Your Essential Guide to Mortgage Fees
When buying a house, your deposit isn’t your only financial consideration. When it comes to your mortgage, there are various fees to be aware of.
What you’ll be charged depends on your personal circumstances and the mortgage you choose. To help you understand your own obligations, this guide outlines the different mortgage fees you’ll be expected to pay.
What you need to know
Since March 2016, mortgage providers have been legally obliged to give an annual percentage rate of charge (APRC) for every mortgage deal. This is an interest calculation, which includes any additional fees, making mortgage comparison much easier than it was in the past. Any ‘key facts’ document (also known as a European Standard Information Sheet (ESIS) and mortgage illustration sheet) you receive will also include details of the mortgage fees you will need to pay, so there should be no surprises.
Here’s a rundown of some of the different mortgage fees and costs you could be required to pay:
The arrangement fee, which is also referred to as a completion fee and product fee, is applied by your mortgage provider to set up your mortgage. The average arrangement fee is £1,000, while others can charge up to £2,500, yet some mortgage schemes have no fees. When deciding which mortgage deal to choose, you need to consider both the arrangement fee and the interest rate offered. A mortgage broker will advise you on the most cost effective combination of arrangement fee and interest rate depending on the size of the mortgage you need.
However big or small your arrangement fee, you can decide to pay it straight away or add it to your mortgage (this means you’ll have to pay interest on it for the life of the loan.) If you decide not to take the mortgage or are declined, this money is usually refunded.
When you submit an application for a mortgage, you may be charged a booking fee of up to £200 by the mortgage provider. This booking fee is also referred to as a reservation or application fee. It needs to be paid upfront and is non-refundable as it “reserves” your mortgage funds until your application goes through.
It doesn’t, however, guarantee that the mortgage provider will offer you a mortgage. Some lenders don’t charge a booking fee and others include it in your arrangement fee so you don’t have to pay for it separately.
The mortgage provider will want a surveyor to check that the property is worth as much as you say it is, so may charge you a valuation fee which can range from £50 – £1,500 (depending on the property’s value).
You can also instruct your own surveyor to check the condition of the property, highlight any concerns and suggest any repairs that are needed through either a Homebuyers or Full Structural Survey.
Typically costing £25 – £50, a Clearing House Automated Payment System (CHAPS) fee pays for your mortgage money to be transferred from your provider to your solicitor.
This needs to be paid on completion and is usually either taken off the balance your solicitor receives or added to the mortgage.
Mortgage broker fee
Some brokers are fee free and some require a broker fee, which could be up to £500. Brokers usually charge a fee for their service, which is either paid by you, the borrower or the lender. In addition, brokers receive commission from the lender they place your mortgage with, although this doesn’t affect the rate of interest you pay on your mortgage.
Some mortgage brokers offer a free mortgage advice service and receive a commission from the mortgage provider you choose.
Higher lending charge
If you only have a small deposit, your mortgage provider may require you to pay a higher lending charge (also known as HLC), which is often around 1.5% of the amount you borrow. They can use this to buy a Mortgage Indemnity Guarantee, an insurance policy that covers them should you fail to make your monthly repayments.
Own building insurance fee
Some mortgage providers will arrange insurance for you, but you do have the option of finding your own deal, which is often cheaper. If you decide to go down this route, you may need to pay around £25, but this can still work out better in the long run.
Mortgage Account Fee
Your mortgage provider may charge a mortgage account fee, typically between £100 and £300, to set up, maintain and close your mortgage account.
This can be added to your mortgage on completion or you can pay it upfront. If you pay a mortgage account fee, you shouldn’t have to pay any Redemption Administration fees in the future.
Other mortgage fees and charges to consider
Aside from the various mortgage provider’s fees, you need to pay your solicitor or licensed conveyancer’s conveyancing charge (legal fees). You will also have to pay your surveyor for any surveys they do on your behalf. You might also have to pay Stamp Duty, however, new legislation introduced in November 2017 means that first time buyers don’t have to pay it on homes worth £300,000 or less.
Once your mortgage begins there are more fees to be aware of. If you decide to come out of a fixed, discounted or tracker deal early, you may have to pay an Early Repayment Charge which is added to the Redemption figure you are given by your existing mortgage provider. The amount you’ll be expected to pay will depend on the size of your mortgage as it’s a percentage-based fee. You may also have to pay a Redemption Administration Fee of between £50 and £300 to your existing mortgage provider for closing your mortgage account.
This guide to saving for a mortgage was produced in collaboration with L&C, the UK’s leading fee-free mortgage experts.