Mortgages may be cheap right now (if you have enough equity) but the costs surrounding getting one have definitely gone up. Arrangement fees, valuations, structural surveys, lending charges, exit fees, stamp duty and legal fees could unbalance your budget. Here is how much you should budget for and what to avoid.
- Mortgage arrangement fee
- Mortgage valuation fee and homebuyer’s report/structural survey
- Higher lending charge
- Exit fee
- Valuation and legal fees
- Solicitor’s fee
- Stamp duty land tax
If you’re a first-time buyer or remortgaging, you’ll have to pay an arrangement fee to the lender to cover the costs of setting up your mortgage. The price of arrangement fees has been on the rise in recent years, and whilst it varies widely (depending, mostly, on the size of mortgage you are taking out) don’t expect to get much change out of £1,000.
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. They do this so that they can keep the mortgage itself looking like a really good deal so they can get to the top of the ‘best buy’ tables. So you might find yourself paying a bigger fee (much more than £1000) in order to secure the best rate. This is where you have to do your sums and work out if it really is cheaper in the long-run.
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, though, 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 that you will pay back more in the long run because you will be paying interest on the arrangement fee as well as the mortgage itself.
The mortgage valuation is organised by the lender is exists to reassure them that the property is worth what you are borrowing. Although the valuation is for the benefit of the lender you will still have to pay for it. The more expensive the property, the higher the valuation fee, but as a rough guide, you’re likely to pay in excess of £200 on a £100,000 property.
Importantly, a mortgage valuation isn’t a survey. 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.
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, soavoid paying it if you can. In fact, as most lenders are insisting on a serious down payment before you can get any mortgage, it’s rare for the higher lending charge to be an issue.
You should also be aware that any insurance your lender takes out only covers their back, not yours. So whatever you do don’t default on your payments thinking that it won’t really matter as the costs are covered. You will still be liable to pay back what you owe, and leaving it too long could land you in trouble.
If you’re struggling to pay your mortgage always get professional advice as soon as possible. Read our article on what to do if you believe you may be at risk of repossession.
If you decide you want to get out of your current mortgage deal and take out another one, or if you want to pay off your mortgage early, then you will probably be charged an exit fee. Lenders claim this is cover administration costs, and they can charge as much as £295.
There’s been quite an uproar in recent years regarding exit fees, mainly because a number of lenders were charging mortgage buyers more than had originally been agreed in their contract. Fortunately the FSA stepped in and forced these dodgy lenders to reimburse what they had overcharged.
If you think you might have been overcharged on your exit fee, you must contact your old lender and insist on being reimbursed. If you don’t ask you certainly won’t get, so don’t give them any excuse to hold on to money that’s rightfully yours. If you have a problem getting back what is rightfully yours then contact the Financial Ombudsman Service and get them to take up the case for you.
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.
However, remember that when you move house or buy your first home you will have conveyancing costs which can be anything from £500- £2,000 or more depending on where you live and how much your home is worth. It’s often cheaper to use a licensed conveyancer than a bog-standard solicitor. You can find a conveyancer local to you through the Association of Licensed Conveyancers.
There may also be a fee to pay to your solicitor or conveyancer for the telegraphic transfer of mortgage funds. This can cost around £50.
If the property that you’re buying is worth more than £125,000 then be prepared to pay Stamp Duty Land Tax (SDLT).
There has recently been a significant change to stamp duty and the way it is structured for people buying residential property.
Here are the basics:
Previously, a set SDLT percentage was charged based on the property’s full value.. Now though, SDLT is charged at increasing rates for each portion of the price.
- 0% on the first £125,000 of the property price
- 2% on the next £125,000
- 5% on the next £675,000
- 10% on the next £575,000
- 12% on the rest (above £1.5 million)
Example – If you buy a property for £275,000, you’ll pay £3,750 of SDLT. This is made up of:
- nothing on the first £125,000
- £2,500 on the next £125,000
- £1,250 on the remaining £25,000
Use the HM Revenue and Customs (HMRC) SDLT Calculator to work out how much you’ll pay.
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. In fact our independent mortgage service, run by London & Country can answer all your questions about fees.