Introduction to Mortgage Fees & Costs
Understanding the various fees and costs associated with mortgage applications and property purchases is crucial for budgeting accurately and avoiding unexpected expenses. The UK mortgage market involves numerous charges from different parties, each with specific terminology and cost structures.
This comprehensive guide explains all the key fees and costs terminology used in UK property finance, helping you understand what each charge covers, when it's payable, and how to budget effectively for your mortgage journey.
Total Cost of Borrowing
Mortgage fees can add thousands of pounds to your overall borrowing costs. Understanding each charge helps you compare different deals accurately and negotiate better terms with lenders and service providers.
Lender Fees & Charges
Arrangement Fee (Product Fee)
A fee charged by the lender for setting up the mortgage, covering administrative costs and sometimes subsidising competitive interest rates. Can be paid upfront or added to the loan.
Example: £999 arrangement fee on a 2-year fixed rate mortgage, which can be paid upfront or added to your £250,000 loan, making it £250,999.
Booking Fee (Reservation Fee)
A non-refundable fee paid to reserve a mortgage product while your application is processed, typically required within a specific timeframe after application.
Example: £250 booking fee required within 14 days of mortgage application to secure a competitive 5-year fixed rate deal.
Valuation Fee
Cost of the lender's property valuation to confirm the security value, separate from any survey you commission for your own benefit. Often included in arrangement fees.
Example: £350 valuation fee for a £300,000 property, covering the lender's basic assessment of the property's market value and condition.
Higher Lending Charge (HLC)
Additional fee charged on high loan-to-value mortgages (typically above 90% LTV) to cover increased risk, though many lenders now absorb this cost.
Example: £500 HLC on a 95% LTV mortgage of £285,000 on a £300,000 property, protecting the lender against potential losses.
Completion Fee
Administrative charge for finalising the mortgage and releasing funds to your solicitor on completion day.
£100 - £300
Telegraphic Transfer Fee
Electronic transfer charge for sending mortgage funds to your solicitor's bank account on completion.
£25 - £50
Re-inspection Fee
Additional valuation charge if property improvements are required before mortgage funds are released.
£150 - £250
Deed Release Fee
Administrative charge for releasing the property deeds when you repay your mortgage in full.
£50 - £150
Broker & Advisory Fees
Broker Commission
Payment made by the lender to the mortgage broker for arranging the loan, typically between 0.25% and 0.45% of the loan amount, paid on completion.
Example: £1,000 commission paid by lender to broker on a £250,000 mortgage (0.4%), which funds the broker's advice service.
Advisory Fee
Fee charged by mortgage advisors or brokers for their professional advice and application services, either instead of or in addition to lender commission.
Example: £500 advisory fee charged by independent mortgage broker for whole-of-market advice and application management.
Procuration Fee
Another term for broker commission, representing the payment arrangement between lenders and intermediaries for successfully completed mortgage applications.
Example: 0.35% procuration fee on remortgage business, providing ongoing income for brokers who maintain client relationships.
Broker Fee Structures
- Commission Only: Broker paid entirely by lender commission, no client fees
- Fee Only: Client pays fixed fee, broker returns any lender commission
- Fee Plus Commission: Combination of client fee and reduced lender commission
- Fee Offset: Lender commission reduces the client's advisory fee
Legal & Conveyancing Costs
Conveyancing Fees
Legal fees charged by solicitors or licensed conveyancers for handling the property transfer, including searches, contract review, and completion procedures.
Example: £800-£1,500 conveyancing fees for a straightforward £250,000 house purchase, including all legal work and searches.
Search Fees
Costs of various property searches conducted by your solicitor to identify potential issues, including local authority, environmental, and water authority searches.
Example: £300 total search fees including local authority search (£100), environmental search (£50), and water search (£30).
Land Registry Fee
Government charge for registering the property transfer and new mortgage with HM Land Registry, based on property value bands.
Example: £270 Land Registry fee for registering ownership transfer of a £300,000 property under the current fee scale.
| Property Value | Land Registry Fee | Search Package | Typical Legal Fee |
|---|---|---|---|
| Up to £150,000 | £40 - £95 | £250 - £350 | £600 - £1,000 |
| £150,001 - £500,000 | £135 - £270 | £300 - £400 | £800 - £1,500 |
| £500,001 - £1,000,000 | £270 - £540 | £350 - £500 | £1,200 - £2,500 |
| Over £1,000,000 | £540+ | £400 - £600 | £2,000 - £5,000+ |
Indemnity Insurance
One-time premium for insurance policies covering potential legal defects or planning issues that could affect the property, often required instead of expensive remedial work.
