Mortgage Fees

This guide covers the typical fees you'll encounter when setting up a mortgage as a first time buyer or if you are transferring your mortgage or re-mortgaging with another provide. We explain the different fee structures in the market and hopefully how you can minimise the amount you pay - perhaps even avoiding them entirely.

So What Are Mortgage Fees?

As if the mortgage repayments and interest charges were not enough many lenders will charge additional fees for setting up your loan. The amount varies but it's not uncommon for fees to grow into the thousands of pounds. The amount that customers now pay in fees has almost tripled in the last ten years.

The fees vary quite significantly from lender to lender so it does pay to shop around and compare not only interest rates but any applicable fees attached to the loan. Many borrowers simply compare the rates of interest between lenders forgetting about the arrangement fees, this can end up costing you a lot more in the long run than a marginally lower interest rate. When you are looking for a mortgage don't forget to compare all of the costs.

It would be wise to speak with a qualified financial adviser when considering taking out a mortgage. For many people it represents the largest single amount of money borrowed in one go. With such important decisions it pays to have independent and expert advice. An adviser will have a wealth of knowledge about the best mortgage deals available in the market and be able to give an honest and comprehensive comparison for you - including fees!

Below is an overview of common mortgage fees:

Arrangement Fees / Product Fees / Reservation Fees

The administration cost of setting up your mortgage is covered in the arrangement fee. The amount of the fee will vary from lender to lender, somewhere between £300-£2000, the average around £850. It is possible to find mortgages with no arrangement fee, they usually have a higher interest rate. Conversely if you find a mortgage with an usually low monthly interest rate it's worth checking the arrangement fee. Ultimately the lender needs to make money somewhere and they will sometimes advertise a low monthly interest payment only to hide a large arrangement fee in the terms and conditions.

Fees are calculated as either a fixed amount, regardless of the mortgage size, or as a percentage of the overall loan amount. As a general rule of thumb you ought to carefully consider a percentage-based fee as these can often work out more expensive than a fixed amount. Some lenders allow you to add the arrangement fee onto the total amount of the loan, enabling you to spread the fee repayments over time. This is sometimes a good idea if the fee is non-refundable. If you paid the arrangement fee up-front and then decided to change providers early in the mortgage repayment cycle you could be wasting money. However you should also be aware that your interest repayments will increase if you decide to combine your fees with your mortgage.

Booking Fees

Some mortgage providers will charge a booking fee for taking out a mortgage. These fees can be on top of an arrangement fee. These fees are generally limited to fixed rate mortgages and can cost a few hundred pounds. Most booking fees are non-refundable and are a mechanism used by lenders to ensure you complete the mortgage process with them.

Higher Lending Fees / Higher Lending Charges / HLC

If you are borrowing a large percentage of the home value (more than 90%) then the lender may charge a higher lending fee. Simply put, because your deposit is small the lender considers you to be at a greater risk of missing repayments. The HLC fees are put in place to protect the provider in case you default on the loan. A large number of mortgage providers have higher lending fees and those that choose not to generally have higher interest rates. An HLC can cost thousands of pounds and are generally proportionate to the size of your loan. Again, it pays to shop around or enlist the help of a professional financial adviser.

Valuation Fees / Survey Fees

When you take out a mortgage on your property the lender will insist on a valuation in order to establish the home is worth the amount loaned. There are three different types of valuation, each with the own costs:

• Basic Evaluation. Costing around £200-300.
• Homebuyer Report. Costing around £250-£500. A fairly comprehensive report for the condition of the property you are seeking to buy.
• Full Structural Survey. Costing around £500+. Useful if the property you are seeking to buy is old.

If you are considering a report which is more detailed than the basic requirements then you may need to have the surveyor approved by your lender. That said some providers will pay for your valuation as is often the case for a re-mortgage.

Legal Fees / Solicitor Fees

The size of legal expense depends on a number of factors such as the value of your property, the complexity of the situation and your legal representation. There are numerous activities that your legal representation undertakes, all of which will need to be paid for:

• Stamp Duty
• Writing and exchanging contractual documents
• Searching Local Authority databases
• Environmental and drainage database searches
• Detailing land registry fees
• Administrative charges
• Telegraphic transfer charges

Some lenders have their own in-house legal team and you may be offered free legal representation. In order to secure the best deal on legal fees you should consider solicitors that offer fixed rate deals or consider using an internet-based company.

