Understanding Mortgage Fees

It is difficult to believe that mortgage lenders still charge fees for mortgages given the competition and the huge sums of money that they generate from the interest paid on mortgages but, some most still do.

In this mortgage article we will look at both the fees that are directly related to mortgage products and some the associated and wider costs that you should take into consideration when buying your first home. This mortgage guide is also relevant for those who are moving home or looking to remortgage a currently owned property

We have listed all the fees you are likely to encounter when going through the mortgage process below in a table with supporting information so you can understand where the fees go to and what they are for. You can review fursther details about each mortgage fee below the table.

Mortgage Fees
FeeWho gets it?What is it for?
Arrangement feeMortgage LenderArranging the mortgage
Booking feeMortgage LenderMortgage application process
Valuation feeMortgage LenderProperty valuation
Survey feeMortgage LenderProperty condition check for mortgage validity
Broker feeMortgage BrokerBrokers work and associated activity on your behalf
Stamp dutyGovernmentWar in France
Conveyancing feeSolicitorsLegal and property check
Land Registry feeLand Registry (via solicitor)Records you as the owner of the property
Chaps feeMortgage LenderElectronic transfer of mortgage funds
Completion feeMortgage Lender (via solicitor)Covers cost of transferring the mortgage funds or /and releasing the mortgage deeds
Early Repayment FeeMortgage Lenderexiting mortgage ahead of agreed contract date

Use our Mortgage Fees Calculator to calculate how much you should set aside when budgeting for your mortgage.

Arrangement fee

An arrangement fee is an amount of money paid to the mortgage lender for the costs of setting up the mortgage. Arrangement fees are either fixed price or calculated as a percentage of the mortgage. Always check what type of mortgage fee applies as percentage calculations can be very costly, this is a key part to check particularly when comparing mortgage deals. Good mortgage deals may seem better than they truly are when you include the cost of the mortgage fee. Arrangement fees vary between mortgage lenders and they will normally allow you to pay upfront or add the fee to the mortgage calculation.

If you choose to have the mortgage fee added to the mortgage calculation you will also pay interest on the mortgage arrangement fee so it will cost you more in the long run.

Booking fee

A booking fee or application/reservation fee as it is also known is an amount due for booking the loan whilst the mortgage application goes through. Booking fees are typically around £100.00 though some mortgage lenders do not charge a booking fee.

Valuation fee

The valuation fee pays for a basic property server for the lender to allow them to gauge the cost of the property, this is normally completed as part of the survey fee. Valuation fees vary considerably depending on the mortgage lender and the location of the property, some mortgage lenders don't charge a valuation fee.

Survey fee

The survey fee covers the cost of a surveyor assessment of the property you intend to purchase, it is used to identify any issues which may impact the amount of money that they are prepared to led against the property. Survey fees vary considerably depending on the mortgage lender and the location of the property, some mortgage lenders don't charge a survey fee.

Broker fee

The brokers fee is an amount due to the broker to recompense them for the work and activity they do on your behalf when finding a mortgage which is best suited to you and your personal circumstances. You can read more about mortgage brokers in our "Guide to Mortgage Brokers".

Stamp duty

When you buy a property, you need to pay stamp duty to Her Majesty's Revenues and Customs (HMRC). The amount of stamp duty is dependent on the purchase price of the property. Stamp duty has gone through a major reform in December 2014, when there was a radical shift in the way it is calculated. You can calculate how much stamp duty you will have to pay using our Stamp Duty Calculator. Stamp Duty was originally introduced, along with other taxes, to provide funds for War with France in 1694 though now disappears into Government coffers and is used for a plethora of public services / government spending initiatives.

You can calculate how much Stamp Duty you will need to pay on your property using our Stamp Duty Calculator.

Conveyancing fee

Conveyancing fees or legal fees as they are also known are the amounts paid to a solicitor for the completion of searches, legal activities and tax elements associated with the purchase of your property and its legal transfer into your name. This will most likely include Stamp Duty and other associated costs which the Solicitor will pay on your behalf. The Solicitor will provide you a list of actions required and the relative cost of each activity so you have a full appraisal fo the associated costs as well as the total amounts due. The fees are typically paid when the property purchase completes.

Land Registry fee

Land Registry fees is an amount paid to the Government for the update of the UK Land Registry to reflect that you are now the new legal owner. The Land Registry record will also contain information on your mortgage so that any future sales of the property first clear the outstanding mortgage before any remaining funds are passed on to you as the legal owner. Land Registry fees vary across the UK with Northern Ireland using a tiered system which reflects the cost of the property, the higher the property price, the higher the land registry fee (making it more akin to a taxation approach than a costing approach).

Chaps fee

CHAPS is a guaranteed same day electronic transfer of funds. The mortgage lender may pass on or charge you a flat fees for the CHAPS transfer to cover their cost when transferring the mortgage funds to your solicitors account for payment on to the owner of the property from whom you are purchasing.

Completion fee

A completion fee or exit fee as it is sometimes referred to is the amount due when a mortgage terminates with a specific mortgage lender. Completion fees become payable when you either pay off your mortgage or when you switch mortgages to a different mortgage lender. Mortgage completion fees will include the costs of releasing the mortgage deeds. The mortgage deeds are a legal document which records the transfer of the mortgage from the mortgage lender to the mortgage borrower and defines a holding for that amount against the property. The mortgage deed is a means of the mortgage lender protecting their investment (so you don't simply sell the property and run away with the money and leave the mortgage lender out of pocket).

Early Repayment Fee

Early repayment fees are more commonly referred to as "Early Repayment Charges" or "ERC". The ERC is a figure charged if you exit the mortgage agreement ahead of a defined date or amount, this is most commonly associated with fixed term mortgage deals where an introductory rate is applied for 2 years (for example) but you are committed to remain in the mortgage for 5 years. If you decide to switch mortgages after 2 years but before 5 years, you will likely attract ERC. ERC is typically calculated as a percentage of the mortgage or lost interest payments and can run into thousands of pounds. Also check to see if an ERC is applicable and how much it will be before you switch, you may be better off remaining with the same mortgage lender. Some mortgage lenders will wave the ERC if you change to a different mortgage product with them BUT always ask.

More on Mortgage Fees

If you found this basic introduction to mortgage fees useful you will like our more in depth guide to mortgage fees. Alternatively, review the next or previous mortgage guide by choosing a mortgage article below.

Use our Mortgage Fees Calculator to calculate how much you should set aside when budgeting for your mortgage.

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