by councils and public utility companies
- fees paid to landlords for information packs
- cost of access to bankruptcy and insolvency information
Asking Your Lender to Cover Legal Fees
Some lenders are prepared to cover the entire legal fee. But in return, they demand that you use a solicitor from their list of approved providers, which is called a “lender’s panel”. Others offer a cashback when the mortgage agreement is signed. This handout can cover part of the legal fees, but cashback offers are usually available only for mortgage deals with poor interest rates.
What to Expect from Legal Fees for a House Buy
In a nutshell, anyone interested in buying a property in 2020 should set aside up to £2,000. This would generally cover the cost of the legal work provided and the VAT charged for this type of service, which is 20%. But the total amount generally depends on the value of the property, the amount of work involved, and the solicitor’s pay band.
The Money Advice Service claims fees range from £850 to £1,500. But this estimate may not be high enough to cover services like local searches, if problems crop up when planning and building permissions are scrutinized. However, budgeting for £1,500 in legal fees before you contact your solicitor or conveyancer is a good place to start.
Breakdown of Legal Fees for House Buyers
Property solicitors have varying pay rates. Some charge by the hour, others have a fixed rate, and others still charge a certain percentage of the property price. It’s always a good idea to ask several reputable solicitors for a quote before you make your decision.
Aside from the total quote, conveyancers should provide a breakdown of their fees, expenses and disbursements. Otherwise, they may be in breach of the current Solicitors Regulation Authority (SRA) Code of Conduct.
Local searches involve checking for issues with rights of way, environmental concerns, conditions, covenants, provisions, and clauses linked to the way the property is used, etc. Zoopla estimates a charge of £200 to £300 for this service. Leasehold properties tend to demand more time and effort to check than freehold properties.
Conveyancing fees depend on pay band and how the solicitor operates. Per-hour rates are ideal for inexpensive properties and transactions with no complications. Fixed fees are the best choice for older properties with potential issues. A commission rate is not unusual with larger properties, but it can amount to thousands of pounds. Depending on the value of the property, conveyancing fees range from just over £400 to over £1,500, according to Really Moving.
Conveyancing disbursements are collected from you and paid on to third parties to cover bankruptcy checks, ID checks, Land Registry checks, etc. Most are nominal fees, but they add up and amount to a few hundred pounds.
Here is a detailed list of the most important legal fees:
- Bankruptcy search is carried out by the lender and costs up to £4 per lendee.
- Electronic ID and AML (Anti-Homey Laundering) buyer checks can cost from £2 to £18, and help verify that the buyer, seller, lender, and conveyancer handling payment are legitimate.
- Land Registry office copies confirm the owner of the house and they cost up to £8.
- Local authority searches cost roughly £100 to £200.
- Water and drainage search costs up to about £48, depending on the water company.
- Environmental search may cost up to £42.
- Telegraphic transfer fee costs in the region of £50 and is charged by the bank.
- Mortgage handling fee usually amounts to £80, but solicitor rates vary.
- HMLR final search is a nominal £7 fee charged before completion.
- Land Registry Charge is included in the conveyancing quote and starts at £20, but can rise to £910, depending on the value of the property.
- Arrangement fees or booking fees are non-refundable and charged by lenders when a fixed rate mortgage is completed
- Property Deeds fee is £7 per document, at the moment of writing.
- Solicitor referral fees can amount to hundreds of pounds and are paid to the estate agent or lender recommending the service.
- Registration dues apply to property and mortgage agreements in Scotland. A charge of £60 applies when creating standard security (signing mortgage agreements) and an additional charge of up to £60 to £7,500 applies to register the title in Scotland.
Other Considerations
When budgeting for legal fees, it’s important to allow for other considerations before you take stock of your financial situation. Government-backed schemes and local council schemes can improve or limit your access to certain types of mortgage deals and affect the amount available to you for legal fees. Different rules may apply to certain types of mortgage deals, such as islamic mortgages. And any money pooled into a “gifted deposit” may also skew the figures in your favour.
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