How to get the best mortgage deal Mortgage comparison: how to do it

Make sure you take mortgage fees into account when choosing a deal

To compare mortgages accurately it's important that you understand what all the different figures mean. Here, we explain mortgage comparison, and the fees and charges you should take into account.

The fees you have to pay when you take out a mortgage can add thousands to its overall cost. It's important that you take these into account rather than looking at just the headline interest rate when choosing a mortgage.

  • The Which? Group offers an independent mortgage advice service, Which? Mortgage Advisers. The expert team can compare the total cost of deals across the market, including direct-only products. You can call 0808 252 7987 for a free initial consultation.

Video guide: comparing mortgages

In this short video, our experts at Which? Mortgage Advisers explain how to pick the best mortgage lender for you plus the aspects of a mortgage that need to be considered beyond the interest rate.  

 

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Mortgage fees

It's been tricky to compare mortgages in the past, as different lenders called their fees different names, described the charges with different words and listed them in different orders.

However, we at Which? have worked with the Council of Mortgage Lenders to get lenders to agree to change this. Nearly all the biggest lenders have agreed to list their fees and charges within a standardised fee tariff, to help you compare mortgages between lenders more easily.

The most common types of fees you may need to pay are explained below. For full details on the different fees for setting up, managing, changing and ending your mortgage, you can download our tariff of mortgage charges.

When we surveyed 5,034 mortgage holders in October 2015, 70% said they paid arrangement fees when taking out their mortgage - with 56% paying these costs up front. Interestingly, respondents considered free legal fees to be the most important feature when taking out a mortgage.

Mortgage arrangement fees

When setting up your mortgage, you may have to pay one or more of the following fees:

  • Application fee: for assessing and processing your mortgage application. You might have to pay this even if your application is unsuccessful or you choose to withdraw it. Some lenders call the application fee a 'booking fee' and it typically has to be paid upfront.
  • Account fee: for creating and managing your mortgage account. This might also cover closing your account when your mortgage ends, but check this with your lender.
  • Product fee: charged on some mortgages as part of the deal. Some lenders call this charge an 'arrangement fee' and it can be paid upfront or added to your mortgage.

Adding the product fee to your mortgage will mean that you have to pay interest on it for the life of the loan, so take this into account when deciding whether to pay it upfront.

That said, it's worth asking whether you have to pay the fee at the time of applying for the mortgage or on completion - the rules vary between lenders. If you have to pay it at the time of applying and the sale falls through, you'll need to ask the lender to refund you. This can take quite a while and some lenders will refuse to do it at all - check their policy before signing on the dotted line if you're worried about this.

If your lender does require the fee at the time you apply, one solution is to add it on to the mortgage but pay it off as soon as you've completed. That way, you'll escape paying extra interest but also avoid the hassle and delay involved with waiting for a refund if things go wrong, as the fee will only become payable once your purchase has completed.

Nearly all mortgage lenders will allow this, but we'd recommend asking your mortgage adviser's opinion before making a decision.

The table below shows the average fee charged prior to receiving a mortgage - including account, application and product fees but excluding property valuation and funds transfer fees - over the last six months.

Mortgage arrangement fees
MonthAverage fee
August 2016£1,027
July 2016£1,023
June 2016£1,017
May 2016£995
April 2016£974
March 2016£977

Table notes: Data sourced from Moneyfacts

  • Valuation fee: your mortgage lender will require you to have a basic mortgage valuation survey on the property you're buying to make sure it's worth roughly the amount you're paying (and borrowing) for it, and you'll usually have to pay the lender a fee for this.
  • Funds transfer fee: for electronically transferring mortgage funds to you or your solicitor.

Be aware that the valuation survey is conducted on the lender's behalf, not yours, despite the fact that you'll often be the one to pay for it. It won't include any thorough checks on the condition of the property, so you should always have your own survey carried out too. Our guide on house surveys explains the different types of survey as well as how much they cost.

Fees for changing or closing your mortgage account

  • Early repayment charges (ERCs): during your initial deal period, you'll usually have to pay a penalty to get out of the mortgage. This might be a percentage of the amount still outstanding. You should avoid mortgages with ERCs that last beyond the deal period, and think about how soon you're likely to move house before opting for a longer deal.
  • Exit fees: many lenders charge an exit fee for closing your mortgage account when you pay your mortgage off or switch lender. You should not have to pay more than was stated on your original mortgage contract. 

If you've paid an exit fee in the last six years that was higher than the fee in your contract, challenge your mortgage lender. You can then complain to the Financial Ombudsman Service if it fails to deal with your complaint satisfactorily within eight weeks.

  • Best mortgage deals: To find out some of the best mortgage rates currently available, check out the best mortgage deals tables from Which? Mortgage Advisers.

 

Mortgage APR

When you compare mortgage deals either on a comparison site or in a lender's own information, you will see an APR quoted for each deal. This is the annual percentage rate of interest, which also includes certain fees.

It's not a particularly helpful indicator of what you'll actually pay as it assumes that you'll stick with your current deal for the entire duration of the mortgage, rather than switching to better rates as each introductory or fixed interest period ends. However, current rules state that an APR must be shown for all mortgages. Find out more in our two-minute video: 

 

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Video transcript

All powerful robot? Absolutely Perfect Recital? Arbitrary Pension Refund? APR is a term that gets bandied about a lot but what on earth is it and how exactly does it help you choose a mortgage? Which?, can explain.

Disappointingly for you for
fans, APR just stands for Annual Percentage Rate and is meant to make it less taxing on the brain to compare what different mortgage deals will cost you unlike the interest rate, APR includes compulsory fees such as the arrangement fee or booking fees you have to pay when you take out the loan as well as the interest you pay, so in theory it should give you a better idea of how much of your hard earned money will be leaving your bank account each month, but of course nothing is ever that easy.

Lenders can calculate it in slightly different ways, and it is based on a lot of assumptions so it is, at best, just a rough guide.

For a start, it assumes interest
rates we'll stay the same over the full time of the mortgage, but as we a ll know, in reality interest rates change all the time and in any case most people would switch mortgage deal once or more during the entire term rather than sticking with the same product throughout the entire period.

To really get how much you will have to lay out for different mortgages. You're better off looking at the total cost over the period of the initial deal.

So if you were considering taking out
a five year fixed rate mortgage, this would include how much you would pay in fees, the interest you pay, and your repayments of that five year period.

If you're looking for mortgage the Which? mortgage comparison table lets you search through all available deals from lenders large and small to choose the best deals based on quality of service as well as the cost and benefits. We'll even show you the total cost over the initial period in our tables.

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Last updated:

February 2016

Updated by:

Stephen Maunder

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.