Buying a home is one of life’s most significant and expensive decisions. For that reason, it’s crucial to understand all the costs involved with the purchase before you start down the road of home ownership.
This ensures you can plan your budget accordingly, and don’t leave the door open for any nasty future surprises.
When you’re purchasing property, before the ownership officially transfers to you, there’s one final step you must make: paying closing costs.
So, what exactly are closing costs? How much do they amount to? And what are the most common closing costs?
What are closing costs?
Closing costs are additional fees that you, as the home buyer, pay at the final stage of the home-buying process.
These costs include legal fees and other one-time expenses (such as Stamp Duty) related to the property’s purchase… and they can add up quickly.
In short, closing costs cover everything required to complete the real estate deal, beyond the property’s purchase price.
Estimating closing costs
First-time buyers especially tend to underestimate the amount they’ll need to cover closing costs. Buyers should typically budget between 3% and 5% of the property’s purchase price for these expenses.
For example, a home priced at under £250,000 could require around £6,000 in closing costs—an amount that can feel substantial, especially after other expenses leading up to the purchase.
It’s important to note that these figures are estimates. The actual amount may be higher or lower, depending on factors like location, the type of property or whether it’s a newly built home.
What are some common closing costs?
- Stamp Duty Land Tax
- Solicitor’s or licensed conveyancer’s fees
- Property valuation
- Survey
- Land registry fees
- Mortgage indemnity guarantee
- Arrangement or acceptance fee
- Lender’s legal fees
- Buildings insurance
- Removal costs
Let’s break down each one to give you a clearer understanding of how they contribute to your total closing costs.
1) Stamp Duty Land Tax
Unless you’re a first-time buyer, Stamp Duty Land Tax (SDLT) is a tax applied when you purchase property or land above a certain value in England and Northern Ireland.
You are required to pay SDLT when you:
- Buy a freehold property
- Purchase a new or existing leasehold
- Acquire property through a shared ownership scheme
- Take on a mortgage or buy a share in a property
The amount of SDLT you owe depends on the property’s price, whether it’s for residential use and if you already own other property.
How Much is Stamp Duty?
- Buyers of homes under £250,000 pay no stamp duty (the threshold is £425,000 for first-time buyers).
- £0 – £250,000 (£425,000 for first-time buyers) = 0%
- £250,001 – £925,000 = 5%
- £925,001 – £1.5m = 10%
- Over £1.5m = 12%
If you already own a residential property worth £40,000 or more and buy another, an additional 3% surcharge applies to the above rates.
2) Solicitor’s or licensed conveyancer’s fees
Although there is no set fee, you should budget between 0.5% and 1% of the property’s purchase price for solicitor or licensed conveyancer services.
Some conveyancers may charge a fixed fee instead. While these costs typically cover property searches, they might be billed separately as disbursements, which often include Land Registry fees.
3) Property valuation
Before a lender approves your mortgage, you’ll need to pay for a valuation of the property, even if you choose not to proceed with the purchase. It’s important to research valuation costs ahead of time, as they can vary based on the property’s value and the lender.
4) Survey
If you’re considering the purchase of an older property, it’s wise to obtain either a homebuyer report or a full structural survey. A homebuyer report provides an assessment of the property’s condition along with a valuation.
In contrast, a full structural survey offers a more detailed examination and usually costs slightly more.
The price can vary based on the surveyor, the property and the specific details included in the report. If you combine the survey with the lender’s valuation, it may help reduce overall costs.
5) Land Registry fees
Land registry fees are incurred whenever a property is sold, as this is when the change of ownership is recorded in the Land Register. The fee amount can vary based on whether the land is already registered.
Most properties in England and Wales are registered, while in Scotland, properties are recorded in the General Register of Sasines or the Registers of Scotland.
In Northern Ireland, the relevant authority is the Land Registers of Northern Ireland.
Fees follow a sliding scale based on the property’s value.
6) Mortgage Indemnity Guarantee
If you borrow above a certain loan-to-value (LTV) ratio—varies by lender—you will typically need to obtain a mortgage indemnity guarantee (MIG), also known as a mortgage risk fee or high lending fee.
An MIG protects the lender in case you are unable to repay the mortgage, requiring them to repossess and sell the property.
For instance, if you borrow more than 70% or 80% of the home’s value, many lenders in the UK will require you to take out an MIG.
However, some lenders have eliminated the MIG requirement for home loans as high as 90% of the property’s value – while other lenders may add the fee to ongoing monthly payments instead of requesting it as an upfront cost.
7) Arrangement or Acceptance Fee
The arrangement or acceptance fee is typically charged when you apply for or accept a mortgage, generally ranging from £150 to £400.
8) Lender’s Legal Fees
While some lenders may waive this fee, a lender’s legal fee usually costs around 3-5% of the property’s value.
9) Buildings Insurance
Once the contracts are exchanged, lenders require that the home is fully insured against structural damage through buildings insurance.
10) Removal Costs
Although not strictly a fee, removal costs—the expenses associated with moving house—should be considered when buying a home.
This includes insurance for loss or damage during the move. Removal costs can amount to up to £500 for relocating the contents of a standard three- to four-bedroom home.
In summary…
Most fees related to closing costs are based on a percentage of the home’s purchase price, meaning that more expensive properties will incur higher fees. For instance, if you have a large house, even removal costs will be greater.
Whether you’re buying or selling, it’s important to factor in the costs associated with both transactions from the outset.
It’s worth noting that while there are many fees associated with a mortgage, cash buyers typically face lower fees. Additionally, the fees incurred from buying or selling a property are not tax-deductible in the UK.
Closing costs represent the final expenses before the seller hands over the keys to the buyer. Although these costs can vary significantly, they are generally substantial enough that you should budget for them in advance.
Before finalising your mortgage, take the time to research options, such as exploring what the best mortgage lenders in your area can offer you.
For help with this, please arrange a call with a qualified mortgage broker through our Contact Us page or call us on 01489 346624.
