Buying a home is one of the most significant decisions you’ll make in your lifetime.
One of the key components to understand is the various fees associated with securing a mortgage and completing a property purchase. These fees, while essential, can often seem overwhelming without the right information.
In this guide, we aim to shed light on the most common mortgage fees you’ll come across, breaking them down into understandable segments.
From the fees charged by lenders, to the services provided by brokers and the legal work managed by solicitors, we’ve got it all covered. With a clearer picture of these costs, you’ll be better prepared for the home-buying process, ensuring no unexpected expenses catch you off guard.
LENDER FEES
Purchasing a home is a big step, and while it’s filled with excitement, it also comes with its fair share of financial lingo.
One term you’ll often hear is ‘lender fees’. But what exactly does that mean?
Before you start to panic or get lost in financial jargon, let’s clear things up.
Simply put, lender fees are the costs your mortgage provider (that’s the bank or the institution lending you the money) charges for setting up, processing, and maintaining your loan.
While some of these charges might seem a tad technical or even overwhelming at first glance, we’re here to break them down in simple terms, so you know exactly what to expect.
Let’s explore the world of lender fees and make sense of those costs, ensuring you’re well-prepared for your home-buying adventure!
Booking fee
This is the fee that you are most likely to be paying first.
A booking fee, also called the reservation fee, is a non-refundable fee of £100-£200. It’s payable to the lender when you apply for a mortgage. The idea is that it ‘books’ your special interest deal. It is most commonly applied to a fixed interest rate deal.
Not all lenders charge this fee. If your mortgage application is declined, or you withdraw it, you won’t get this fee back.
Paid to: The mortgage lender
Paid when: On application
Valuation fee
Before a lender approves your mortgage application, it will need to organise for the property to be inspected and valued. All mortgages are secured against a specific property, and lenders need to check that the property is suitable.
The mortgage valuation fee is charged by the lender upon application, and the cost is linked to the value of the property. Budget for £400-£2000.
The lenders’ surveyor will be asked to carry out a lenders valuation for mortgage purposes. They will assess the value of the property based on a number of factors, including its location, condition, size and amenities. They will also take into account any recent sales of similar properties in the area. The surveyor’s report will then be used by the lender to determine how much they’re willing to lend you.
Although you pay for this valuation, you won’t always receive a copy of the report.
In rare occasions the surveyor might spot something that needs fixing. Here the lender might put a mortgage retention clause into your mortgage offer. Basically lending you less than you asked for until the list of works has been completed.
The valuation fee is not refundable once the surveyor has visited the property.
Paid to: The lender
Paid when: On application
You will find more useful information in our article: “A Guide To Property Surveys“
Extra property reports
Occasionally the lender’s valuation will uncover something that needs an additional inspection, from another specialist.
This isn’t always a bad sign but it will add a delay, and you will need to pay for these extra inspections and reports. The type of specialist report needed can be very varied and depends on the type of house.
Some common one are:
- Damp and timber report
- Electrical report
- Roofing report
- Drainage report
- Subsidence report
- Asbestos report
- Japanese knotweed report
Paid to: Depends
Paid when: As needed
Extra surveys
The lender’s valuation ‘survey’ is not a survey. Although the surveyor will be able to spot most severe issues, they won’t spend much time at the property looking for potential problems.
It is therefore up to you to decide whether a more in-depth inspection is worthwhile. (It is, btw)
In most cases we would suggest paying for a higher level survey. After all, you’re the one spending hundreds of thousands of pounds on a new house.
You can ‘upgrade’ most mortgage valuations to include a Level 2 homebuyers report. Or you could just instruct your own surveyor, who will be working for you, not the lender.
Paid to: Lender or independent surveyor
Paid when: As needed
You will find more useful information in our article: “Do you need a survey to get a mortgage?“
Mortgage arrangement fee
The mortgage arrangement fee is the largest mortgage related cost.
The amount of the fee is variable and will depend on the type of interest rate (fixed/tracker) and the length of the deal. It can vary considerably between different lenders.
Lenders will often structure the arrangement fee to make a deal look very cheap. They can advertise a very attractive interest rate, but this comes with a high initial arrangement fee.
Your mortgage broker will be able to compare these types of deals, so you can see the effect of an arrangement fee over the life of a fixed rate deal.
You may find that a deal with a slightly higher interest rate, but lower fee, is the better option.
Paid to: The lender
Paid when: When the mortgage starts. You will normally have the option to pay this upfront. Most lenders will allow it to be added to the loan, or even deducted from the mortgage advance.
Bank Transfer Fee
Lenders use the CHAPs banking system for sending large amount of money to conveyancers.
CHAPS is short for the Clearing House Automated Payment System. It’s run by the Bank of England and is a same-day bank transfer system for high-value transactions in Pounds Sterling.
