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Mortgage fees and costs

Many people who take out mortgages are unaware of the myriad of fees and costs involved, whether buying or remortgaging.

This guide outlines the key fees and costs attached to a mortgage loan.

Stamp duty

Stamp duty land tax was introduced in December 2003, replacing the old stamp duty on purchases of flats, houses and other buildings and land. The tax is charged at different rates and has different thresholds for different types of property and different values of transaction.

The tax rate and payment threshold can also vary depending on whether the property is in residential or non-residential use and whether it is a freehold or leasehold.

First-time buyers can currently enjoy a temporary stamp duty relief up to £250,000, although this is set to expire in March 2012.

For the rest of us, no stamp duty is payable on residential properties worth up to £125,000, but anyone purchasing a property worth £125,000 to £250,000 will have to pay a 1% fee. For properties between £250,000 and £500,000, a fee of 3% is payable, and for properties over £500,000 and up to £1 million, there's a 4% fee. Stamp duty on properties worth more than £1 million is 5%.

In some areas, purchases below £150,000 might be exempt from stamp duty under Disadvantaged Areas Relief.

There’s also relief for zero-carbon homes, though the conditions to be fulfilled are complex. Stamp duty also varies for properties under shared ownership.

Use our stamp duty calculator to find out how much stamp duty may be incurred on a particular purchase.

Arrangement fees

These are the fees levied on mortgage deals. Fees can range from £499 to as much as £2,000. Some are also expressed as a percentage so make sure you do the sums before you agree to anything.

Some lenders offer what seem like very low interest rates - but then load the deal with high arrangement fees.

Generally speaking, if you have a large mortgage then it may be worth paying a high fee to get a low interest rate.

Broker fees

Borrowers who use mortgage brokers to find the most suitable mortgage loan on the market may face a broker fee.

The stage at which this repayment is due depends on the mortgage broker. For example, some brokers charge a fee whether a mortgage is secured or not. 

Many brokers get commission from mortgage lenders, known as procuration fees. This can offset the fee for broker services.

Brokers are required by law to disclose all fees. You may need a broker if you have special needs - such as a poor credit record - or just need help getting the best deal.

Sometimes brokers can get deals which aren't on the open market, while some deals are only available directly from lenders (not through brokers).

Mortgage indemnity insurance

Mortgage indemnity insurance is also be known as a mortgage indemnity guarantee, or a higher lending charge.

It is designed to protect the mortgage lender in the event of a borrower missing a mortgage payment or falling into arrears. It does NOT cover the homebuyer, even though he or she is the one paying for it.

These days, few lenders implement these charges - although if you borrow a high loan-to-value (LTV) mortgage you might have to pay one. Not only are high LTV mortgages are not readily available, but lenders charge higher interest rates than on low LTV mortgages.

Valuation and survey fees

A mortgage lender will want to know the property they are providing a mortgage for is worth the money it is putting up. It will find this out by demanding a homebuyer has a mortgage valuation survey done.

This will usually cost £100-£300, though some lenders will pay for the survey as part of the mortgage deal.   

You can find out more about mortgage valuation surveys, homebuyer surveys and buildings surveys here.

Exit fees

Most mortgage lenders have now moved to cut down or completely remove exit fees from the mortgage loan process.

This follows Financial Services Authority (FSA) scrutiny and recommendation and the refunding of millions of pounds worth of unfair exit fees to borrowers in recent years.

Some lenders were charging over £300 simply to wind up their mortgage. The FSA ruled that this was unfair, particularly if nothing was mentioned about it in the original mortgage contract.

In response to scrapping exit fees, many mortgage lenders are raising their arrangement fees.

Completion fees

Some lenders charge completion fees, although these are less common than arrangement fees.

Completion fees are usually charged on the day that the borrower moves into their new home, and are generally £200-£400.

It is rare that a lender will charge both arrangement and completion fees, but it does happen.

Early repayment fees

These shouldn't be confused with exit fees. Early repayment charges are penalties for paying off your mortgage early or switching to a new deal before your current one comes to an end. They are generally applicable to special mortgage deals such as fixed-rates, capped rates and discounts.

So if you have a five-year fixed rate mortgage and in the third year you decide to switch to a better rate deal, you will be charged.

Early redemption charges are based on a percentage of the mortgage.

Other mortgage fees and charges

There are a number of other hidden fees and charges that some lenders levy against mortgage borrowers. Some lenders roll a lot of these charges up into administration and arrangement fees.

The list below is by no means complete, but could help borrowers understand what to look out for in the small print.

  • Certificate of interest paid
  • Consent to change of borrower priority
  • Consent to second charge
  • Data Protection Act
  • Deeds access
  • Deeds safe scheme - property insurance
  • Direct debit reject/returned cheque/rejected debit card payment charge
  • Duplicate statements
  • Extend/reduce mortgage term
  • Information request from title deeds
  • Legal document approval charge
  • Lender’s reference charge
  • Mortgage account illustration fee
  • Mortgage discharge fee
  • Mortgage product transfer fee
  • Notification of a lapsed/unpaid life policy
  • Photocopies of deeds/documents
  • Property insurance substitution charge
  • Property self-insurance administration charge
  • Property self-insurance contingency insurance charge
  • Questionnaire charge
  • Repayment basis charge
  • Revaluation charge
  • Sale of part security
  • Special clearance of a cheque
  • Substitution of a life policy
  • Surrender/release of a life policy
  • Tenancy consent
  • Title conversion freehold/commonhold/leasehold
  • Transfer of equity charge
  • Unpaid ground rent/management fees/maintenance charges
  • Arrears administration charge
  • Arrears administration charge (monthly)
Lender Initial Rate Duration Standard Rate Overall Cost For Comparison Max Loan To Value Fee
2.59% 2 years 5.69% 5.4% APR 75% £999
2.69% 2 years 4.99% 4.9% APR 75% £495
2.94% 2 Years 5.69% 5.4% APR 75% £199
2.99% 2 years 4.99% 4.9% APR 85% £495
2.99% 3 years 4.99% 4.6% APR 70% £499
3.0% 2 years 5.69% 5.5% APR 80% £999
3.19% 5 Years 4.79% 4.2% APR 80% £995
3.35% To Jul 2014 4.95% 4.6% APR 75% £999
3.5% 2 years 5.49% 5.1% APR 75% £595
3.84% 2 years 3.94% 4% APR 90% £499

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