Every lender imposes an array of different charges, and these charges can add many thousands of pounds to the overall cost of your loan (see table on page 28). The following checklist can help you avoid the nasties lurking in the small print.
Arrangement fees
The arrangement fee used to be a modest little charge of around £300 to cover the administrative costs of setting up your mortgage. Not any more. Bradford & Bingley, NatWest and Woolwich now charge nearly £1,000, Bank of Ireland, Bank of Scotland and Mortgage Express charge fees up to £1,500, and Birmingham Midshires and Lloyds TSB Scotland charges £2,000 on some deals.
All the above lenders increased their fees in July, in some cases by a staggering £1,000, says Julie Harris, mortgage expert at Moneyfacts.co.uk.
Find a best-buy mortgage
One reason why many lenders are hiking up arrangement fees is to fund those eye-catchingly low interest rates that top the best-buy mortgage tables.
Some fees can be exorbitant C&G offers a two-year fix at just 5.28 per cent that carries a £5,250 fee.
Alliance & Leicester, by comparison, has a two-year fixed-rate mortgage charging 6.34 per cent, with no arrangement fee. So surely that is better value? The answer is yes unless you have a very big mortgage.
The C&G interest rate is 1.06 per cent lower, which means somebody borrowing £250,000 or more over two years would actually find it better value. Everybody else should steer well clear.
You should also watch out for lenders bragging about their fee-free deals, Harris warns. HSBC recently launched fee-free mortgages but only after it had raised the rates on most of its deals, so it was simply robbing Peter to pay Paul.
Booking fees
As if the arrangement fee wasnt enough, you might even get stung for a booking fee, particularly if taking out a fixed-rate mortgage. This can add a few hundred pounds more to the price of your deal.
And unlike the arrangement fee, booking fees are typically non-refundable if your house purchase falls through.
Confusingly, HSBC calls its arrangement fee a booking fee, and its not the only lender to muddle the two.
Compare mortgages
Higher lending charge (HLC)
The higher lending charge (HLC) is a really nasty fee. Many lenders slap this on buyers who are borrowing more than 90 per cent of their property value, because they consider them higher risk.
Your lender wants to avoid ending up out of pocket if you default on your mortgage and it is forced to repossess. The HLC pays for an insurance policy to protect the lender, but, scandalously, you pay the premium.
Lenders still charge this fee even though house prices have risen steadily for a decade and repossession rates have been low, which means they havent made any losses anyway, says Neil Thomas, director of IFA Simpsons of Brighton.
If that wasnt bad enough, the HLC can cost you thousands of pounds. Somebody borrowing £150,000 with a 5 per cent deposit could pay £2,368. Thats a pretty meaty bill, particularly since cash-strapped first-time buyers with small deposits are most likely to pay.
More than half of all lenders still charge HLCs, including Abbey, Bank of Scotland and Halifax. However, plenty have seen the errors of their ways, including C&G, Cooperative Bank, HSBC, Intelligent Finance, Nationwide, Northern Rock, Standard Life Bank and Woolwich.
But you should still look at the total cost of the deal, because lenders without HLCs may charge higher interest rates or fees instead, Thomas says.
Find a new mortgage deal
Valuation fees
There are three types of valuation (or survey) fees: the basic valuation, a homebuyers report and a full structural survey.
Most buyers make do with the basic valuation, which your lender needs to check your property is decent security for a mortgage. This typically costs between £200 and £300. Lenders sometimes offer a free valuation, particularly on remortgages.
Calculate your mortgage repayments here
If you think your property is structurally sound, the basic valuation may be sufficient, says Rob Clifford, director of brokers Mortgage Force. But it might be worth paying extra for a homebuyers report, which gives you a much better idea of your new homes condition.
A homebuyers report will cost around £250 to £500, depending on the price of the house. A full structural survey could cost a lot more, but could be worthwhile if you are buying an old or suspect property.
Legal fees
Legal fees vary according to the size of the property, complexity of the case, where you live and the solicitor you choose.
If youre buying a property worth, say, £200,000, you can expect to pay around £600 in legal fees. Plus you will also have to pay another £450 for selling your old £150,000 property.
If you are simply remortgaging a loan of, say, £100,000, fees could cost as little as £300, says Jenny Challenor, mortgage strategist at Torquil Clark. You pay for carrying out searches on your property, checking for planning issues, and flagging up problems such as flooding, mining or contaminated land.
Find out how much you can borrow
Fees also cover the cost of drafting contracts, dealing with your buyers or sellers solicitor, informing the Land Registry of change of ownership, exchanging contracts, settling stamp duty and handing over the cash.
To contain costs, look for a solicitor charging a fixed fee and consider using a web-based company.
Some loans, especially remortgages, come with free legals, provided you use your lenders appointed solicitor. But you probably pay for this another way, such as a via higher arrangement fee, Challenor says.
Stamp duty
Nobody likes stamp duty apart from Prime Minister Gordon Brown, because it generated £3.4 billion for the Treasury in 2005/06.
Find out how much stamp duty you will pay
Stamp duty is charged at 1 per cent on properties valued between £120,000 and £250,000. This rises to 3 per cent for properties above £250,000 and 4 per cent for properties above £500,000. If youre buying a £250,000 property, stamp duty will set you back a mighty £7,500. And there is very little you can legally do to avoid it.
Early repayment charges
Before signing up to, say, a two-year discounted variable rate or five-year fixed rate, make sure you can last the course.
If you scrap your mortgage in that time, for whatever reason, you may incur an early repayment charge (ERC). ERCs are designed to lock you into your low-rate deal and prevent you from scuttling off if something better comes along.
Most ERCs last as long as the initial fix or discount; for example, Direct Line offers a two-year discount tracker charging 5.47 per cent, with an ERC of 3 per cent if you repay the loan during that time.
That means if you repay a £200,000 interest-only mortgage in the first two years, you face a stiff £6,000 penalty, says Melanie Bien, director at brokers Savills Private Finance.
Some ERCs shrink year after year. Lloyds TSB has a five-year fix charging 6.13 per cent, with a 5 per cent ERC in year one, 4 per cent in the second year then shrinking in successive stages to 1 per cent in the fifth year.
Watch out for overhanging penalties that can extend years beyond the initial low rate. West Bromwich Building Society has a rock-bottom fixed-rate charging just 2.99 per cent until 31 August 2009, but you are then tied to pay a much higher rate for the next four years.
At current rates, interest on a £150,000 mortgage would cost you £373.75 for the first two years, rising to £967.50 a month for the next four years. If interest rates rise, it would cost you even more. I cant imagine who would want to tie themselves into such a deal, Bien says.
Exit charges
Lenders dont just load the charges when you enter into your deal, they also sting you when you exit.
Alliance & Leicester recently doubled its exit fee to £295, and almost every other lender quickly followed suit.
Many of them backed down after the Financial Services Authority (FSA) rapped their knuckles, but Alliance & Leicester is standing firm. Check how much your chosen lender will charge.
Exit fees go under many different aliases, including deed sealing fees, discharge fees, redemption administrative charges and, most commonly, mortgage administration exit fees.
Loading ...