Mortgage Fees

Product Fees

Also called the arrangement, reservation and booking fee, the product fee is the upfront price tag attached to a particular mortgage deal. A typical product fee is around £499, but it is becoming increasingly common to find product fees of £1,000 or more.
(See our mortgage feestable.)

Product fees can often be added to the loan, and it always wise to take this option even if you intend to pay it upfront on the day of completion. This is because some lenders, such as Abbey and Halifax, refuse to refund product fees if they reject your mortgage application, or if you change your mind about going ahead with the mortgage before completion.

Valuation Fees

The lender needs to assess that your property is worth at least the money it is lending you. It pays a surveyor to conduct a valuation, and covers its costs by charging you a fee. The size of the fee will depend on the price of the property, but even on the same property, there will be differences between lenders. Northern Rock, for example, levies a £475 charge on a £100,000 property, while HSBC only charges �£135.
(See our mortgage feestable.)

Higher Lending Charges (HLC's)

A Higher Lending Charge is imposed by some lenders on borrowers who wish to borrow more than 75 per cent of the property value. Most of these lenders only apply it to a mortgage with a 91 per cent loan-to-value (LTV), so if you have a 10 per cent deposit, you should be OK.
The size of the Higher Lending Charge depends on the size of the loan. For example, if you have a five per cent deposit, the typical higher lending charge on £100,000 mortgage is around £1,500, but on a £200,000 mortgage it would be around £3,000.
(See our mortgage feestable.)

Insurance Penalties

Mortgage lenders require you to take out buildings insurance so that, if your property burns down or is destroyed, their asset is protected. In the past, you were free to take out this insurance with any provider. Nowadays, some lenders, such as Alliance & Leicester, want to sell you their own insurance and will penalise you with a £25 fee if you decide to go elsewhere.
(See our mortgage feestable.)

CHAPs Fees

The CHAPS (Clearing House Automated Payment System) fee, also confusingly called a telegraphic transfer fee, is supposed to cover the administration costs of transferring the lender's money to your solicitor. The cost nowadays is likely to be only a few pounds, but some lenders, such as Abbey, still charge as much as £35. Others, such as Barclays/Woolwich, do not charge anything at all for this service.

Early repayment charges

Early Repayment Charges or ERCs usually apply to fixed and discounted variable rate mortgages. Often, they are calculated as a percentage of the outstanding loan. You usually only have to pay an ERC if you want to remortgage during the discounted or fixed period of your mortgage deal. But it is still essential to look at how long ERCs will apply to the mortgage, and whether the amount of ERCs you would have to pay decreases with time. Your circumstances could change, so the more flexibility you have, the better.

Most fixed deals nowadays do not come with any overhang. This means that ERCs do not apply once the rate converts to the SVR, so you are free to remortgage without paying a penalty. Watch out for deals that do have an overhang as they may cost you dearly in the long-term.

Exit Fees

The mortgage exit administration fee (MEAF) is a charge levied by the lender when you redeem your mortgage, either because you have finished paying it off or because you want to switch to another lender.

The cost of an exit fee has more than quadrupled over the past decade. In 1996, the average exit fee was around £50 and today, it is typically about £225, although Nationwide still charges just £90 and HSBC does not charge anything at all.

The Financial Services Authority (FSA), which regulates the mortgage industry, recently forced lenders to offer refunds to past and existing customers whose original mortgage contract states that they will pay a smaller exit fee.

This means that, no matter when you redeem your mortgage, you should not have to pay a higher exit fee than the current one stated on your contract.

If you have ever paid a higher exit fee than you expected to, you should contact that lender and ask it to refund you the difference between what you paid and the original sum you expected to pay.

Legal Fees

When you take out a mortgage, the lender incurs legal costs, which are usually around £200. Most lenders will expect you to pay for these costs. The lender does not decide what the charge will be, it is set by the solicitor that handles the work for the lender.

If you are moving home, the lender usually engages the same solicitor that you are dealing with anyway. Your solicitor will ask you whether you are taking out a mortgage and most automatically add the lender's costs onto their fees before quoting you a figure. This means that, no matter which lender you go for, your legal fees are unlikely to be any higher than the original quote from your solicitor.

Look out for 'free legals'. This type of incentive will cover the legal costs associated with the mortgage, but not with moving home, which is why they are often only offered on remortgages.

Beware Best Buy Tables

The deals in Best Buy tables published in newspapers are usually ordered according to the lowest interest rate on offer. This might seem logical, but often lenders who offer very cheap rates frequently offset them by increasing the size of the fees attached to the deal.

What Best Buy Tables aren't telling us...

Early Repayment Charges are often left out of the tables or hidden away in the small print. Limits on the maximum loan size and regional restrictions are also often not shown.

Some lenders will charge you a significant sum if you change your mind after you have applied for a mortgage deal, while others don't charge anything. Unfortunately, best buy tables will not usually tell you which is which, so you cannot compare them.

But don't dismiss best buy tables completely. They can give you a snapshot of the sort of competitive deals available this week, and in this way, may be quite helpful to you.

Use them to check out the products available and browse through the different offers, but be careful to always check through the small print.

Calculate Your Mortgage Fees

If you know the interest rate of the mortgage you are considering, it is easy to figure what your mortgage repayments will be using our Mortgage Rate Calculator.

Figuring out the true cost of the mortgage, however, is more complex. With some lenders charging over �£4,000 in fees and others charging nothing at all, it is important to factor in the fees attached to a deal in order to compare it to assess its competitiveness.

How to calculate your mortgage costs

To do this, you will need to add the cost of all the fees involved to the cost of your repayments.

Download your Mortgage Fees Calculator

Enter the cost of your repayments and the cost of the fees in the relevant boxes. This will allow you to see the true costs of each deal.

Calculating the true cost of a mortgage in four easy steps:

1. Find out the rates and fees of the deal you are interested in. Remember to include product, valuation, CHAPs and exit fees, as well as higher lending charges and insurance penalties.

2. Calculate the repayments per month using our range of free mortgage calculators.

3. Multiply these repayments by the number of months you plan to stick to the deal (so 24 months for a two-year fixed rate)

4. Add on the costs of the total fees. This will give a true comparison of the mortgage.

If these steps seem daunting, speak to a mortgage broker who will work everything out for you.

Key Mortgage Fees Table

We asked the top 10 lenders to give details of the key fees they would charge a typical borrower taking out a two-year fixed rate on a �£100,000 property with a 5% deposit. The results are shown in our Key Mortgage Fees Table.

Download your Key Mortgage Fees Table

Mortgage Fees Case Study

Alan Farley, a 53 year-old direct mail business owner, has a one-bedroom coach house in Brighton. He recently opted for a fee-free mortgage deal from Market Harborough Building Society.

"The interest rate might have been higher but mortgage fees have gone up so much recently that, overall, the cost of my mortgage was lower than the other deals which charged fees," Alan explains.