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Mortgage set-up costs
 There are loads of hidden costs - so watch out!
Watch out for hidden costs when you’re setting up your mortgage. There’s lots of ‘em! Arrangement fee If you’re either a first-time buyer or remortgaging, you’ll have to pay an arrangement fee to the lender to cover the costs of setting the mortgage up for you. Most lenders charge between £400 and £700 but it varies widely and arrangement fees have been on the rise in recent years. An increasing number of lenders are charging arrangement fees that are a percentage of the loan amount, say 1% or 1.5% rather than a fixed fee in order to get to the top of the 'best buy' tables. So if you want the best rate you pay a bigger fee. As a general rule, the bigger your mortgage the less important the fee is because the interest rate is much more important. So it might be worth paying the fee in order to get the cheap rate. If you have a small mortgage, the reverse is true. Some lenders will let you add the arrangement fee to the mortgage. This can help if you are short of cash but it’s worth remembering you’ll pay more back in the long run because you’ll be paying interest on the arrangement fee too. Mortgage valuation fee and homebuyer’s report/structural survey A mortgage valuation is to reassure the lender that the property is worth what you are borrowing from them. The more expensive the property, the higher the valuation fee, but as a rough guide, you’re likely to pay around £400 on a £100,000 property. A mortgage valuation isn't a survey so if you want to check the condition of the property you will have to pay for a homebuyer's report or a full structural survey. This can be conducted at the same time as the mortgage valuation and will cost you a few hundred pounds more, depending on what type of survey you opt for. Higher lending charge If you have little or no deposit, there may be a higher lending charge (HLC). This is to cover the cost of insurance taken out by the lender in case you default on your mortgage payments and there is any shortfall in what you owe the lender once your house has been sold. The higher lending charge is usually a percentage of the mortgage amount and could add up to a few thousand pounds so avoid paying it if you can. Look out for a lender that doesn’t slap you with this charge, because it’s not common practice anymore. Exit fee An exit fee is payable to get out of the current mortgage deal you’re in so you can enter another – hopefully better – one. This can be anything from £50 to £295 and covers administration costs. Valuation and legal fees If you are remortgaging, you may find that some lenders will offer free valuation and free legal fees. This could save you a few hundred pounds so is worth considering. Solicitor’s fee There may also be a fee to pay to your solicitor for the telegraphic transfer of mortgage funds. This can cost around £50. Stamp duty Stamp duty is a tax on purchases, particularly property and shares. It starts at 1% on properties costing between £120,000 and £250,000; and rises to 3% on properties between £250k and £500k; and 4% on those costing over £50k. When working out the cost of a mortgage it’s important to get a full breakdown of the fees as well as the rate. If you can't do the sums for yourself, ask an independent mortgage broker to help. |
Jasmine and the Moneymagpie team
Moneymagpie Moneypedia
15.02.2008