If you are re-mortgaging you can often use your existing lenders solicitor for free or perhaps at a discounted price. Your new lender will want to check if there are any problems which may have developed since you first bought the property or if you are affected by any local developments or planning permissions.

Land Registry Fees

The land registry contains detailed information regarding your property:

• The name of the current owner
• The name of the current lender
• The home value
• Location and size of the property
• Details about any public rights of way
• Details of any known conditions which may affect the property - for example flooding.

The fee depends on the size of your property and the number of details, but for a typical home the land registry fee is around £150-£200.

Clearing House Automated Payment System (CHAPS) Fees / Telegraphic Transfer Fees

This is usually quite a small fee which covers the cost of transferring the mortgage money from the lender to your solicitor.

Stamp Duty Fees

The amount of stamp duty you pay is determined by the value of your property. The current rates of Stamp Duty are:

Home Value	Stamp Duty
Less than £175,000	None
£175,001-£250,000	1%
£250,001-£500,000	3%
More than £500,000	4%

It is worth noting that stamp duty is determined by the Chancellor Of The Exchequer and can change during the announcement of the budget.

Early Repayment Charges (ERC) / Early Redemption Penalties

Lenders put these charges in place to make it less attractive for you to change provider or pay off your loan quicker. These charges are designed to lock you into your current provider. The charges vary from lender to lender, some are calculated at a fixed rate, some as a percentage of the loan value or as a percentage of one months repayment and others on a decreasing scale in proportion to the length of time you have held the mortgage. For example you pay a high ERC fee during the first 3 years of your mortgage, which is then reduced every year thereafter.

It is fairly common for discounted mortgages, fixed rate mortgages, tracker mortgages and capped mortgages to have early repayment charges hidden away in the fine print, so be vigilant and make sure to read the complete terms and conditions of any loan you take out. You should also be wary of overhanging penalties which tie you into a higher rate of interest later in the term of your loan.

For further information on how to avoid early repayment charges you should speak with a qualified mortgage broker who will be able to navigate through the current market offerings.

Exit Charges / Mortgage Exit Administrative Fees / MEAF / Deeds Fees / Mortgage Discharge Fees / Mortgage Redemption Fees / Sealing Fees / Vacating Fees

Much the same as the arrangement fee, except this becomes due at the end of your mortgage term. The FSA have regulations in place to ensure that mortgage exit charges are fair and representative of the work involved. Your mortgage exit fee should be detailed in your contract and you should not have to pay more than this, even if the administrative fee has increased during the term of your loan. A typical exit charge is around £250.

Insurance

Nearly all lenders require you to take out buildings insurance sufficient to cover the property. This is especially the case with homes that are deemed at risk, for example a property situated in an area prone to flooding.

If you are taking out a buy-to-let mortgage, holiday-home-to-let mortgage or overseas mortgage you may wish to seek additional insurance to cover the cost of replacing fixtures and fittings within the property. This becomes even more important if you are unable to visit the property regularly to inspect its condition.

You may also wish to consider Mortgage Payment Protection Insurance (MPPI). This insurance can cover the repayments on your mortgage if you become sick or made redundant. This is even more important if your household has a single income or you have dependants.

Some lenders provide their own insurance policies and you may be charged a fee if you decide to take a policy elsewhere.

Mortgage Adviser Fees / Mortgage Broker Fees

For professional mortgage advice you can expect to pay around £200-£300. Don't be put off by this as the cost is easily offset by the savings you can make - sometimes within the first 4 months of your mortgage! For full details please see our guide to mortgage advisers.

How Can I Avoid Excessive Fees?

Perhaps the easiest way to avoid fees is to enlist the services of a qualified mortgage adviser. They will have experience reviewing mortgage agreements and understanding how the financial jargon hidden away in the small print can affect your monthly repayments. They will also be able to factor in your individual circumstances when searching for the best mortgage deal for you.

Simply fill in our short enquiry form and we will put you in contact with a local qualified mortgage adviser who can give professional advice for the type of mortgage you are looking for.