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Mortgage fees and charges

When people are looking for a mortgage, most expect to pay a deposit and interest on what they borrow, but many are unaware of the various mortgage fees that are also payable, both on application and when you settle the mortgage balance. We’ll look at the most commonly charged fees for a mortgage, how they vary from one lender to the next and whether lower mortgage fees always equals a better deal.
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Fees when applying for a mortgage

When you apply for a mortgage there are a range of standard fees that you can expect to pay, no matter what type of mortgage you choose. Not all lenders impose the full range of mortgage charges, and how much each fee costs will depend on a range of factors, such as your financial circumstances, the size and type of property you’re buying, and which lender you opt for.

If you’re a first-time buyer or perhaps you’re remortgaging, you are likely to come across a number of lenders offering low fee or even fee-free mortgage deals, however, keep in mind that this won’t always save you money in the long run. 

Reduced fee mortgages often come with higher interest rates, meaning you will often pay more over the duration of the loan, even if the initial outlay is smaller.

Here are the most commonly charged mortgage fees in the UK:

Mortgage arrangement fee

This charge, like many fees for a mortgage can be, is known by a number of names, such as the mortgage administration fee, set up fee, product fee, application fee or completion fee. It’s also worth bearing in mind that this is not an exhaustive list of names, as each lender differs in how they portray the charge.

Essentially this is an administrative cost that they charge you to arrange the mortgage and is likely to be one of the largest upfront fees when you apply for a mortgage or remortgage.

Typically you could expect to pay £1,000 - £2,000 for a mortgage arrangement fee, but costs will vary depending on the value of the property you’re buying and by each lender.

It’s possible to add this charge to your mortgage, but keep in mind that doing so will mean that you pay interest on it. It’s also a good idea to ask whether the fee is refundable in the case that the mortgage doesn’t go through. 

If the fee is not refundable, it may be best to ask for it to be added to the mortgage balance, as this will avoid losing out if the mortgage does not proceed. You can usually overpay to cover this amount with your first monthly repayment to avoid paying interest on the arrangement fee as well as the loan.

Booking fee

Not many lenders have a booking fee on top of the mortgage arrangement fee these days, however, there are some that still have this as a separate charge. Lenders will usually require payment of this cost on submission of your mortgage application.

Look out for large booking fees, as they are not usually refundable and typically cost between £74-£300.

There are a number of legal processes that take place as part of the mortgage application process, and these are carried out by a specialist conveyancing solicitor. They do local searches and deal with the legal transfer of the title deeds of your new home. 

You may also notice a funds transfer fee included within the legal costs, sometimes shown as a CHAPS fee, which is the cost to exchange the money from the mortgage provider to the seller. 

Legal costs can vary depending on the value of your property and complexity of your circumstances, however, a typical cost of legal fees for a mortgage is around £1,500.

Government-based mortgage fees and charges

When buying a home in the UK, you will need to pay certain government charges in addition to those charged by the lender, solicitor and surveyor during the application process. 

Although these charges go directly to the relevant government department, these charges will be collected and disbursed on your behalf by the conveyancing solicitor dealing with the legal aspects of your purchase. They include:

Land Registry fee

This is payable on the completion of your purchase to HM Land Registry, to register the ownership of your property and/or land.

The cost is based on the property value, for example, fees for a mortgage between £100,001 and £200,000 are £200, and the cost can be as high as £500, for higher priced properties.

It’s worth asking for the conveyancer dealing with your purchase to make the land registry fee payment online, as this can work out cheaper for you.  

Stamp Duty

Stamp Duty Land Tax (SDLT) is payable to HM Revenue & Customs when you purchase a new home of £125,000 or above. Not all first-time buyers in England and Northern Ireland will need to pay stamp duty as there is relief available for your first residential purchase.

Stamp duty is charged at a percentage of the value of the property, usually 5%, with an additional 3% payable for second and all subsequently owned properties in England and Northern Ireland. There are similar charges in Scotland and Wales, more information can be found in our stamp duty article.

Valuation fee

All mortgage lenders will instruct a valuation to be carried out on the property you’re buying, as they want to ensure that it’s worth the amount you want to borrow. This is often done remotely nowadays, which is known as a desktop valuation.

Not all lenders charge for this - many will include a free valuation as an incentive, however, those that do charge this type of mortgage fee will base it on the value of your property, and it can, therefore, range from as little as £100 to £2,000 or more.

If you’re buying in Scotland, it’s worth noting that sellers are obligated to provide a home report including a valuation. If this document has been produced within the previous 12 weeks, some lenders will accept this instead, saving you forking out a valuation fee.

Is this the same as the survey fee?

No, it’s not. The valuation is a simple costing exercise to gauge the true market value of your new property, and is an essential part of the mortgage application process.

