Mortgage Fees Explained: The Full Cost of Borrowing

What Are Mortgage Fees?

Your offer has been accepted and you've budgeted for the deposit. Then the paperwork starts arriving. A product fee on the mortgage illustration. A solicitor's quote with a list of searches underneath. A surveyor asking which level of report you want.

None of it is unusual, but it can take a few thousand pounds out of a tight budget if nobody warned you. Some of these costs go to the lender, some to your solicitor, surveyor or broker, and stamp duty goes to the government. Here's what each one is, roughly what it costs, and where you have some say.

The Arrangement Fee (or "Mortgage Fee")

This is what the lender charges for the deal itself, sometimes called a product fee. MoneyHelper puts it at anything from nothing to over £2,000, and Which? says £999 to £1,999 is common. Some lenders charge a percentage of the loan instead, so turn that into pounds before you compare.

Some lenders also charge a booking fee when you apply (MoneyHelper says around £99 to £300, usually not refunded if the purchase falls through) or a mortgage account fee. They're all listed on your mortgage illustration, so read the fees section as well as the rate.

Paying Now or Adding to the Mortgage?

Most lenders will let you add the fee to the loan. That helps if cash is tight, but you then pay interest on it. Add a £999 fee to a £200,000 repayment mortgage at 4% over 25 years and over a two year fix you pay around £78 in extra interest, with about £951 of the fee still on your balance at the end. If you can pay it from savings without leaving yourself short, that's cheaper.

Fee or No Fee? Compare Over the Deal Period

A low rate with a fee isn't always cheaper than a higher rate with no fee. Add up what each deal costs over the fixed or deal period only, the interest in that time plus any fees. Not the whole 25 years, because you'll be choosing a new deal long before then.

Same two deals, opposite answers. On the bigger loan the lower rate covers the fee. On the smaller one it doesn't. These rates are made up to show the maths, with the fee paid up front, so run the same sum on the real deals you're offered.

Early Repayment Charges (ERCs)

This one costs nothing on day one, which is why people forget it. If you pay off the mortgage, or overpay more than you're allowed, during your fixed, tracker or discount period, the lender can charge you. It's usually 1% to 5% of what you repay, often dropping each year, so a five year fix might start at 5% and end at 1%. On a £200,000 balance, 5% is £10,000.

Remortgaging elsewhere mid deal or selling up will normally trigger it. Many deals let you overpay up to 10% of the balance a year without a charge, but check yours. Moving house? You may be able to port the deal, but that isn't guaranteed, and if you borrow less you could still pay an ERC on the part you don't take with you.

Our full ERC guide walks through when paying one can still make sense, and the mortgage overpayment calculator shows what overpaying within your allowance could save.

Valuation vs Survey: What's the Difference?

People mix these up, and only one of them is for you.

Valuation

The lender checks the property is worth enough to lend against. Sometimes a surveyor visits, and plenty of valuations are now done from a desk. If you've agreed £250,000 and it's valued at £235,000, the lender may lend less and you'll need to find the gap or renegotiate. It's for the lender's benefit and it's a limited look, so it can miss expensive problems.

Many mortgages now come with a free valuation. Where there's a charge, MoneyHelper puts it at £250 to £1,500 depending on the property's value.

Survey

A survey is your choice, to find out what condition the place is really in. RICS has three levels:

• Level 1, the most basic. For a conventional house or flat built from common materials and in good condition. No valuation, no repair advice.
• Level 2, which is what most people buying a home in reasonable condition go for. More detail than Level 1, and you can add a valuation if you want one.
• Level 3, the old "building survey". For older, bigger or run down homes, anything unusual or altered, or if you're planning major work.

RICS says a Level 1 starts from a few hundred pounds and a bespoke Level 3 can go over £1,000. Which? puts the average survey at £462 for first time buyers and £510 for home movers. Our house surveys guide goes through how to choose and what to do if the report finds something.

Conveyancing Fees

Conveyancing is the legal work of moving the property into your name, done by a solicitor or licensed conveyancer. They check the contract, run the searches, deal with your lender, handle exchange and completion, usually file the stamp duty return and register you as owner.

