What are mortgage lender fees?
Moving house isn’t cheap. We’re not even talking about the deposit, stamp duty or the property itself, but rather the seemingly endless list of fees and expenses which come as part of the deal when you buy a new home.
High on this list are the mortgage lender’s fees. You can’t avoid them, so we think it helps to know what you’re actually paying for, how much you can expect to pay, and whether you can get the money back should your sale fall through.
Mortgage lender fees
Here’s a breakdown of the fees you’ll be looking at when you take out a mortgage.
Mortgage arrangement fee
This is the sum you pay to a bank, building society or another lender to set up your mortgage. It can be up to £2,000. You sometimes have the option to add it to the mortgage repayments, which helps spread the cost (although you’ll then have to pay interest on it).
Sometimes, especially if you only had a small deposit, the lender wants this upfront – meaning you can’t get it back if the sale falls through (unless you’ve taken out Home Buyer’s Protection Insurance).
This fee is chargeable when you submit your mortgage application to your lender. Not all mortgage types come with this fee, but it’s pretty standard to secure attractive rates. The booking fee is usually around £200.
Your mortgage lender wants to ensure the property you’re buying is worth what they’re lending you. This is why they arrange an independent valuation (they won’t just take your estate agent’s word for it) to check this.
It’s important to remember that your mortgage lender’s valuation won’t replace the house survey you’ll also need before completion, which checks for potential issues and repairs in the home, such as structural problems and contamination.
Valuation fees can be anywhere from £200 - £1500, and you’ll lose it all should the sale fall through.
Telegraphic transfer fee
When your mortgage lender transfers the funds for your new property to your solicitor, there is a cost involved with moving such a large amount of money. Unfortunately, this cost is yours to bear as the buyer. It won’t be huge – probably around the £50 mark. This fee might be referred to as CHAPS (Clearing House Automated Payment System).
Mortgage account fee
This fee is payable to your mortgage lender for handling your account. This includes administration and maintenance of your account over its lifetime. This is usually around £150 - £300, depending on your lender.
Mortgage exit fee
If you choose to re-mortgage at any time, there’s usually a fee associated. In some cases, if you’ve already paid a mortgage account fee (as above), you won’t need to pay a mortgage exit fee. Mortgage exit fees depend on your lender but can be around £150 - £300.
Early repayment charge
If you pay your mortgage back early during a tie-in period, you won’t get a gold star. Instead, you’ll get a charge. This is because it’s not in the lender’s best interests to lose you during this time as you’ll pay less interest, so the lender doesn’t get as much money as they would if you’d have stuck to the original agreement.
Early repayment charges can be as much as 5% of the mortgage total, so think long and hard before you over-pay or pay too early.
How can a mortgage broker get you a good deal?
A mortgage broker won’t lend you the money for a mortgage, but they’ll help you find the very best deal and a mortgage which suits your particular set of circumstances. They’ll use their expertise and knowledge of the mortgage marketplace to ensure you aren’t paying for a financial product which isn’t right for you. They’ll do this by analysing your financial position as well as your plans for the future.
Some people wonder if they really need a mortgage broker. The reality is - a mortgage broker can help save you both time and money by taking on the time-consuming task of trawling the market in search of the exact deal to suit you. They’ll have access to databases and software which conduct whole-of-market searches – the equivalent of weeks spent scouring the internet to compare deals.
They will probably be privy to special rates which aren’t available directly from the lenders. Further, a mortgage broker will help you avoid mortgages you’re likely to be turned down for, as being rejected can affect your eligibility for other deals.
How much do mortgage brokers charge?
Not all mortgage lenders charge for their services. This is because they’ll usually get a commission from the lender you go with for arranging the mortgage on your behalf. Mortgage brokers that do charge usually take a percentage of the mortgage amount, which is usually around £1000.
How can you get your mortgage lender fees back if the sale falls through?
In the UK, 1 in 4 house sales falls through before completion.
Unfortunately, during this time, you’ll have already parted with plenty of cash upfront for things like mortgage arrangement fees, valuation fees and more.
Usually, when a house sale falls through (this includes being gazumped – when the seller accepts a higher offer after they’ve already accepted yours), the buyer loses the money they’ve already spent on the sale. As well as fees for mortgage arrangement, this also includes things like solicitor’s fees, valuation fees and estate agency fees.
With Home Buyers Protection Insurance, you have a safety net should your house sale fall through. This insurance cover allows you to claim much of these fees – including mortgage lender fees – back if the transaction doesn’t go ahead through no fault of yours.
Property sale fall-throughs are on the rise, with a 12% increase in failed transactions seen during 2020 – each costing on average £2,403. You might not hear people shouting about this happening to them, as thinking you’ve secured your dream property only to see the deal fall apart can be seriously upsetting.
It’s one thing forking out for mortgage lender fees when you end up with a great mortgage deal which allows you to secure the property of your dreams. It’s another thing to have to pay these fees despite your transaction falling through. Making sure you’re covered with Rhino Home Buyers Protection Insurance means you won’t need to worry about your mortgage lender fees going down the drain. You can simply dust yourself off and begin your property search afresh, with your money safe and secure.