JUST seeing the word mortgage fee is enough to send your head into a spin.
But don’t despair, we’ve compared the fees of some of the UK’s top lenders and asked the mortgage experts – how much you should really be paying for your mortgage?
Keeping on top of fees is important so you don’t spend more than you should[/caption]
We checked the fees of the UK’s six biggest mortgage lenders, and a handful of other high street names.
To see how much they would charge someone over the life of the loan for buying a £400,000 house, with a mortgage of £320,000 and a 20% deposit using a five-year fixed rate.
Setting up your mortgage
From application stage to getting your mortgage finance, banks and building societies charge several fees for the services they carry out.
As our table shows, however, they amounts can vary widely.
David Hollingworth, associate director, communications, L&C Mortgages, said: “When searching for a new mortgage it’s very easy to focus in on getting the lowest interest rate.
That clearly does play a big part in determining the best deal but there’s a lot more to factor in than just rate, such as fees and charges, to ensure you get the best overall value.”
Arrangement fee
An arrangement fee, or product fee as it’s also known, covers the administrative costs of assessing your application and setting up your mortgage.
Because it’s such a big expense, lenders let borrowers add the fee to their mortgage but this means you’ll pay more interest over the life of your loan.
Lenders like Nationwide and NatWest which in our table are charging the highest arrangement fees tend to offer the lowest rates.
But that’s not always the case so it’s worth checking with other lenders.
The good news is that there’s lots of choice, making it easy to avoid paying through the nose for your mortgage.
Most lenders offer a £0 fee option that comes with a higher interest rate.
However, the sheer volume of mortgage deals on the market, more than 6,450 according to financial data providers Moneyfacts, makes it tricky picking the right fee and rate combination for your circumstances.
Ask a mortgage broker to work it out for you.
“The very lowest mortgage rates often carry the biggest arrangement fees,” Mr Hollingworth.
“It can be worth paying if the interest rate is low enough to compensate for the big fee but that usually better suits those with a bigger mortgage.”
Booking fee
Booking fees, also known as application fees, are almost a thing of the past, says Rowan Frayling managing director of mortgage broker J Finance.
A booking fee is a non-refundable fee paid upfront by the borrower to reserve their mortgage rate.
“Some small building societies still charge them,” said Mr Frayling, “but they’re incredibly rare and often match other lenders’ arrangement fees.”
The Newbury Building Society, for example, charges an £895 booking fee but no arrangement fee. It compares favourably to the charges levied by bigger lenders but the fee is not refundable if don’t go ahead.
Valuation fee
Although everyone who is buying a home needs a valuation, few lenders charge for this service anymore so easily avoidable.
Some lenders that do charge, like Virgin Money, offer £300 cash back on certain mortgage deals to soften the blow.
The bank also waives the valuation fee if borrowers use a mortgage broker instead of coming into the branch.
Halifax, on the other hand, charges all borrowers a £100 flat valuation fee, even when a computer-generated valuation has been used.
“Mortgage brokers search for the best deal based on its true cost,” said Mr Frayling.
“A valuation fee will be factored in to that calculation and a small charge like £100 will hardly break the bank.
But if there are two mortgage deals with similar interest rates, borrowers might prefer the one which doesn’t require a £100 upfront fee.”
Funds transfer fee
Also called a CHAPs fee, this is charged to cover the cost of electronically transferring your mortgage funds to your solicitor on the day your loan completes. Not all lenders pass this fee on to borrowers.
Among the lenders Sun Money analysed, the cost ranges from £0 to £35 so it’s not worth forsaking a decent deal to avoid it.
Account fee
Some lenders, such as Santander, charge borrowers an account fee which covers the costs of setting up, maintaining, and closing your mortgage account.
Santander says while it charges an account fee, it does not pass on a funds transfer fee or charge arrears fees which other lenders without an account fee do.
Some lenders charge a redemption fee instead which essentially pays for the same work. Lenders like NatWest and HSBC don’t charge either.
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you’re on one then you’re likely to be paying more than you need to.
Variable rate mortgages often don’t have exit fees while a fixed rate could do.
During your mortgage
You may incur penalties or admin charges during the term of your mortgage deal which vary from lender to lender.
Arrears fees
It’s tricky to compare lenders on their arrears fees because they take different approaches to charging borrowers for missed payments.
And, as no-one intends to fall behind on their mortgage, it’s not a cost you consider when shopping around.
Nationwide, for example, doesn’t apply any administrative charges when customers fall behind on payments.
But if it can’t reach the homeonwer, the lender may instruct a company to visit them costing £120. NatWest charges £10 per unpaid direct debit, while Leeds Building Society applies a £27.50 monthly arrears fee.
Adding or taking someone off the mortgage and property title deeds
The only way to avoid this fee is by not making any changes. But in cases such as divorce, there’s no way around it.
Known as a transfer of equity fee, among the lenders we analysed, these ranged from £65 to £200.
Paying back your mortgage
Redemption charges
This can cover a multitude of small admin costs so don’t be afraid to ask your lender for a breakdown of what you’re paying for.
Leeds Building Society, for example, charges a £199 exit fee to close your account.
If it holds the title deeds to your property, the lender charges £65 to send them to your solicitor but only if requested.
Early repayment charges
If you’ve taken out a fixed rate mortgage, chances are you’ll have to pay an early repayment charge if you pay back your loan before your fixed rate ends.
Mr Hollingworth said: “Early repayment charges often apply throughout the deal period and can vary by deal and lender.
The charges are usually shown as a percentage of the amount repaid.”
A lot of lenders reduce the penalty the longer you’ve had your mortgage deal for. For example, in year one of your five-year fixed rate you might be charged 5% and year five you would be charged 1%.
Others apply the same percentage fee throughout.
If you wanted to repay a £200,000 mortgage in year four of a five-year fixed rate with Halifax, the lender would charge you penalty of 2% of the amount being repaid, setting you back £4,000. Barclays, which charges a 4% fee for the full five years, would levy a £8,000 instead.
Mr Hollingworth says borrowers who think they may need to move house during the term of their fixed rate should either look for a lender that allows them to take their mortgage with them to their new home, or one that has a sliding scale of exit penalties.
