A guide to mortgage costs and fees

The number of fees and costs associated with buying a house can be overwhelming. We’ll help you tick the right boxes and budget accordingly to assist in making your mortgage experience a positive one.

The number of fees and costs associated with buying a house can be overwhelming. We’ll help you tick the right boxes and budget accordingly to assist in making your mortgage experience a positive one.

Daniel Evans
From the Mortgages team
12
minute read
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Posted 19 AUGUST 2021

What do mortgage fees include? 

There’s more to mortgages than a single simple payment. For first-time buyers in particular, the journey from deposit to walking through the door and beyond can feel like a daunting one. 

To help you budget with confidence, we’ve put together a list of the additional mortgage costs you need to think about. Some are charged when you set up the loan, others come up during the life of the mortgage, but they’re all in addition to the basic cost of repayments and the interest that goes with them.

Deposit 

This is a variable cost, based on the guiding principle that the larger the deposit you can afford, the more money you’ll save in the long term. With a generous deposit, you’ll reduce the size of the loan as well as the interest, and therefore the amount required in monthly repayments too. It means less risk for you and your mortgage lender, which also increases your chances of getting a better deal. 

With 95% mortgages now available, deposits can be just 5% – a more affordable option that’s particularly popular with first-time buyers looking to get on the property ladder. 

Read our guide to help you save for a mortgage.

Mortgage broker fee – £0 to 500 

A mortgage broker does the legwork when it comes to finding the right mortgage deal for you. They know the market well and, if you’re new to house buying, self-employed or in unusual circumstances, they can be a reassuring and helpful presence.

You may or may not be charged for their services – some take a commission from the mortgage provider instead. But if they do charge, you can still usually have an initial chat for free.

We’ve partnered with London & Country Mortgages Ltd (L&C)** to provide you with fee-free mortgage advice.

The alternative to using a broker is to go direct to a mortgage lender after comparing prices online – for example, by using our mortgage comparison service

If you go direct, you’ll still get the same regulated financial advice that you would with a broker, and some lenders offer support and guidance on their websites too. 

About London & Country Mortgages Ltd (L&C)

**London & Country Mortgages Ltd (L&C) are a multi-award-winning mortgage broker with over 20 years’ experience in helping people secure their perfect mortgage. Advice is provided by L&C, who are authorised and regulated by the Financial Conduct Authority (143002).

L&C are not part of Compare the Market Limited. Compare the Market receive a % of the commission that our partner London & Country earns. All applications are subject to lending and eligibility criteria.

L&C will not charge you a broker fee should you decide to proceed with a mortgage.

Mortgage arrangement fee – average £1,000, but varies based on property value 

Also known as the completion fee, application fee or product fee, this is a charge for setting up your mortgage. It’s likely to be your biggest outlay.

When you’re looking at mortgages, the arrangement fee is an important consideration, along with the interest rate. The question to ask is do you want a high-fee/low-interest rate deal – or vice versa?

Bear in mind that some lenders charge high arrangement fees so they can advertise lower interest rates.

You’ll usually have the choice of adding the arrangement fee to the mortgage – meaning you’ll pay interest on it – or you’ll be able to pay the fee upfront. However, this means there’s a chance you’ll lose that money if anything goes wrong with the purchase.

An alternative is to add the fee to the cost of the loan but overpay as soon as the mortgage completes to avoid paying interest on it. Most lenders allow you to overpay by a certain amount each year without incurring a penalty – but always read the small print.

Mortgage booking fee – up to £250

Also called an application fee or reservation fee, the booking fee is typically paid when you submit your mortgage application to secure the rate – although some lenders include it in the arrangement fee.

It’s usually non-refundable, even if the property sale falls through and the mortgage is no longer needed.

Valuation fee – £0 to an average of £250, but varies based on property value 

Before approving your mortgage, a lender organises a survey to assess the value of your property and identify any issues or repairs that may be needed. This is to ensure that, if you default on the loan, they can sell the property and get their money back. This may or may not be a cost passed on to you.

However, if you are paying, you may also have the option to include a survey or homebuyer report (see below), which obviously increases the cost, but provides you with more detailed information about the property. In some cases, this could affect your decision to buy.

In Scotland the process is different. The seller must provide a Home Report, which includes a valuation, before a property can go on the market.

Survey – from £400, but varies based on type of survey and size of property 

While the valuation is for your lender’s benefit, the survey is for yours. It’s not a legal requirement, but it will flag up issues that could cost you later. If serious repairs are brought to light, you might also be able to renegotiate the property price with the seller.

You can commission a survey yourself or your lender may be able to arrange it for you.

There are three different kinds of surveys to choose from, depending on the level of detail you’re looking for: 

  • Condition report – this is the most cost-effective survey and can usually be arranged alongside the lender valuation, via the lender. It’s suitable for a conventional house, flat or bungalow built from common building materials that is in reasonable condition. It doesn’t include a valuation, but does provide traffic-light ratings of different parts of the building, highlighting problems that may need attention. It will also give you a summary of risks to the condition of the building.
  • Homebuyer report – best for newer properties in reasonable condition. As well as flagging up key risks, issues requiring immediate attention and problems that could affect the value, this will give you a rebuild value for home insurance purposes. Any complications, like those relating to damp, subsidence, building structure and plumbing will also be raised.
  • Building survey – more expensive, but more thorough. This is recommended if your future home is older, very large or an unconventional build that’s been significantly altered or that you have plans to renovate. As well as all the information provided by a homebuyer report, you’ll also get extra information including professional advice on making any necessary repairs. 

Once you’ve paid for a survey, there’s still a risk that the property sale could fall through if a chain breaks down – so you could potentially lose this money. However, it’s a valuable assessment to help you decide whether or not to purchase the property. 