There is a cost to them for using this system, which they then pass on. Average costs will be £25-£50 per CHAPs transfer.
Paid to: The lender
Paid when: On completion
Higher Lending Charge
The Higher Lending Charge (HLC) is usually levied once you’ve accepted a mortgage offer. Some lenders require this to be paid up front, others allow it to be added to the loan. It used to be called Mortgage Indemnity Guarantee Premium and is a type of insurance policy.
A HLC typically occurs when you borrow a higher loan to value (LTV). It is a fee that your broker will discuss with you, and will be included in your mortgage illustration. Not all lenders charge for a HLC.
Paid to: The lender
Paid when: On completion
You will find more useful information in our article: “What is a Higher Lending Charge?“
Early Repayment Charge
An early repayment charge, or ERC, is a penalty charged by your lender when you repay some or all of a mortgage earlier than agreed.
ERCs are attached to your mortgage interest rate, not your mortgage account.
You will pay an ERC when you repay all, or part, of a mortgage before the end of the early repayment charge period.
Paid to: The lender
Paid when: On early repayment.
You will find more useful information in our: “Early Repayment Charges Guide“
Mortgage exit fee
When your mortgage account is eventually closed you are likely to have to pay a final exit fee to the lender. This fee is known as; exit fee, redemption fee, deeds release fee.
This is applicable whether you close the account via a remortgage, changing lender, paying it off with a lump sum, or making your final monthly repayment.
Compared to most lender fees, the cost is quite modest, normally £50-£150.
Note that this is not an early repayment charge, but would be payable in addition to ERCs if these apply.
Paid to: The lender
Paid when: Upon closing your mortgage account
You will find more useful information in our article: “What is a mortgage exit fee?“
BROKER FEES
When you seek the expertise of a mortgage broker, you’re tapping into their knowledge of the mortgage market.
Their primary role is to assist you in finding a mortgage deal that aligns with your financial situation and home-buying goals.
But for this service, there are associated costs, commonly referred to as ‘broker fees’.
In this section, we’ll break down the specifics of broker fees and commission, ensuring you have a transparent understanding of where your money goes and the benefits you receive in return.
Advice fee
A mortgage broker will help you to find the right mortgage for your situation.
By using an independent, or whole of market, mortgage broker, you will gain access to over 100 mortgage lenders, banks, building societies and specialist lenders.
Lots of brokers do charge a fee for their services. Having a professional on your side means that you receive qualified advice and the widest amount of choice.
Some mortgage advisers will charge a single fee, while others may charge an ‘advice fee’ and then an ‘admin fee’, or ‘arrangement fee’.
Obviously, if you don’t use a mortgage broker then this fee is not payable.
Paid to: The mortgage broker
Paid when: On mortgage application, and/or completion.
You will find more useful information in our article: “Do mortgage brokers charge a fee?“
Admin fee
Occasionally a broker will separate the cost of providing you with advice and then arranging the mortgage.
This should all be explained to you well before you need to apply for a mortgage.
A brokers job does not stop when you have applied to a lender for a new mortgage. The adviser, and their staff, will be monitoring the application and stepping in to help as needed. Once the lender issues your mortgage offer this will be checked for accuracy, with any errors corrected.
Paid to: The mortgage broker
Paid when: Upon application
Broker commission
If a broker arranges a mortgage for you it is normal for the lender to pay them a commission. This is only paid when the mortgage starts, so upon completion.
No commission payments are made for declined or cancelled mortgage applications.
It is a way of remunerating the broker for introducing the borrower and helping with the application process and subsequent queries and requests. The amount of commission will be shown in your mortgage KFI illustration.
Some brokers will be happy to receive just the commission as payment for their service. Others will charge you a fee in addition.
It’s important to note that the amount of commission does not make a mortgage more expensive. Commission fees are built in to all mortgage products and it’s not possible to buy a commission-free mortgage. So you pay the same interest rate, whether you have received advice, or not.
Paid to: N/A. Commission is paid by the lender, to the broker.
Paid when: Only when the mortgage starts.
You will find more useful information in our article: “How do mortgage brokers get paid?“
SOLICITOR FEES
Purchasing a home isn’t just about finding the perfect property and securing a mortgage; it’s also about ensuring every legal aspect is handled correctly.
Enter the solicitor, or conveyancer, who manages the legal transfer of the property from the seller to the buyer.
Solicitor fees cover a range of tasks, including conducting property searches, handling contracts, overseeing the exchange of funds, and ensuring that all legal obligations are met. Each of these steps is crucial in guaranteeing that your property ownership is legally sound and free from future disputes.
Conveyancing fees
When you buy a home you will need to choose a solicitor to take care of the legal work, which is known as conveyancing.
Most conveyancers will charge a fixed fee for the conveyancing work, plus any extra costs incurred.