A survey is non-essential, but is recommended for those buying a new home, as it looks at the structural integrity of the property and identifies whether there may be any issues in the future. This is purely for the benefit of the homebuyer, whereas a valuation is simply to aid the lender in their decision.

A basic survey, which can cost £150-£250 or a full structural survey, which would be upwards of £500, depending on the size and value of your home. 

As well as making you aware of any potential issues or snags with your new home, information gained from a survey can be a powerful renegotiation tool. If the surveyor highlights issues that will cost you to fix in the future, you may be able to persuade the seller to knock these costs off the selling price, potentially saving more than the survey cost you!

Other fees

Mortgage discharge fee 

This can also be known as the deeds release fee or mortgage account fee and not all lenders charge this. It’s the charge for the set up, maintenance and closure of your mortgage account, but is typically charged at application stage.

A deeds release fee is usually around £50-£75, however will vary depending on the lender.

If you pay this mortgage fee, it’s unlikely that you will also need to pay a mortgage exit fee when you leave the deal, as you have essentially pre-paid for it.

Higher lending charge

Not all lenders impose a higher lending charge, but those that do typically charge customers borrowing 90% LTV (loan to value) or more. 

This type of fee can be as much as 1.5% of the mortgage size, so it’s worth considering whether you would be better to save a larger deposit to reduce your LTV and avoid paying it.

Mortgage broker fee

Mortgage brokers can help you get the most suitable and competitive deal for your circumstances, however, many will charge for this service. 

Most brokers base their fees on a percentage of the value of the mortgage (usually 1-2%), however, some offer fee-free brokerage services, such as our partner, Mojo Mortgages.

Own buildings insurance fee

Another fee that is not often seen nowadays, but is still worth looking out for is the own buildings insurance fee, otherwise known as the freedom of agency fee. 

This charge is to allow customers to compare buildings insurance themselves to find a competitive deal, rather than using the lender’s recommended insurance provider, who won’t necessarily be the cheapest or best for your needs. 

Mortgages do typically require the buyer to have buildings insurance in place, whether or not they have an own building insurance fee or not, so it’s important to budget for this ongoing cost when calculating your affordability. The cost will depend on the size, value and location of your property.

Fees payable at the end of a mortgage

Most mortgage fees are payable at application stage, but there are a few fees that could apply throughout the duration or at the end of your mortgage, depending on your circumstances. These include:

Exit fee

This is another charge that is known under many names, including the discharge fee, closure fee, deeds release fee, repayment administration fee, a redemption fee, or simply the mortgage exit fee. You won’t usually need to pay this if you paid a mortgage discharge fee during your application.

This fee is usually between £75 and £300, but will vary from one lender to the next. Not all lenders charge this, but where chargeable, it will apply whether or not you leave the mortgage deal early, and is entirely separate from early repayment charges (ERCs).

Early repayment charge

Almost all mortgages allow for overpayments, up to a certain amount, usually around 10% of the mortgage value per year. This can save you hundreds, if not thousands of pounds in interest, each year.

If you repay more than the allowed overpayments, however, then you will usually be charged a fee known as the ERC (early repayment charge). ERCs are also payable if you remortgage to a new lender before the end of a deal with a fixed end date. This is because when you remortgage, you are repaying your entire mortgage early with the funds from the new lender.

Early repayment fees are typically charged at between 1-5% of the amount you’ve overpaid by, or in the case that you repay the entire loan, 1-5% of the remaining mortgage balance, which means that it could be multiple thousands of pounds, especially if you have a lot of time remaining on a fixed-rate mortgage term.

These fees can be avoided, however, so long as you stay within the overpayment terms of your lender and only remortgage at the end of your current deal (usually it’s possible to do so within the last six months of a deal). It’s also worth noting that if you are on your lender’s standard variable rate (SVR) there will be no ERCs to remortgage.

How mortgage fees affect which deal is best for you

When you compare mortgage deals you will usually find that those products with higher mortgage fees attached to them offer a more competitive interest rate, whereas the low fee or fee-free mortgages charge higher rates of interest. It’s therefore important to understand the real terms cost of each deal, incorporating both the interest charges and associated mortgage fees. 

It’s worth remembering that interest will be payable throughout the duration of the mortgage deal, whereas mortgage fees are one off payments. This means that even if you are able to save a few thousand pounds in fees at the outset, it’s perfectly possible that you would benefit more in the long run from paying higher mortgage fees to get a lower interest rate for the next two, five, or ten years.

Using the APRC (Annual Percentage Rate of Charge) can help you to compare different mortgages over the lifetime of the mortgage, including any fees. This can give you a more realistic idea of whether it’s worth paying higher fees to get a lower interest rate or not, however, it’s also a good idea to speak to a mortgage broker for guidance.

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