Other Mortgage Fees

Mortgage lenders levy a variety of other mortgage fees, on application, completion, during the mortgage term, and on redemption. Some fees have different names, but are effectively the same thing; for example "arrangement fee" and "administration fee". The key fact to understand is when they are charged, and if YOU have the CHOICE to add the fees to the mortgage. 

Arrangement Fee

Lenders will take the opportunity to cover their costs at every stage of the application process. In order to offer a competitive interest rate on discounts, fixed rates, capped rates, and base rate trackers, they will impose fees to offset the slim margins earned from the mortgage payments.

One way of covering costs and making instant profits is to charge an arrangement fee. The fee will either be demanded at the application stage, added to the loan at completion, or paid at completion.

Arrangement fees used to vary between zero, and around £395, with higher fees of up to 1% of the loan being charged on buy to let mortgages

In recent months fees on residential mortgages have rocketed. £395 is standard, £695 not unusual, and top of the pile, Birmingham Midshires are charging a massive 1.5%, offsetting a very low discounted rate

Administration Fee

It's the same as an arrangement fee, but it's just called something a little different. May be charged in the same ways as the arrangement fee.

Completion Fee 

Another opportunity to charge a fee, with yet another name. The significant advantage of a completion fee, over an arrangement fee, or an administration fee, is that it ALWAYS charged on COMPLETION. This means that if the mortgage doesn't go ahead for some reason, the fee is not paid.

Own Buildings Insurance Fee

Now you might be beginning to get the impression that mortgage lenders lenders are out to suck money out of your pockets. From their point of view they are covering upfront costs, and obtaining a customer who the can cross sell to. If they can, mortgage lenders will attempt to sell buildings and contents insurance, mortgage payment protection insurance, life and critical illness cover, and in time, motor insurance, pet insurance, cover for your central heating system etc. Often, the money earned by the lender from selling these services, will be greater than the money earned from lending.

If you decide NOT to use the lenders recommended buildings insurance, they will usually charge you a fee. This varies from around £25 to £50. Some lenders levy the fee once only, at the outset of the mortgage, a few charge the same amount annually.

In my opinion, a one off fee at outset is fair. The property is the lenders security for the loan. This means that in the event of the debt being unpaid, they have the property asset to cover it. Should the property be uninsured, and burn down for example, the lender has lost their security. Checking that a suitable policy is in place is a sensible measure, and a small fee to cover the administration is fair. 

Bank Transfer Fee

When the day finally arrives for you to move into your new home you have reached the stage called completion. In order for completion to take place, your mortgage lender has to send the mortgage funds, less any deductions for fees, to your solicitor. Your solicitor then remits the funds to the vendors solicitor, together with any deposit from you. If there is a surplus, he writes you a cheque.

For speed and efficiency, most lenders send the funds to your solicitor via a bank transfer. The bank charges for this service, and generally, you will bear the cost.

The typical cost is around £45, and will be deducted from the loan amount i.e. you will have to pay it, before the mortgage can complete.

Note that some lenders insist that the solicitor gives them 5 working days notice, to draw down the mortgage funds. Your solicitor will not request the money until ALL of the paperwork is complete.  This sometimes causes frustration and delay.

Revaluation Fee

Occasionally a lender will want to carry out a second valuation on the same property, some time after the original survey was done. This might be to re-assess the property value after works covered by a retention have been carried out, or if a further advance is requested. A fee in the region of £95 will usually be charged for this.

Penalty Fees

Penalty fees are levied during the mortgage term when the borrower breaks one or more conditions of the mortgage. You will find a list of the conditions you might fall foul of, and the associated financial penalties in the small booklet or sheet that came with your mortgage documents. Nobody ever looks at the booklet or remembers looking at it, so here's some of the things it contains:

Penalty for missing a mortgage payment - £25
Cost of sending you a letter to tell you that you missed a mortgage payment - £50
Cost of a meeting to tell you that you've missed a few mortgage payments - £150
Penalty for thinking about moving your mortgage to a cheaper lender - £349

Effectively, the worse your financial situation becomes, the more penalty charges you'll be clobbered with. Ok the last penalty fee isn't true, they can't penalise you for thinking about it, they will charge you a fee to leave them though. 

Further advance fee

If you need to increase the amount of your mortgage with your existing lender, you'll usually be charged a fee. This will generally be in the region of £75 to £200, depending on the lender.

Exit Administration Fee

As more people have taken advantage of the remortgage deals available, in order to reduce their mortgage payments, Lenders have begun to extract higher fees from borrowers when they leave. The charge used to be a token £25 or so, now it's not unusual for the charge to be over £200. Take a look at the small print in your mortgage contract, or the lenders fee sheet. You'll see that the charge is variable at the lenders discretion, in otherwords a variable, hidden charge. 

Broker Fees

Some mortgage brokers charge a fee, some don't. Some mortgage broker will rebate some fees back to the borrower, some will not. I'll state right now that I charge fees - £100 when the application is submitted, a further £295 on completion, if the mortgage is self certification, or a further £495 on completion is the borrower has adverse credit. No fees are rebated.

The £295 or £495 fee relects the extra time incurred dealing with the administration of more complex mortgage cases. For comparison, I know of many brokers who specialise in adverse credit mortgages, and charge a fee of around £2,000 for their services.  

Are broker fees justified? Depends on the broker and the service that you receive in exchange for the fee I guess. Here's how it works with me:

Over the past twelve years, I've met, and dealt with every type of mortgage problem, and combination of mortgage problems known to man. I've placed close to a thousand mortgages, spread between most of the mortgage lenders in the UK. I know which mortgage lender suits which borrower and their circumstances. Some lenders I will never use again, unless they can really convince me that they have got their act together. Some I go back to regularly, unless their service deteriorates. To be blunt, I don't get paid until AFTER a mortgage completes. Anything that gets in the way of that happening irritates me, and so I'm continually looking for lender efficiency.

What that means for you is that your mortgage is placed with a lender who will assist you in obtaining the property that you want, rather than placing obstacles in your way. Most of the time, this doesn't matter too much, as arbitarily, most lenders that you choose will get you there in the end. But around 20% of the time it matters a lot - a bad lender/borrower profile can mean that you lose the property, or at best, ar faced with further costs and delays.    

In the brokerage that I work with, two administrators are employed to process your mortgage application to completion from the moment it leaves my desk. These two girls have met every administration problem possible and learnt how to deal with it. They know when they are being stalled by a lender or solicitor, and know what to do about it. Sometimes I feel sorry for them, because they look frazzled. They deal with frustration and delays on your behalf, on a daily basis, and do whatever is necessary to make the process run smoothly.

From my point of view, the fees are too low.