How to get the best mortgage deal Mortgage fees and other costs
Make sure you take mortgage fees into account when choosing a deal
The fees you have to pay when you take out a mortgage, including arrangement and valuation fees, can add thousands to its overall cost, so make sure you take these into account when you are choosing a mortgage rather than looking at just the headline interest rate.
You can use the Which? mortgage comparison tool to compare the total cost of deals including the fees. If you feel you could use professional advice, the Which? Group offers an independent mortgage advice service that looks at every mortgage from every available lender. Alternatively, visit Unbiased.co.uk for a broker.
Types of mortgage fee
Arrangement fees
These fees are called various names by mortgage lenders, such as booking fee, completion fee or administration fee, but they are all fees you have to pay to set up the mortgage. Some lenders will charge more than one of these fees for a particular deal.
Our research shows that average mortgage arrangement fees have increased in recent years. In November 2005, the average was just £411 but it has shot up since then.
The table below shows average arrangement fees over the last six months for all residential mortgage deals available (excluding any for people with credit problems).
| The cost of arrangement fees | |
|---|---|
| Date | Average fee |
| 01/08/2011 | £1,201 |
| 01/09/2011 | £1,023 |
| 01/10/2011 | £1,154 |
| 01/11/2011 | £1,482 |
| 01/12/2011 | £1,471 |
| 01/01/2012 | £1,498 |
Table notes
Data source: Moneyfacts
Avoid adding this fee to your mortgage as you will have to pay interest on it for the life of the loan.
Mortgage valuation fees
Your lender will require you to have a basic mortgage valuation on the property you're buying to make sure it provides enough security for the loan, and you'll have to pay a fee for this.
You should also get a survey done, such as a home condition report, Homebuyer’s survey or more detailed building survey carried out, depending on the nature and age of the property.
Visit the Royal Institution of Chartered Surveyors (RICS) website for more on surveys.
Higher-lending charge
This is sometimes charged if you are borrowing a high proportion of the property’s value. See the previous page of this guide for more on higher-lending charges.
Early repayment charges
These are also known as ERCs. During your initial deal, you 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.
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. Complain to the Financial Ombudsman Service if it fails to deal with your complaint satisfactorily within eight weeks.
Other home-buying and selling costs
Although not directly related to your mortgage, you will also have to pay stamp duty, legal fees and, if you are selling a property, estate-agents’ fees and for an energy performance certificate.