This page covers the typical fees you will encounter when setting up a mortgage or remortgage deal - which fees are which, how much you are likely to have to pay, and how to make sure you pay as little in fees as you really need to.
Unfortunately, your mortgage repayments and interest payments are only part of your mortgage cost. There are a number of mortgage fees you must pay when you take out your loan. These fees can add up to thousands of pounds, especially since they have tripled in the last decade. However, there are ways to avoid paying hefty fees when taking out a mortgage.
Mortgage fees vary from lender to lender, so you will only get the best deals by shopping around and comparing fees from different lenders. Borrowers have a tendency to forget about fees and sometimes rush to a lender offering lower rates. However, these low rates are often offset by high fees which could end up costing you more in the long run. When you are looking for a mortgage deal, take a close look at all the fees involved.
It is in your best interest to speak to a professional mortgage adviser who can shop around through thousands of deals for you and talk you through the different costs involved with each mortgage offer.
The most common fees include:
(also known as product fees or reservation fees):
A mortgage arrangement fee covers the administrative cost of organising your mortgage. Mortgage arrangement fees typically range from £300-£2000, and on average cost £827. You may find a mortgage with no arrangement fee, but be careful to look at the rates and other fees the lender will charge you (the same applies in reverse – if you see lower rates, make sure to check how high the arrangement fee is before agreeing to the mortgage). Arrangement fees are either a fixed fee or a percentage of your loan value (try to avoid a percentage, as this is almost always more expensive). You can pay the arrangement fee early on in the mortgage process, or some lenders allow you to add it to your loan. Adding the arrangement fee to your loan will protect you from losing money in case you don't end up taking out a mortgage from that lender (these fees may be non-refundable), but remember that adding any money onto your mortgage will increase your interest payments.
Some lenders consider arrangement fees and booking fees the same thing, but other lenders charge an additional mortgage booking fee on top of the arrangement fee. These fees are typically used if you are taking out a fixed rate mortgage and can add a couple hundred pounds onto your mortgage cost. Booking fees are generally non-refundable if you don't end up buying the property.
Some lenders will charge you if you put down a small deposit and borrow a high percentage of your property's value (generally 90% or more). Since you are borrowing so much of your property's worth, you are considered a risky borrower. A higher lending charge protects the lender if you fail to pay back your loan. Over half of the current lenders charge a HLC and those who don't may have higher rates or other fees. HLCs cost thousands of pounds, but the size of the higher lending charge depends on the size of your loan.
(also known as survey fees)
Lenders need a property valuation to prove that your property is worth the amount of your mortgage. There are 3 types of property valuation fees: a basic evaluation, a homebuyer report, and a full structural survey. Most buyers only get a basic evaluation that usually costs around £200-£300. If you get a homebuyer report (usually £250-£500) you will have a more thorough report of your home's condition. A full structural survey will cost a lot more, but may be worth the cost if your property is old and needs proper inspection. If you get a homebuyer report or a full structural survey, your lender will have to approve your surveyor. Some lenders will cover your valuation fee, especially if you are remortgaging.
All mortgages have legal expenses that cover drafting and exchanging contracts, carrying out local authority searches and environmental and drainage searches, sorting out Land Registry fees, paying the solicitor's administrative cost and stamp duty, and taking care of the telegraphic transfer fee (the cost of transferring money to your solicitor and any other parties who require payment). Legal fees vary depending on your solicitor, the size and location of your property, and the complexity of your case. Some lenders have deals that offer legal services for free. In order to get a lower fee, find a solicitor who works on a fixed fee or look into a web-based company. If you are remortgaging, you will most likely face small fees or no legal fees at all if you use your lender's solicitor. Your remortgaging legal fees are used to check on your planning permission, discover any problems with the land or property, and do further searches on your property.
The land registry describes your property, names the property owner and the mortgage lender, lists the price of the home, shows the location and dimensions of the property, and includes information about rights of way, covenants, and known conditions that affect the property. The price of a land registry fee varies depending on the price of your property, but typically will cost £150-£200.
(also known as Clearing House Automated Payment System (CHAPS) fees)
This mortgage transfer fee covers the administrative cost of transferring your lender's money to your solicitor. Usually this fee is fairly cheap.
Due to the current climate in the housing market, the stamp duty rates have been changed. Now (until September 2009 at least) you are tax duty exempt if your property value is less than £175,000 (you used to have to pay a tax of 1% of your property value if your home was over £125,000). If your property value is over £175,000 you will have to pay a stamp duty that is calculated as a percentage of your home's value. The percentage you are charged depends on what value bracket your property falls under. If your home is £175,001-£250,000, you will pay 1% of your property value as your stamp duty. If your property is £250,001-£500,000, you will pay 3%. If your home is over £500,000 you will pay 4%.
(formerly known as early redemption penalties)
Lenders will sometimes charge an ERC if you switch to another deal before your current deal ends or you pay off your mortgage sooner than the agreed term. These fees exist to prevent you from switching to a better deal, especially if you have a discount mortgage, fixed rate mortgage, tracker mortgage, or capped rate mortgage. ERCs can be a flat rate, but are usually calculated as either a percentage of your overall loan, a percentage of the balance you still owe, a percentage of what you've paid off, or a certain number of month's interest. Some lenders have an early redemption charge that gets cheaper the longer you stay with your mortgage. For example, you will have to pay a high ERC within the first 5 years of your mortgage but the ERC will get smaller and smaller with each consecutive year. Be careful to look out for overhanging penalties which will tie you into your mortgage deal several years after the initial low rate. These charges can trap you into paying higher rates later in your mortgage term. ERCs are tricky charges that are often hidden away in small print, so make sure to look out for them. For information on how to avoid ERCs, please see ERC-free mortgages.
(also known as mortgage exit administrative fees (MEAF), deeds fees, mortgage discharge fees, mortgage redemption fees, sealing fees, and vacating fees)
These fees are similar to arrangement fees but come at the end of your mortgage deal. The Financial Services Authority (FSA) has looked into mortgage exit fees to make sure lenders don't charge you more than the actual cost of their administrative fees. Therefore, you should never have to pay a higher mortgage discharge fee than what is listed on your contract when you take out your mortgage, even if the lender has raised their exit charge over the course of your mortgage term. A mortgage redemption fee usually costs around £225.
Lenders require you to at least take out buildings insurance. You may want to invest in other cover (especially if you are getting a buy to let mortgage, holiday home to let mortgage, or overseas mortgage). You may also want to look into Mortgage Payment Protection Insurance (MPPI). Some lenders want you to take out your insurance with them, so they will charge you a fee if you get your insurance from another company.
(also known as mortgage broker fees)
Each adviser costs a different amount, but generally you will pay £200-£300 for a mortgage adviser. However, the cost of getting an adviser can easily be offset by how much an adviser can save you on your mortgage by finding you the best deal. For full details on how advisers work and how much they charge, please see mortgage advisers.
Mortgage fees can quickly add up, so make sure to look at your lender's fees as closely as you look at the mortgage rates and features.
If you're using a mortgage adviser, you will find their help and advice invaluable in avoiding the worst of lenders' mortgage fees. This is because many such fees are hidden in the smaller print of a mortgage application form or terms & conditions document. A mortgage adviser providing good service will be familiar with these fees and used to examining mortgage agreements, and in order to provide you with the best choice of mortgage, they will have taken these into account along with your circumstances.
To use a mortgage adviser, you can fill in a short enquiry form on this site that will put you in touch with a mortgage adviser matched to where you live and the type of mortgage you want.
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