Mortgage Fees and Costs

When it comes to getting a mortgage there are a number of associated charges you may have to pay. These range from mortgage arrangement fees to valuation charges and can dramatically increase the overall cost of your mortgage. Here we set out all the mortgage fees and costs at a glance, explain what they are and what to watch out for.

Angela Kerr Director, Editor

What are mortgage fees and costs?

Mortgage fees and costs are the extra charges you need to budget for when you take out a home loan. These extra fees have been steadily rising in recent years and are now at the highest level in they’ve been since 2012, according to Moneyfacts.

When you take out a mortgage you can expect to pay an average of £1,078 in mortgage costs. That is a lot of money, so it is important that you understand the charges and fees that come with a mortgage and include them when you are comparing different deals.  Mortgage fees for remortgaging are different.

What mortgage fees and costs can I expect to pay?

With our award winning mortgage brokers at L&C you can search for mortgages and best buys online and get fee-free expert advice

Mortgage arrangement fee

This is the biggest mortgage cost that you are likely to pay. It can also be called the product fee or completion fee. Lenders often use the arrangement fee to allow them to advertise a mortgage with a very low rate. The interest rate might be very attractive but the sting in the tail is an arrangement fee that can be more than £2,000.

Some lenders allow you to add your arrangement fee to your loan. Just be aware that this will mean you owe more money overall increasing the interest you pay and your monthly repayments.

Always factor in the arrangement fee when working out the true cost of a mortgage deal. You may find you are better off with a slightly higher interest rate and a lower arrangement fee.

Mortgage booking fee

This is a non-refundable fee that some lenders charge when you apply for a mortgage. It can also be called an application fee or reservation fee. It is typically £100 to £200. You won’t get it back if your application is declined or the mortgage falls through for any other reason. However, many lenders will deduct any booking fee you’ve paid from the arrangement fee.

Mortgage valuation fee

Mortgage lenders will need to value the property that you want them to lend money against. They need to make sure that the property is worth what you say it is.  The lender wants to be sure that if, in a worst-case scenario, you aren’t able to keep up repayments on your mortgage, then they could repossess the property and sell it in order to recoup the money they lent you. Your lender will arrange a mortgage valuation survey.

The mortgage valuation fee covers the cost of them sending a surveyor of their choosing out to value the property. Don’t confuse it with your own survey costs which you pay for and organise yourself in order to get an expert report on the condition of the property. The mortgage valuation won’t go into as much detail as your own survey and you won’t get to see the results of it, only the valuation amount. For more information about building surveys, read  our guide “What sort of survey should I have?”

Telegraphic transfer fee

This mortgage cost covers the CHAPS fee (Clearing House Automated Payment System) for transferring the money from the lender to your solicitor.

Mortgage account fee

This covers your lender’s administration costs for your mortgage. You usually either have an account fee on a mortgage or an exit fee but rarely both.

Mortgage broker fee

This fee isn’t payable to your mortgage lender, but it is worth factoring it into your mortgage costs. This is what you may have to pay if you use a mortgage broker. Not all brokers charge a fee, some take a commission from the mortgage provider instead. But, be aware that brokers who charge a fee usually do so on top of any commission they receive from the mortgage provider.

A mortgage broker can help you find the right mortgage for your needs. Their expert knowledge of the market can be invaluable in ensuring you make the right choice when making the big financial commitment that is a mortgage.

We think a morgtgage advisor is extremely useful in sifting through mortgage deals and finding the right mortgage for you. But we also don’t think you should have to pay a fee for the service.

That’s why we have partnered with L&C who offer fee-free mortgage advice:

Mortgage missed payments charge

If you fall behind with your mortgage repayments, then your lender may charge you a fee. How much you’ll pay is entirely dependent on your own lender’s rules. Remember though that missing a mortgage repayment won’t just result in an extra fee it can also have a significant impact on your credit rating and could ultimately result in your home being repossessed.

If you are having problems meeting repayments, speak to your lender as soon as possible.

Early repayment charge

Early repayment charges are what you pay if you repay all or part of your mortgage earlier than the agreed mortgage term or deal. Not all mortgages have early repayment charges (ERP). If there is an ERP, it will be outlined in the ESIS document you receive with the mortgage, so do check that. (You’ll receive an ESIS document when a lender of adviser recommends a mortgage. It tells you all the details of the agreement, like fees, your monthly repayments, and any conditions). A mortgage broker can be helpful in pointing out charges when you compare mortgage deals.

Typically, you pay an early repayment charge if you want to leave the mortgage before the end of the introductory period. For example, if you want to repay your mortgage two years into a 5-year fixed rate deal.

Early repayment fees are usually charged as a percentage of the loan. So, if you have a £100,000 mortgage with a 4% early repayment charge you’d pay £4,000. The amount you pay usually falls with every year that passes from when you took out the mortgage.

Mortgage exit fee

When you eventually repay everything that you borrowed from your mortgage lender you may also have to pay an exit or closure fee. This is usually to cover the cost of administering your mortgage over the years, so if you’ve already paid an account fee you probably won’t face an exit fee too.

Additional mortgage fees and charges

While we have covered all the main fees your mortgage lender may charge you there are a couple that are more unusual. These are:

• Higher lending charge – If you have a very small deposit you may have to pay this fee. It is to cover the cost of the lender taking out insurance to protect them if they have to repossess your property and sell it at a loss.
• Insurance fee – Some lenders charge this, although it is increasingly rare, if you opt to arrange your own buildings insurance rather than using theirs. It is usually worth paying the fee so that you have the freedom to shop around for the best insurance deal.

How mortgage fees affect the best mortgage deals

When you are looking for a mortgage deal it is easy to simply compare the interest rates, but the mortgage fees and costs can make a significant difference to what you end up paying.

For example, a £200,000 mortgage at 1.49% with a £2,000 fee would cost you more in the long run than a fee-free mortgage with a 1.55% interest rate.

It is common these days for lenders to offer a low-rate mortgage that puts them at the top of the best buy tables, only for it to be accompanied by high fees.

This is why it is so important to factor in mortgage fees and costs when comparing deals.

With our fee-free mortgage service, provided by L&C, you can speak to an adviser to get expert advice, browse mortgage rates and find a mortgage online