What is the cost of a mortgage? The lowdown for first-time buyers

Posted 23 October 2015 by Keith Osborne

We take a look at all the costs that first-time buyers and other home purchasers will find associated with getting a mortgage...

Over recent years, the fees and charges that come with a new mortgage have risen sharply. Research from the consumer organisation Which? in November 2014 found that the average set-up charge for a new mortgage rose was £1,588, up from £878 in 2009. When you factor in other costs such as valuation and booking fees, the cost of a new mortgage can run into thousands of pounds.

The research found that lenders now charge more than 40 different types of set-up fee, making it almost impossible for consumers to find the best deal. Richard Lloyd, executive director of the organisation, says: “The complex range of fees and charges prevent people from finding the best deal as the total cost is not clear."

To help you navigate the maze of fees and charges we've out together a guide to the most common mortgage costs you will encounter.

Arrangement fees

One of the most common mortgage costs you will encounter is an 'arrangement fee'. This is sometimes called a 'product fee' or 'completion fee' and is generally linked to the mortgage product that you choose.

Fees on fixed-rate or variable-rate products can range from as little as £99 to as much as £2,499. Lots of the very lowest interest rates will come with a significant arrangement fee - often £999 or more - and so it pays to consider both the fee and the mortgage rate when choosing a deal.

Booking fees

Some lenders charge a 'booking fee' which is payable when you submit your mortgage application and is normally non-refundable - even if your mortgage is declined.

Booking fees typically range from £99 to £200.

Valuation fees

When you apply for a new mortgage you will almost always have to pay for the property to be valued. The cost of the valuation normally depends on two factors:

  • The estimated value of the property
  • The type of valuation that you want

Valuation costs are normally banded, meaning that you will pay more for a valuation on a £750,000 property than you will on a £200,000 home.

In addition, there are different types of survey ranging from a 'condition report' to a full building survey. A condition report is likely to cost you around £250 while a Homebuyers Report will start at around £400. Full building surveys may cost in excess of £700 and you could pay over £1,000 if you are buying a more expensive property.

Admin fees

When your mortgage is ready to complete you will generally find that your lender levies some smaller administration fees. These may include:

  • A 'telegraphic transfer' or CHAPS fee to transfer the money to your solicitor - typically £25 to £50
  • A fee for using your own buildings insurance - typically around £25
  • A 'mortgage account fee' to set up and administer your mortgage account - typically £100 to £300

Post-completion fees

Even when your mortgage is established and you are making your payments you may still face additional costs. These might include:

  • Missed payment fee - some lenders charge an admin fee if you miss a payment or if your home loan goes into arrears
  • Early repayment charges (ERCs) - if you decide to repay part of your mortgage or end your mortgage early and you are part way through a fixed or discounted rate deal your lender will generally charge a fee for you coming out of your deal. This can range from 2%-5% of the amount that you repay
  • Closing fee - if you haven't paid a mortgage account fee you will normally pay a closing fee' when you repay your mortgage with your lender. This is typically £50 to £300

Find out more about mortgages on our advice pages.


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