A guide to mortgage fees
Lenders Arrangement Fees
Most lenders will charge an arrangement fee some times they will call this an ‘admin fee’, particularly if you are looking for a fixed or discounted mortgage. An arrangement fee can vary from a few hundred pounds up to a full 1% of the mortgage amount. Some lenders will ask you to pay this fee up front when you submit an application; others will add the fee to the loan on which you are then charged interest increasing your loan amount. You should always find out at the beginning what terms apply to any arrangement fee and ask if the fee will be refunded if your application does not proceed for some reason, this can turn out to be one large wasted ‘admin’ fee for you , particularly if you are declined on a number of occasions. If possible, pay the fee on completion as to avoid paying the added interest.
If the arrangement fee is particularly large then ask the lender to justify it. It may be that the interest rate is particularly competitive or that the redemption penalties are especially low. However, don't forget to take the fee into account when assessing the attractiveness of the deal.
Mortgage Indemnity Premiums
Also known as;
1. Higher Lending Charge
2. Guarantee Premiums
3. Mortgage Indemnity Guarantees
Whatever the lender calls them they all have the same effect and that is to protect the lender if you are unable to pay the mortgage. The lender will use these premiums to purchase insurance that covers them in the event that they have to repossess the property and sell it. If they are in a loss making situation after the sale of the property then the Mortgage Indemnity Insurance will pay out and cover any losses they have made. It is worth while noting that this insurance will not and is not for covering or insuring you in any way, it is for the sole protection of the lender.
How do you avoid this charge? Well, first these premiums normally only apply if you wish to borrow more than 75% of the property value if you can, save up and secure the mortgage with a 25% deposit. However, there are an increasing number of lenders who either pay this premium themselves or do not charge the premium at look out for these lenders as the saving that can be made could significantly reduce your costs.
Brokers Fees
If you have decided to use a broker you will often find that the broker will be charging a fee for his work. This is fair enough but you should always make sure that you understand the terms of this arrangement and how much will be charged. Most reputable brokers will only charge a fee once your mortgage has completed and there is usually no charge if they are unable to arrange the mortgage or if the purchase does not proceed. Always be wary of paying fees up front and if you do so make sure that the fee is refundable if the broker is unable to arrange the deal.
One way to avoid or mitigate these broker fees is to allow the broker to arrange some form of insurance on your behalf. If you require life assurance then ask the broker to arrange a quotation for you. All brokers are now required by law to show you how much commission they will earn from the sale of such a policy and you can then ask the broker to offset this commission against any fee he may be charging. In many cases you will find that the commission more than covers the fee meaning that you pay nothing. Also ask the broker whether he will be receiving payment from the lender who is providing the mortgage. Many lenders now pay fees to brokers (these are called Procuration Fees) and you could ask the broker to offset this against your fee also. It is now a requirement under Financial Services Act Regulations that brokers disclose any fees they are receiving
If you are unable to reduce the fee in any of the ways described above then how much should you expect to pay? The answer to this question really depends, in many cases, on your own personal circumstances. If you have particular requirements or circumstances that make your application especially difficult to arrange then you can expect to pay more than if you have a simple, straightforward proposition. Brokers, in general terms, tend to charge up to 1% of the mortgage they arrange. However, remember that this is a very competitive market and most will be negotiable so you shouldn't simply accept the first figure quoted - some brokers will work for a couple of hundred pounds.
Survey/Valuation Fees
The Basic Home Survey
The survey in its most basic form is commonly known as a mortgage valuation. A mortgage valuation is conducted on behalf of the lender i.e. your bank/building society to ensure that they are not lending you more than the property is worth, a wise move that means their loan to you is secure i.e. if you do not keep up the re-payments on the loan they can recoup their money by selling it. You should remember that a basic home survey is carried out for your benefit and may help to reveal any problems with the property that could later affect the value of that property, and as a buyer you can use any faults revealed by this survey to renegotiate the price you are paying.
The Homebuyers Report
A Homebuyers report is when a professional surveyor checks the structural state of the property you wish to purchase. This survey falls in the middle of the three surveys, it is much more detailed than the basic valuation, and is for your own benefit rather than your mortgage lender's, however it is less detailed than the full structural survey. It is worth knowing that this report is optional and you will be the one to pay the bill, but this report should pick up any hidden problems and give you the chance to negotiate a lower price.
The Full Structural Survey
This is a much more in detail study of the property than what the basic survey is. It is by far the most comprehensive of the three main options open to the property buyer. The aim of the Full Structural Survey is to pick up any serious problems that may exist with the building and covers you in the unlikely event that the survey doesn't pick up on these problems, as by then you should have more than enough to build a detailed case against the surveyor. This means you would be covered to repair them and probably at the surveyors cost!