To find a surveyor, try the Residential Property Surveyors Association (RPSA) or the Royal Institution of Chartered Surveyors. To help you decide what level of survey you need, you can also see samples of the different types of surveys.

Telegraphic transfer fee – around £25-£50 

Also known as CHAPS (Clearing House Automated Payment System), this is a bank charge to cover the cost of transferring the large amount of money used to buy the property to the seller’s solicitor. It’s typically non-refundable.

Mortgage account fee – around £100-£300 

This covers the administration costs for your lender of setting up, maintaining and closing your mortgage. It’s typically charged at the start or end of the mortgage term.

If you’ve paid the mortgage account fee, you probably won’t need to stump up for the exit fee (see below), although an early repayment charge may apply if you pay off your mortgage ahead of time.

Conveyancing and legal costs – £300-£1,500 

Conveyancing is the process of legally registering you as the new owner of the property. It’s carried out by a solicitor, who can also deal with other documents, such as those relating to environmental factors and planning permission.

You should check whether the price quoted by the solicitor includes VAT, search fees and Land Registry fees. Legal fees for leasehold properties are likely to be more than for their freehold equivalent.

Your lender may cover these legal costs if you’re remortgaging, although you’ll probably have to use one of their chosen solicitors. Otherwise, you’ll have to pay this fee yourself. The final price is determined by the value of the property and the location – for example, extra searches may be needed if you’re near a river, or with a new build that may require more checks , bumping up the price.

Land Registry fees – £40-£500 

The Land Registry registers properties in England and Wales under their owners’ name. This charge covers the cost of registering your property to you.

The amount you pay depends on the value of your property and it may be included in the fee charged by your solicitor.

In Scotland, there’s also a title registration fee to pay.

Higher lending charge (HLC) – up to 8% of the mortgage value 

This is, effectively, insurance to protect your mortgage provider against losses if you default on your mortgage repayments and the property is repossessed and sold at a loss.

It applies to high loan-to-value (LTV) mortgages – loans that carry a higher risk to the mortgage provider because the deposit is smaller.

Amounts vary, but they range from 1.5% to 8% of the mortgage value. It’s usually paid on completion, but may be added to the mortgage balance. The money should be refunded if you decide not to go ahead with the mortgage.

Missed payment and arrears fees – £20-£40 

If you miss payments on your mortgage, an arrears fee will probably apply – unless there are mitigating circumstances.

Fees vary between lenders and are charged on a monthly basis. If you fail to meet your mortgage repayments, then your home could be repossessed.

Early repayment charges (ERC) – around 1-5% of the loan 

If you pay your mortgage off in full before the agreed term or deal ends, or you overpay beyond your annual allowance, you may be faced with an early repayment charge.

Most lenders allow you to overpay by 10% every year without a penalty, but always read the small print.

ERCs often reduce over time, for example – from 5% to 1% over the course of a five-year deal.

Exit fee – £50-£300 

When you finally repay your mortgage, an exit or closure fee may apply – unless it’s included in your mortgage account fee.

You may also be charged an exit fee if you switch to another lender or remortgage to take advantage of a new deal with the same lender.

Frequently asked questions

What are the tax implications of buying a new home?

Property sale tax is your biggest consideration – known as Stamp Duty Land Tax in England and Northern Ireland, Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales

Stamp Duty must be paid if you buy property over a certain price. The current threshold is £250,000 for residential properties. From 1 October 2021, it decreases to £125,000. This means that if you have a property worth this amount or more, Stamp Duty charges will apply. 

To work out how much tax you’ll pay, use our Stamp Duty calculator.

If you’re a first-time buyer, Stamp Duty may not apply, or you may be entitled to a discount depending on the value of your property.

Land and Buildings Transaction Tax is the Scottish replacement for Stamp Duty and different thresholds apply. Currently, if your property is worth £145,000 or more, you’ll have to pay tax, which increases in increments up to 12% if your property is worth over £750,000.

Land Transaction Tax – in Wales, the minimum threshold is £180,000. 

What insurance do I have to pay when I move to a new property?

Having buildings insurance is usually a condition of getting a mortgage. It covers the cost of repairing damage or rebuilding the structure of your home if it’s damaged. Needless to say, this is the kind of protection your mortgage lender has a vested interest in.

You may have to pay a small fee to your lender if you decide to get your own buildings insurance rather than getting it through them.

You’ll need to have buildings insurance in place on the date you exchange contracts. The cost depends on the age and construction type of your property.

Life insurance isn’t compulsory, but it means that if you die or become terminally ill, your loved ones will have financial support to help clear the mortgage and any other existing debts.

Income protection insurance offers a replacement income if you’re unable to work, usually due to illness, injury or if you lose your job. This could help you continue to pay your mortgage and offer you and your family security in difficult times.

Contents insurance covers the cost of replacing your possessions if they’re stolen, damaged or destroyed. Again, this isn't a legal requirement, but it could save you a lot of money in the event of a burglary or house fire. Some policies can be combined with buildings insurance to give you double the peace of mind.

Mortgage insurance will help you cover repayments if you lose your job or become unwell and can’t work.

What is a European Standardised Information Sheet (ESIS)?

The ESIS is a standardised document that you’ll get from a lender when you’re thinking about getting a particular mortgage. It includes all the information about that mortgage agreement, including details of the fees you’ll have to pay and any conditions that you should know about.

It’s a helpful document to have when it comes to comparing different mortgages, in addition to the online mortgage searches that you might be doing to find a provider.

Will the costs be the same every time I move?

Some of the costs listed above will be applicable each time you move, while others might not. When taking out a mortgage, you may be advised by the lender that some of the fees we list above can be added to the mortgage. Be aware, though, that this will increase your debt and you’ll have to pay more interest.

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