Example: £150 indemnity insurance premium covering absence of building regulations approval for a small extension, avoiding costly retrospective applications.
Government Taxes & Duties
Stamp Duty Land Tax (SDLT)
Government tax on property purchases in England and Northern Ireland, calculated on sliding scale with higher rates for additional properties and non-resident buyers.
Example: £5,000 SDLT on £300,000 main residence purchase (calculated as 0% on first £250,000, then 5% on remaining £50,000).
Additional Property Surcharge
Extra 3% SDLT charge on each tax band for buy-to-let or second home purchases, significantly increasing the total tax liability.
Example: Additional £9,000 surcharge on £300,000 buy-to-let property (3% of total purchase price), making total SDLT £14,000.
Non-Resident Surcharge
Additional 2% SDLT charge for overseas buyers purchasing residential property in England and Northern Ireland, on top of standard rates.
Example: Extra £6,000 non-resident surcharge on £300,000 property purchase by overseas buyer, increasing total SDLT liability.
Regional Variations
Scotland uses Land and Buildings Transaction Tax (LBTT) with different rates and bands, while Wales applies Land Transaction Tax (LTT). Always check the specific tax regime for your property location.
Survey & Assessment Costs
Homebuyer Report Fee
Cost of RICS Level 2 survey providing detailed condition assessment and maintenance advice for standard properties, separate from lender's basic valuation.
Example: £600 Homebuyer Report fee for detailed survey of £300,000 Victorian terraced house, identifying potential issues and repair costs.
Building Survey Fee
Cost of comprehensive RICS Level 3 structural survey for older, unusual, or extensively modified properties requiring detailed professional assessment.
Example: £1,200 building survey fee for detailed structural assessment of converted Georgian townhouse with heritage considerations.
Specialist Survey Costs
Additional fees for specialist assessments such as electrical condition reports, gas safety certificates, or structural engineer consultations following initial surveys.
Example: £300 electrical condition report plus £150 gas safety certificate required following concerns raised in homebuyer survey.
Typical Survey Costs by Property Value
- Up to £200,000: Homebuyer Report £400-£600, Building Survey £600-£900
- £200,000-£500,000: Homebuyer Report £500-£800, Building Survey £800-£1,400
- £500,000-£1,000,000: Homebuyer Report £700-£1,200, Building Survey £1,200-£2,000
- Over £1,000,000: Homebuyer Report £1,000+, Building Survey £2,000+
Insurance & Protection Costs
Buildings Insurance Premium
Annual cost of insuring the property structure against damage from fire, flood, subsidence, and other perils, required by all mortgage lenders as loan condition.
Example: £300 annual buildings insurance premium for £300,000 rebuilt cost coverage on a standard three-bedroom house in low-risk area.
Life Insurance Premium
Monthly or annual cost of life cover designed to repay the mortgage if the borrower dies, providing financial protection for surviving family members.
Example: £25 monthly premium for £250,000 level term life insurance covering a 25-year mortgage term for a 35-year-old non-smoker.
Mortgage Payment Protection Insurance (MPPI)
Optional insurance covering monthly mortgage payments if unable to work due to accident, sickness, or unemployment, typically covering 12-24 months of payments.
Example: £45 monthly MPPI premium covering £1,500 monthly mortgage payments for accident, sickness, and unemployment protection.
Insurance Shopping Tips
Lender-recommended insurance isn't always the best value. Shop around for buildings insurance quotes and consider independent financial advice for life and protection insurance to ensure suitable, cost-effective coverage.
Ongoing & Exit Fees
Annual Management Fee
Yearly charge for maintaining the mortgage account, processing payments, and providing customer services, typically debited from your bank account automatically.
Example: £150 annual management fee charged each year to cover account maintenance and customer service costs throughout the mortgage term.
Early Repayment Charge (ERC)
Penalty fee for repaying all or part of the mortgage during the tied period, typically expressed as a percentage of the amount being repaid.
Example: 3% ERC on £200,000 mortgage repayment during second year of 5-year fixed deal, costing £6,000 in penalties.
Exit Administration Fee
Charge for closing the mortgage account when you repay in full, covering administrative costs of finalising the loan and releasing security.
Example: £150 exit fee charged when remortgaging to a new lender, covering final account closure and deed release procedures.
Porting Fee
Administrative charge for transferring your existing mortgage to a new property, allowing you to keep current terms and avoid early repayment charges.
Example: £200 porting fee to transfer existing 2% fixed rate mortgage to new property, avoiding £4,000 early repayment charge.