Buying a property is a major financial commitment, with deposit, solicitor and stamp duty costs all adding up. You’ll also pay fees and charges to your mortgage lender, which could be an expensive surprise if you hadn’t already factored them in.
Here, we outline the main costs you need to consider when getting a mortgage and roughly how much you should set aside in your budget to cover them.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
What mortgage fees and costs might I need to pay?
One of the biggest costs you may encounter when buying a property, apart from stamp duty and your deposit, are the fees that may be attached to your mortgage. These are paid to the lender to set up and administer your mortgage account, and can amount to thousands of pounds, depending on which mortgage you choose.
If you want to find out more about all the various costs associated with the property buying process, have a look at our article How much does it cost to move house for more information.
Below are the main fees and costs that you may pay when you apply or redeem a mortgage. It’s worth bearing in mind that lenders may use slightly different terminology to describe these costs, but the following are generally accepted as standard.
Arrangement fee
Typical cost
Anything from £0 to over £2,500
What is an arrangement fee?
This is often the biggest fee, and it’s paid for securing a mortgage. Usually, the lower the rate, the higher the fee. So while the rate may be attractive, sky-high arrangement fees can make a big difference to your overall costs. So, make sure you look beyond the headline rate at the arrangement fee attached to any deal. The arrangement fee is used to pay for setting up your mortgage, and it’s also known as the product fee or completion fee.
When do I need to pay an arrangement fee?
Lenders often allow you to either pay this upfront, or add it to your mortgage. However, while adding it to your mortgage will mean you don’t have to pay a lump sum upfront, you will be paying interest on it, so if you can afford to, it can be cheaper to pay this fee outright.
Booking fee
Typical cost
Around £99-£250.
What is a booking fee?
A bit like putting down a deposit for a restaurant reservation, a booking fee is something you will be charged upfront by your mortgage provider when you apply for your mortgage.
Essentially, it’s to show that you are serious about applying for a mortgage, and that you intend to follow through with your application. It is also known as an application fee or reservation fee.
When do I need to pay a booking fee?
You will usually need to pay your lender the booking fee when you submit your mortgage application. Some lenders might include this in the arrangement fee, or, they may not include it at all. It is usually non-refundable, so if you back out of the mortgage, you will lose this money.
Valuation fee
Typical cost
£150-£300 depending on the value of the property.
What is a valuation fee?
Your mortgage provider wants to ensure that the property is worth what you’re paying for it, so they will value your property.
The valuation survey is different to a property survey, which you might get to assess the condition of the property. By contrast, the valuation only assesses the property’s value and not at any possible issues or maintenance you may face on buying it.
A growing number of lenders are offering this service free of charge, so it’s worth looking at your options when comparing deals.
When do I need to pay a valuation fee?
If your lender charges for this service, you will usually have to pay this fee when you submit your mortgage application, along with the booking fee (see above).
Telegraphic transfer fee
Typical cost
Between £25-£50.
What is a telegraphic transfer fee?
Also known as CHAPS (Clearing House Automated Payment System), this fee pays for the process of your mortgage provider transferring the money to your solicitor.
The amount of money being transferred during a property purchase is considerable, so there’s greater risk involved in the process. The CHAPS fee pays for the additional staff and processes that are required to carry out the transfer securely.
When do I need to pay a telegraphic transfer fee?
You will usually need to pay the telegraphic transfer fee to your lender when you complete, but some lenders may allow you to add it to your mortgage. Again it’s worth paying it upfront if possible as if you add it to your mortgage, you will end up paying more in the long run through interest.
Mortgage account fee
Typical cost
Around £100-300.
What is a mortgage account fee?
There is administration attached to all parts of the mortgage process and this fee pays for some of the costs of setting up, maintaining and closing your mortgage account.
If you have paid this fee, you probably won’t need to pay an exit fee when you close your account. However, if you close your mortgage early, you might still need to pay an early repayment charge (ERC).
When do I need to pay a mortgage account fee?
Like the telegraphic transfer fee, you will also usually need to pay the mortgage account fee to your lender when you complete. Your lender may give you the option to pay it upfront or allow you to add it to your mortgage. As always, if it’s possible, it’s worth paying it upfront as adding it to your mortgage will mean you end up paying more in the long run through interest.
Missed payment penalty
Typical cost
Any penalty for missed payments depends on each lender’s rules. Failure to keep up with mortgage repayments could also result in your home being repossessed.
What is a missed payment penalty?
During your mortgage term, if you miss a payment your lender may charge you a fee for this. The amount you are charged and the timeframe for paying will be outlined in your mortgage agreement.
When do I need to pay a missed payment penalty?
You will need to pay a missed payment penalty by the particular deadline issued by your lender. This will vary, depending on their rules, so check your mortgage agreement for your agreed terms. Bear in mind that if you do miss a payment, this will have an impact on your credit score, so if you’re concerned you can’t keep up with your mortgage payments, get in touch with your lender as soon as possible and let them know. They might agree to amend the terms of your mortgage to help make your monthly payments more affordable.
Mortgage broker fee
Typical cost
On average £500 or a percentage-based payment, depending on the value of the mortgage. However, some brokers offer fee-free advice, as they receive commission from lenders rather than taking payments from customers. If you choose one of these, mortgage advice won’t cost you a penny.
What is a mortgage broker fee?