They will need to correspond with your new mortgage lender, your current mortgage lender (if applicable), your buyers solicitor and the sellers solicitor.
They’ll also need to undertake various searches and checks, to make sure everything is as it should be. These will be charged individually, as needed.
Solicitors handle the largest payments of money for housing transactions.
They are likely to request a ‘payment on account’ before they start working for you. This will be a proportion of their conveyancing charge plus any known search fees.
Paid to: The solicitor/conveyancing firm.
Paid when: As requested.
You will find more useful information in our article: “What does a conveyancer do?“
Search fees
A solicitor or conveyancer will conduct a variety of searches to ensure there are no issues or surprises with the property you’re interested in. Here’s some of the key searches they’ll perform, not all will apply to you:
- Local Authority Search: This is one of the most important searches. It provides information from the local council regarding any planning permissions related to the property, any enforcement notices, whether the property is in a conservation area or listed building, and much more.
- Water and Drainage Search: This search will determine whether the property is connected to public water supply and drainage systems. It’ll also identify the location of public water mains and sewers.
- Environmental Search: This search provides details on past land use, whether the land is contaminated, if there are any flood risks, radon gas presence, or any other environmental concerns.
- Land Registry Search: This search ensures that the seller has the legal right to sell the property. It provides details of the property’s ownership, any mortgages or loans secured against it, and any rights of way.
- Chancel Repair Liability Search: Some properties in the UK might be liable to contribute towards the repairs of the local parish church. This search identifies whether the property has this liability.
- Mining Search: If the property is located in an area with a history of mining, this search will determine if there are any old mineshafts or tunnels beneath it, which could cause subsidence or other issues.
- Flood Risk Search: Especially important for properties near rivers, coasts, or other bodies of water, this search will identify if the property is at risk of flooding.
- Common Land Search: This will check if the property is on common land, village green, or under a town or village designation.
- Tin Mining Search: Relevant for properties in certain areas, like Cornwall, to check for past tin mining activity.
- Bankruptcy Search: This is conducted to ensure that buyers aren’t declared bankrupt, which would affect their ability to buy the property.
Paid to: The solicitor/conveyancing firm.
Paid when: Upfront, as needed.
Disbursements
Disbursements are costs incurred in addition to the main conveyancing fee. Occasionally they will include the fees for any search needed.
But disbursements also include incidental costs incurred during the selling and buying process. These may include:
- Land Registry Fee: This fee is paid to the Land Registry to register ownership of a property. The cost can vary depending on the property’s price.
- Bank Transfer Fee: A small fee charged by solicitors for transferring the purchase funds to the seller’s solicitor.
- Copy of Title Deeds: If you’re selling a property, there might be a fee to obtain a copy of the title deeds from the Land Registry.
- Telegraphic Transfer Fee: This is for electronically transferring money, for instance, repaying a mortgage upon a property sale.
- Admin: Photocopying, faxing, postage costs.
- ID Search: Online ID checking
Paid to: The solicitor/conveyancing firm.
Paid when: As needed and/or on completion.
Mortgage Deposit
We’ve included the mortgage deposit under the solicitor fees section. It’s not exactly a fee but it is a substantial cost that needs to be budgeted for and is paid to your solicitor.
Your solicitor handles all of the monies related to buying and selling property. Your lender sends the mortgage money to them, and you send your deposit money to them.
Depending on the percentage of your deposit, there maybe two stages to handing it over. First, a 10% exchange deposit is needed when you exchange contracts. Then, shortly before completion, you will need to pay your solicitor any remaining deposit money.
Paid to: The solicitor/conveyancing firm.
Paid when: On request.
You will find more useful information in our “Guide To Deposits” and article “What’s the difference between a mortgage deposit and an exchange deposit?“.
Stamp Duty Land Tax (SDLT)
Stamp Duty is a government tax levied on the sale of land and property.
Solicitors are required to handle the calculation and payment of Stamp Duty. So if you need to pay SDLT your solicitor will advise you how much is needed and you will be required to send the funds to your solicitor.
In turn, they will forward the money to HMRC.
Stamp Duty is only due upon completion of a property purchase. Solicitors will request this money from you at the same time as any additional deposit monies that may be needed.
Paid to: The solicitor/conveyancing firm.
Paid when: Between exchange and completion.
Use our free Stamp Duty calculator to work out how much you’ll need to pay when purchasing a property.
Transfer of Equity
If you need to partly change who owns a property then this is called a transfer of equity. It could involve adding someone, removing someone or both!
For most people this will also involve making changes to the mortgage arrangements by using a transfer of equity mortgage.
If you are changing borrowers when moving home then there should not be any additional legal fees to pay. However, transferring equity without moving home normally incurs an extra cost. This is most commonly achieved with a transfer of equity remortgage.
Paid to: The solicitor/conveyancing firm.
