The mortgage interest rate gets most attention, but fees significantly affect total borrowing cost. Understanding what fees apply helps compare deals properly and budget accurately.
Common Mortgage Fees
Arrangement Fee (Product Fee)
The lender’s charge for setting up the mortgage. Typically £500-£2,000 but sometimes higher for special rates.
You can usually add this to the mortgage rather than paying upfront. But remember, you’ll pay interest on it for the mortgage term – a £1,000 fee added to a 25-year mortgage at 5% costs about £1,750 total.
Booking Fee (Application Fee)
Some lenders charge an upfront fee when you apply. Typically £100-£250. Usually non-refundable even if the mortgage doesn’t proceed.
Valuation Fee
The lender needs to value the property before lending. Costs depend on property value – typically £150-£500 for typical Birmingham properties.
Some mortgage products include free valuation – factor this into product comparison.
Legal Fees (Conveyancing)
Solicitors handle the legal work. For purchases, you pay your own solicitor. Costs typically £1,000-£1,500 plus disbursements (searches, Land Registry fees, etc.).
For remortgages, some lenders offer free legal work, handling everything themselves.
Mortgage Broker Fee
If you use a broker, they may charge a fee. Some charge nothing (paid by lender commission); others charge fixed fees or percentages. Understand fees before committing.
Higher Lending Charge
Historic fee for high LTV lending, now rarely applied.
Telegraphic Transfer Fee
Charge for sending mortgage funds electronically. Typically £25-£50.
Ongoing Costs
Monthly Payments
Your regular mortgage payment – interest plus capital repayment (or just interest if interest-only).
Insurance Requirements
Lenders require buildings insurance. Life insurance isn’t mandatory but is sensible. Budget for ongoing premiums.
Exit Fees
Early Repayment Charges (ERCs)
If you repay during a fixed or discounted period, charges apply. Typically 1-5% of the outstanding balance, reducing over time.
ERCs don’t apply after the special rate period ends – though you’d usually remortgage by then anyway.
Exit Fee (Deeds Release Fee)
Some lenders charge to release the property from the mortgage at the end. Typically £50-£200.
Comparing Total Costs
Comparing mortgages requires looking at total cost, not just interest rate:
Example:
Mortgage A: 4.5% rate, no fees
Mortgage B: 4.2% rate, £1,500 arrangement fee
Over a 5-year fixed period on a £200,000 mortgage:
Mortgage A interest: approximately £42,500
Mortgage B interest: approximately £39,500
Mortgage B fee: £1,500
Mortgage B total: approximately £41,000
Despite the higher rate, Mortgage A costs more overall.
Always calculate total cost over your expected holding period.
Typical Costs for Birmingham Buyers
For a £200,000 property purchase with 10% deposit:
| Fee | Typical Cost |
|---|---|
| Arrangement fee | £0-£1,500 |
| Valuation | £0-£300 |
| Legal fees | £1,200-£1,800 |
| Broker fee | £0-£500 |
| Stamp duty | £1,500 |
| Total fees | £2,700-£5,600 |
Plus your 10% deposit (£20,000) and moving costs.
Minimising Costs
Fee-free products – Some mortgages have no arrangement fee. Rates may be slightly higher but total cost can be lower, especially for shorter holding periods.
Free valuations – Many products include valuation. Worth considering if you’d pay £300+ otherwise.
Cashback deals – Some products offer cashback at completion. Can offset other costs.
Free legals – Remortgage products often include legal work.
Talk to Us
SJ Financial Solutions helps Birmingham buyers understand true mortgage costs and find cost-effective solutions. Contact us to discuss your mortgage requirements.