If you use a mortgage broker when setting up your mortgage, they may charge you a fee for their advice and helping you arrange your mortgage, but they should notify you exactly how much you have to pay at the outset.
When do I need to pay a Mortgage broker fee?
When you enter into an agreement with your mortgage broker, they will give you a key facts document which will outline their fees, and when they will need payment. Each mortgage broker is different, so always check their fees carefully before agreeing to their services.
Higher lending charge
Typical cost
If applicable, this is usually 1.5% of the mortgage.
What is a higher lending charge?
If you have a smaller deposit, you are likely to have a high loan-to-value (LTV) ratio. This is the amount you intend to borrow against the actual property value, and typically expressed as a percentage. As the name suggests, this charge is because by lending over a certain amount, more of the lender’s money is at risk. By charging a higher lending fee they can provide some insurance against their investment. They may use the money to buy a type of insurance policy called a Mortgage Indemnity Guarantee, which provides them with a level of protection if you default on your mortgage.
This charge is usually a percentage of your loan over a certain amount. So, for example if you took out a 90% LTV mortgage on a £200,000 property (borrowing £180,000) and your lender has a 1.5% higher lending charge for all LTVs over 80%, this fee amounts to £300 (1.5% of the £20,000 over the 80% threshold). Some lenders will apply the percentage to the whole loan amount, so always check the calculation method with your lender.
When do I need to pay a higher lending charge?
You will usually need to pay the higher lending charge to your lender when you complete. Your lender may give you the option to pay it upfront or allow you to add it to your mortgage. As always, if possible, it’s worth paying this fee upfront as adding it to your mortgage will mean you end up paying more in the long run through interest.
Early repayment charge (ERC)
Typical cost
Usually 1-5% of the value of your outstanding mortgage balance.
What is an early repayment charge?
If you are in the fortunate position to be able to pay off your mortgage before the end of the mortgage term, you might have to pay an early repayment charge, which effectively represents a portion of the interest your lender will lose if you close your account. You may also be required to pay this if you want to remortgage to a new lender during the term of your mortgage deal.
An early repayment charge may not always apply – for example – you won’t usually have to pay one if you’re on your lender’s standard variable rate and want to redeem your mortgage – but it’s important to check with your lender. Most early repayment charges range from 1-5% of the value of your mortgage balance, with the percentage usually changing depending on the timeframe of your early repayment. If you received any rewards or incentives for your mortgage and you repay early, you may be asked to return these.
If you are looking at remortgaging and are currently tied into your existing deal, it’s best to check your lender’s documents to see what charges you might face.
When do I need to pay an early repayment charge?
When you notify your lender that you intend to repay, or remortgage you will be quoted a redemption figure which will give you an idea of what you need to pay and when, if early repayment charges apply. Bear in mind you can usually overpay your mortgage by up to 10% a year without having to pay any early redemption penalties. Find out more in our article Should I consider overpaying my mortgage?
Exit/Closure fee
Typical cost
Typically £75-£300.
What is an Exit/Closure fee?
When the time comes for you to fully pay off your mortgage (either early, or in line with the agreed term) you might be charged an exit or closure fee.
The fee is generally to cover the administration of your account, and the work associated with closing it. If you have already paid the mortgage account fee, you may not need to pay the exit/closure fee, but this varies from lender to lender, so it’s best to check your mortgage agreement.
When do I need to pay an Exit/Closure fee?
You will pay an exit/closure fee when you finish paying off your mortgage. If you are remortgaging or making an early repayment, the amount you need to pay will be added to the amount due.
Other costs of buying a property
Mortgage fees and costs are just one element of buying a property, and it’s really important to have a clear view of all the costs you might need to consider.
The other main costs you might need to factor in include:
- Legal fees – While it’s perfectly legal to act as your own solicitor when buying a property, conveyancing is a complicated process so it’s usually worth employing a legal professional to act on your behalf.You can usually expect to pay between £500 and £1,500 in conveyancing or solicitor fees, depending on the property value, its location, and the complexity of the transaction. Costs will be higher if you are selling a property as well as buying one. Learn more in our guide How to find a good conveyancer or solicitor.
- Disbursement fees – These cover registering the change in ownership of a property with the Land Registry as well as the local searches carried out to identify anything that could negatively affect the property you’re buying, such as being in a flood risk area. Fees usually range between £250 and £450.
- Survey fees – You want to purchase a property knowing as much as you can about the building you are buying, so it’s useful to have a property survey carried out to help you with this. The cost of surveys can vary considerably, so have a look at our article Which property survey should I get? for more information
- Stamp Duty – There’s no Stamp Duty to pay on property purchases costing up to £250,000 (or £425,000 if you’re a first time buyer). We cover the costs of Stamp Duty and more vital information in our article Stamp duty explained.
- Moving costs – Removal services and storage fees can quickly add up, have a look at our article How much does it cost to move house? which can help you estimate how much you might need to pay.
Compare mortgage fees and costs
As with most financial products, it usually pays to shop around, and mortgages are no different. You can find out more about all the different mortgage options that may be available to you in our articles Mortgages for over 50s: What you need to know and Mortgages for over 60s: what you need to know.
It’s not always easy to work out which mortgage option is right for you, so if you’re in any doubt, it’s worth speaking to a professional mortgage advisor.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
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