Mortgage fees explained
As competition between mortgage lenders has increased over the last few years, we have seen some of the lowest headline mortgage rates in years.
However, rates are only one side of the story.
How much are mortgage fees?
The average fees on today's mortgages are £937, according to data from moneyfacts.co.uk. On fixed rate mortgages this figure is even higher (£956). This is based on all mortgages with an application and/or product fee – it doesn't include legal or valuation fees. Around a third of mortgage deals are fee-free.
In our mortgage tables, we display the "total fees" to make it easier for you to compare deals. We add up the total upfront fees for you, because the fee descriptions used by lenders can often complicate things. For example, it's possible for a deal to be called "Direct 2 Year Tracker £845 Fee" but have total upfront fees of £975. That's because although the product fee is £845, there's an application fee of £130. Unhelpfully, lenders also use different names for the same fee; for example an application fee is sometimes referred to as a "booking fee".
Of course, this is confusing when you're trying to compare deals. Luckily, this is set to change with most lenders signing up to a new mortgage tariff.
In the meantime, we're explaining the most common fees you're likely to encounter, and how they can affect the cost of your mortgage.
These are the fees for setting up a mortgage. You pay them before the funds are transferred for your purchase or remortgage.
Remember, not all mortgages have all of these fees. This is a guide to what you might encounter and what they're called. Fee-free mortgages have no booking or product fees but they might still have valuation fees etc.
This is charged when you apply for a mortgage, and usually won't be refunded if your deal falls through. Some lenders add this cost onto the product fee, rather than charging two separate fees.
Otherwise known as: booking fee, reservation fee
Cost: From around £99-£250
This is the fee for the mortgage product, which you'll only need to pay if the deal goes through.
Also known as: Completion fee, arrangement fee
Cost: This can be anywhere from £0 to over £2,000 depending on the lender. Mortgages offering a £0 product fee often have slightly higher interest rates. Some lenders charge this as a percentage of the mortgage loan amount. If you're taking out a larger mortgage, this could mean you end up paying more. For example if you're borrowing £200,000, a 2% product fee would cost you £4,000.
The lender will value your property, in order to determine the LTV (loan to value). As this survey will only look at the property's value, you should consider paying for a full survey to look for any problems or work to be done.
Otherwise known as: Nothing, this one is straightforward!
Cost: £150-£1,500, depending on your property value. Some lenders may waive the fee on certain deals.
Short for Clearing House Automated Payment System, this is the cost of your lender transferring the mortgage money to your solicitor.
Otherwise known as: Telegraphic transfer fee
Cost: Usually £25-50
Mortgage account fee
This is the cost of setting up and running your mortgage account, and usually includes exit fees.
Cost: Usually £100-300
Fees later on
Early Repayment Charges (ERCs)
These are often charged if you leave a mortgage during the introductory period (for example a two year fixed rate period), and are usually charged as a percentage of the loan. To avoid these, make sure you're happy with the deal and won't want to leave before the introductory period ends.
This is a charge for closing your mortgage account, payable if you switch to a new deal, or when you've simply paid off your mortgage. If you've paid a mortgage account fee, you won't usually have to pay this
Otherwise known as: Closure fee
Cost: Usually between £50-£300
How will fees affect your mortgage payments?
As well as looking for a competitive rate, it's important to factor in the impact of fees on your mortgage payments – we covered this in detail in this article. Essentially, low headline rates often mean high fees. When comparing deals, you'll need to add up the total cost of the monthly payments for the duration of the deal (e.g. a two year fixed period) and then add on the total fees. This will give you the true cost of the deal.
Most lenders will offer you the choice of either paying the fees upfront, or adding them onto your mortgage loan. Any fees you add onto your loan will accrue interest, increasing the total amount you'll repay – so if you can afford to do so, it's usually best to pay them upfront. The possible downside to doing so is that if the deal falls through, some of the fees are non-refundable.
If you're buying your first home, you'll need to remember that fees will be another cost at what is already an expensive time – if you want to pay the fees upfront, make sure you've got enough cash to cover them as well as your deposit.
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See today's best rates, and total fees for each deal.
Last updated: 21 December 2015