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 Mortgage Fees
The fees associated with taking out and paying off a mortgage
have tripled in the last decade. Watch out for the hidden charges
behind the cheap headline rates.
In the past, lenders would charge a fee to cover the costs
they incurred administering the mortgage. But today, many lenders
rely on fees to bring in extra revenue and so have increased the
size of many of their fees.
Product Fees
Also called the arrangement, reservation and booking fee, the
product fee is the upfront price tag attached to a particular
mortgage deal. A typical product fee is around £499, but it is
becoming increasingly common to find product fees of £1,000 or
more.
Product fees can often be added to the loan, and it always
wise to take this option - even if you intend to pay it upfront on
the day of completion. This is because some lenders, such as Abbey
and Halifax, refuse to refund product fees if they reject your
mortgage application, or if you change your mind about going ahead
with the mortgage before completion.
Valuation Fees
The lender needs to assess that your property is worth at least
the money it is lending you. It pays a surveyor to conduct a
valuation, and covers its costs by charging you a fee. The size of
the fee will depend on the price of the property, but even on the
same property, there will be differences between lenders. Northern
Rock, for example, levies a £475 charge on a £100,000 property,
while HSBC only charges £135.
Higher Lending Charges
A Higher Lending Charge is imposed by some lenders on borrowers
who wish to borrow more than 75 per cent of the property value.
Most of these lenders only apply it to a mortgage with a 91 per
cent loan-to-value (LTV), so if you have a 10 per cent deposit,
you should be OK.
The size of the Higher Lending Charge depends on the size of
the loan. For example, if you have a five per cent deposit, the
typical higher lending charge on £100,000 mortgage is around
£1,500, but on a £200,000 mortgage it would be around
£3,000.
Insurance Penalties
Mortgage lenders require you to take out buildings insurance so
that, if your property burns down or is destroyed, their asset is
protected. In the past, you were free to take out this insurance
with any provider. Nowadays, some lenders, such as Alliance &
Leicester, want to sell you their own insurance and will penalise
you with a £25 fee if you decide to go elsewhere.
CHAPS Fees
The CHAPS (Clearing House Automated Payment System) fee, also
confusingly called a telegraphic transfer fee, is supposed to
cover the administration costs of transferring the lender's money
to your solicitor. The cost nowadays is likely to be only a few
pounds, but some lenders, such as Abbey, still charge as much as
£35. Others, such as Barclays/Woolwich, do not charge anything at
all for this service.
Early repayment charges
Early Repayment Charges or ERCs usually apply to fixed and
discounted variable rate mortgages. Often, they are calculated as
a percentage of the outstanding loan. You usually only have to pay
an ERC if you want to remortgage during the discounted or fixed
period of your mortgage deal. But it is still essential to look at
how long ERCs will apply to the mortgage, and whether the amount
of ERCs you would have to pay decreases with time. Your
circumstances could change, so the more flexibility you have, the
better.
Most fixed deals nowadays do not come with any overhang.
This means that ERCs do not apply once the rate converts to the
SVR, so you are free to remortgage without paying a penalty. Watch
out for deals that do have an overhang as they may cost you dearly
in the long-term.
Exit Fees
The mortgage exit administration fee (MEAF) is a charge levied
by the lender when you redeem your mortgage, either because you
have finished paying it off or because you want to switch to
another lender.
The cost of an exit fee has more than quadrupled over the
past decade. In 1996, the average exit fee was around £50 - today,
it is typically about £225, although Nationwide still charges just
£90 and HSBC does not charge anything at all.
The Financial Services Authority (FSA), which regulates the
mortgage industry, recently forced lenders to offer refunds to
past and existing customers whose original mortgage contract
states that they will pay a smaller exit fee.
This means that, no matter when you redeem your mortgage,
you should not have to pay a higher exit fee than the current one
stated on your contract.
If you have ever paid a higher exit fee than you expected
to, you should contact that lender and ask it to refund you the
difference between what you paid and the original sum you expected
to pay.
Legal Fees
When you take out a mortgage, the lender incurs legal costs,
which are usually around £200. Most lenders will expect you to pay
for these costs. The lender does not decide what the charge will
be - it is set by the solicitor that handles the work for the
lender. If you are moving home, the lender usually engages the
same solicitor that you are dealing with anyway. Your solicitor
will ask you whether you are taking out a mortgage and most
automatically add the lender's costs onto their fees before
quoting you a figure. This means that, no matter which lender you
go for, your legal fees are unlikely to be any higher than the
original quote from your solicitor.
Look out for 'free legals'. This type of incentive will
cover the legal costs associated with the mortgage, but not with
moving home, which is why they are often only offered on
remortgages. |
For more information or to discuss your particular
requirement, click here to contact us. |
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