MoneyHelper puts legal fees at roughly £850 to £1,500 including VAT, and Which? puts average conveyancing costs at £1,421 for first time buyers and £2,182 for home movers. When you compare quotes, check what's included, because on top of the fee come disbursements the solicitor pays out for you:

• Searches. MoneyHelper puts the local council search alone at £250 to £300, and there are usually others too, such as water and drainage.
• The HM Land Registry fee, which depends on the price. For a home bought for £200,001 to £500,000 it's £150 if your solicitor applies online, or £330 by post.
• Often a telegraphic transfer fee for sending the mortgage money, which MoneyHelper puts at £25 to £50.

Our complete solicitor and conveyancing guide explains what they do at each stage. If you want to compare quotes from qualified solicitors, you can use Digital Move.

Lender's Legal Fees

Your lender needs a solicitor too. Usually that's the same firm acting for you, as long as they're on the lender's panel. If they're not, the lender will normally appoint its own firm and you're often asked to pay its fees on top. So when you get a quote, ask whether they're on your lender's panel.

Broker Fees

Brokers are usually paid commission by the lender. Some don't charge you anything on top. Others charge a fee as well, either a fixed amount or a percentage of the mortgage. MoneyHelper says the average is around £300 to £500.

Either way, a broker has to tell you how they're paid before they start work: any fee, when it's due, whether it's refundable, and whether they get commission from the lender. If that isn't clear, ask.

Stamp Duty Land Tax (SDLT)

Stamp duty is a tax on buying property. These are the current rates in England and Northern Ireland for a home that will be the only residential property you own:

Each rate only applies to the slice of the price in that band. On a £300,000 home, a home mover pays 0% on the first £125,000, 2% on the next £125,000 (£2,500) and 5% on the last £50,000 (£2,500), so £5,000. A first time buyer pays nothing.

First time buyer relief only works if everyone buying is a first time buyer. If you'll own more than one home afterwards, there's usually an extra 5% (see our guide to the second home stamp duty surcharge), and buyers who aren't UK resident usually pay another 2%.

Wales has Land Transaction Tax and Scotland has Land and Buildings Transaction Tax, both with different bands. Northern Ireland uses SDLT like England. For more, see our stamp duty guide, or put your own price into the stamp duty calculator.

Mortgage Insurance

You might see a higher lending charge on an illustration. It's a fee some lenders have charged when you borrow a large share of the price, and the insurance it pays for protects the lender, not you. MoneyHelper says it's usually 1.5% of the mortgage where it applies.

More often, a small deposit shows up in the rate instead. The higher your loan to value (LTV), the higher the rate tends to be and the fewer lenders you can choose from.

Buildings Insurance

Your lender will want the building insured, and MoneyHelper says cover needs to start from exchange of contracts, not completion, because from then you're committed to buying. With a leasehold flat the freeholder usually insures the building and you pay through the service charge, but it depends on the lease, so check with your solicitor. Our guide to buildings vs contents insurance explains the difference.

Other Costs to Budget For

• Removals. Which? puts a removals firm at about £540 for a one bedroom flat up to about £1,553 for a four bedroom house, more with packing.
• Overlapping bills while you're still paying rent or your old mortgage.
• Things the house doesn't come with, like curtains or white goods.

Our moving costs calculator adds these up for your own move.

Total Cost Summary: A Realistic Example

Say you're a first time buyer in England buying a £300,000 house with a 10% deposit, borrowing £270,000. Stamp duty follows the rules above. The other figures are typical amounts from the ranges in this guide, so your quotes will differ.

That's about £3,349 on top of the deposit, before removals, buildings insurance and any broker fee. If you weren't a first time buyer, add £5,000 of stamp duty, making £38,349.

Ways to Reduce Fees

• Compare deals over the fixed period with the fee included. Sometimes the fee is worth paying, sometimes not.
• Pay the arrangement fee up front if you can without draining your emergency money.
• Get two or three conveyancing quotes and check they include the same things.
• Look at your deposit. Getting under the next LTV band can cut your rate.
• Treat cashback as real money, but take it off the cost over the deal period and compare that, rather than picking a deal for the cashback alone.
• Ask your broker what they charge, if anything, before they start.

The Short Version

• Budget for more than the deposit. Legal fees, a survey and lender fees add up, plus stamp duty if you're not a first time buyer.
• Compare fee and no fee deals over the deal period only. The answer changes with the size of the loan.
• Adding a fee to the mortgage means paying interest on it.
• Check the ERCs before you sign, especially if you might move or remortgage early.
• Get a survey. The valuation is for the lender, not you.