When taking out a mortgage, it’s easy to focus on the interest rate and the size of your monthly payments. However, many homebuyers overlook the various fees associated with securing a mortgage – fees that can add up to thousands of pounds. Knowing what to expect in advance can help you avoid unpleasant surprises and make informed decisions about your mortgage.

In this article, we’ll break down some of the most common mortgage fees, explain what they cover, and offer tips on how to reduce or avoid them.

Arrangement Fees

The arrangement fee, sometimes called a product fee, is a charge you pay for setting up the mortgage. This fee can vary widely, from as little as £500 to over £2,000, depending on the lender and the type of mortgage you choose. Typically, fixed-rate and tracker mortgages tend to have higher arrangement fees.

Some lenders allow you to add the arrangement fee to your mortgage balance, but keep in mind that this means you’ll be paying interest on it for the duration of your loan.

How to avoid it: Compare deals from different lenders. Some mortgages come with no arrangement fee, though they may have higher interest rates, so it’s essential to weigh the overall cost.

Valuation Fees

A lender will require a valuation of the property to ensure it’s worth the amount you’re borrowing. The valuation fee is what you pay for this survey. The cost typically ranges from £150 to £1,500, depending on the value of the property and the lender’s requirements.

It’s important to note that this is a basic valuation, often only intended for the lender’s purposes. It doesn’t cover the in-depth details a homebuyer’s survey would provide.

How to avoid it: Some mortgage deals offer free valuations as part of the package, so it’s worth shopping around. If you’re getting a homebuyer’s survey or structural survey, you might be able to combine these to save money.

Legal Fees

You’ll need to hire a solicitor or licensed conveyancer to handle the legal work involved in transferring the property ownership. Legal fees for buying a home can range from £800 to £1,500 or more, depending on the complexity of the transaction and the property’s price.

Lenders also require a solicitor to ensure all the legal conditions of the mortgage are met, which may incur additional charges.

How to avoid it: Some lenders offer ‘fee-free’ remortgage deals, where they cover some or all of the legal costs. Always check what’s included to avoid any unexpected charges.

Broker Fees

If you use a mortgage broker to help you find the best deal, they may charge a fee for their services. Broker fees can vary – some charge a flat fee, while others take a percentage of the loan amount, typically between 0.3% and 1%.

Some brokers don’t charge fees directly but instead earn a commission from the lender. It’s essential to clarify upfront how your broker is being paid and what it will cost you.

How to avoid it: There are fee-free brokers available who are paid by the lender, so consider using one if you’re looking to avoid upfront costs. Just make sure they compare a wide range of products and not just a select few.

Early Repayment Charges (ERC)

An early repayment charge applies if you pay off your mortgage or overpay beyond the allowed limit during a fixed or discounted period. These charges can be substantial, often 1% to 5% of the outstanding balance.

For example, if your mortgage has a 5-year fixed term and you decide to sell your home after three years, you may need to pay an ERC, which can run into thousands of pounds.

How to avoid it: If you think you might want to move or pay off your mortgage early, look for a deal that doesn’t have an early repayment charge, or choose one with flexible overpayment options.

Exit Fees

Also known as a ‘deeds release fee’ or ‘account closure fee,’ an exit fee is charged when you repay your mortgage or switch to a new lender. The cost is usually between £50 and £300. It’s a one-time fee, but it can be frustrating if you weren’t expecting it.

How to avoid it: Review your mortgage offer carefully. Some lenders have low or no exit fees, so it’s worth considering this when choosing a mortgage deal.

Higher Lending Charge (HLC)

A Higher Lending Charge may apply if you’re borrowing a high percentage of the property’s value – usually more than 90%. This charge protects the lender in case you default on the mortgage, but it’s an extra cost for you.

The HLC can be added to your mortgage, but like the arrangement fee, you’ll pay interest on it over the term of your loan.

How to avoid it: If possible, aim to put down a larger deposit. A higher deposit will not only reduce the need for an HLC, but it can also help you secure a lower interest rate.

Mortgage fees can seem overwhelming, but understanding them is key to making informed choices. Always read the fine print of your mortgage agreement and ask your lender or broker about any fees you don’t understand. While some fees are unavoidable, being aware of them can help you budget more effectively and avoid unexpected costs.

By comparing different mortgage deals and considering the overall cost (including fees), you can find the best mortgage for your needs and potentially save thousands of pounds in the long run.

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