Paid when: As needed
You will find more useful information in our article: “How to buy someone out of a house“
Abortive costs
Abortive costs, in the context of property transactions and conveyancing, refer to expenses incurred during a property transaction that does not complete. Essentially, these are costs that have been outlaid but, due to the transaction falling through, do not result in a successful purchase or sale.
There can be various reasons for a transaction to become abortive. These can include a buyer pulling out after a negative survey, a seller deciding not to sell, a breakdown in the property chain, or disagreements over property price after a valuation.
- Solicitor’s Fees: Even if the sale doesn’t go through, the solicitor may still charge for the work they’ve done up to that point.
- Search Fees: If a solicitor has already initiated searches like local authority, water and drainage, or environmental, these fees are typically non-refundable.
Paid to: The solicitor/conveyancing firm.
Paid when: Upon cancellation of a transaction.
Bank Transfer Fee
Solicitors also use the CHAPs banking system for sending large amount of money between conveyancers and clients.
CHAPS is short for the Clearing House Automated Payment System. It’s run by the Bank of England and is a same-day bank transfer system for high-value transactions in Pounds Sterling.
There is a cost to them for using this system, which they then pass on. Average costs will be £25-£50 per CHAPs transfer.
Paid to: The solicitor/conveyancing firm.
Paid when: On completion.
What is a Mortgage Illustration?
A Mortgage Illustration is a personalised document that a mortgage broker will provide to you before you complete a mortgage application form with a specific lender. This document is also known as a Key Facts Illustration (KFI), ESIS (European Standardised Information Sheet), or occasionally a ‘mortgage quote’. The illustration will contain many of the fees mentioned in our guide.
Other fees
While the majority of costs in the home-buying process revolve around mortgages, lenders, brokers, and solicitors, there are additional expenses that often arise.
In this section, we’ll explain some of these ‘other fees’, including estate agent charges, insurance and the costs associated with moving.
Estate agency fees
If you are selling your home via an estate agent then you will need to pay them for this service.
Agents typically work on a percentage basis but some can do fixed fees. In a competitive market, there’s often room for negotiation on estate agent fees. Always check whether VAT is included in the quoted fee.
In most cases, the estate agent’s fee is deducted from the sale proceeds. The solicitor or conveyancer handling the property sale will take care of this. They will receive the funds from the buyer, deduct the estate agent’s fees and any other outstanding amounts (like mortgage repayment or their own fees), and then transfer the remaining balance to the seller.
Paid to: The estate agent.
Paid when: On completion.
Removal costs
Having a removal company is optional and you may prefer to hire a van and do it yourself.
The amount you will pay depends on the amount of items to be moved and the distance to the new property. Don’t leave this one to the last minute!
Paid to: The removal company.
Paid when: As requested.
Buildings insurance
If you are buying a property with a mortgage then it is compulsory for you to have buildings insurance in place.
You may choose a policy offered by the lender, or prefer to find your own by using a broker or going direct to an insurer.
Either way, your mortgage agreement stipulates that you must always have this cover in place.
Other, optional insurances, include mortgage life cover and contents insurance. We would recommend that you consider both.
You will find more useful information in our articles: “Are all mortgages covered by life insurance?” and “Do you have to have home insurance with a mortgage?“
Can you add fees to your mortgage?
Or perhaps a better question is:
Should you add fees to your mortgage?
Buying a house is expensive and many of these costs can be attributed to arranging a new mortgage.
It can therefore be tempting to add some fees to your new mortgage, so you don’t have to pay them upfront.
What fees can be added?
Firstly, you can only add fees that directly relate to the mortgage.
So you wouldn’t be able to add the stamp duty or legal fees. Arrangement fees, booking fees and the higher lending charge can sometimes be added.
Secondly, it is up to the lender to permit this. Some do, and some don’t.
If you are borrowing at 95%, or if your affordability is quite tight, you may find that the lender does not allow fees to be added to your loan.
Should you add fees?
Not having to pay thousands of pounds in mortgage fees upfront can be immensely helpful, and frees up cash for other costs.
But there is a ‘hidden’ cost.
The fees are added to your mortgage balance. This means that the lender will charge interest on this extra amount, for the entire mortgage term.
So you do gain initially, but your mortgage payments will be slightly higher because of it, and the fee will cost you a lot more once all of the interest has been considered.
If it’s affordable, you should try and pay the mortgage fees upfront because adding them to the mortgage increases the interest charged, making it more expensive.
In summary
Buying a home involves multiple financial components, each with its own set of fees.
From lenders to brokers, solicitors, and even the additional costs of estate agents and removals, it’s essential to be well-informed. With this guide, we’ve aimed to provide a transparent breakdown of these expenses, helping you approach the home-buying process with knowledge and confidence.
Armed with this understanding, you’re better prepared to make decisions that align with your budget and goals. Here’s to a smooth and informed journey to homeownership!
