So you need to get a mortgage and you are thinking to yourself, how much is this going to cost me? In this guide we will lay out all the costs you can expect to pay when arranging a mortgage. It is useful to know how much fees you will need to pay before you start your mortgage application process.
There is no hiding from the fact that you will have fees to pay when getting a mortgage. The fees and costs that you may need to pay are –
- Mortgage Lender Arrangement Fees
- Legal Fees
- Telegraphic Transfer
- Valuation Fee
- Survey Fees
- Mortgage Broker Fees
- Local Authority Search
- Stamp Duty
So you may be thinking to yourself that arranging a mortgage is going to cost you a small fortune – well that’s not necessarily true. Although there can be quite a lot of costs and expenses, there are a few you can definitely avoid paying. In this guide, we will set out the different fees and costs, explain what they are and highlight the ones that can be sidestepped or avoided.
Educating yourself as to what fees you will pay for a mortgage
Mortgage Lender Arrangement Fees
Let’s start with a fee that can easily be avoided. When you are searching for a mortgage you will find that different lenders will offer a range of interest rates. You can get a lower more attractive interest rate that will save you money, however how much does it save you and at what cost? Most banks and building societies will charge £999 for a lower interest rate. Double-check you are saving enough money to make it worth paying this. Hint: On most mortgages, you will not be, unless it is a large mortgage.
What legal fees will I pay?
On purchasing, property fees are paid to a solicitor or a conveyancer for carrying out the legal work on the mortgage when you make a purchase. The cost will depend on the value of the property and you will find that the cost will increase for leasehold properties. Budget between £1,000-£1,500 to cover any legal fees and costs.
Although it is wise to shop around and get at least a couple of quotes it is also crucial that you get a competent solicitor to act on your behalf. It’s more important that you find a good solicitor rather than a cheap solicitor. Many property transactions are put at risk due to a slow solicitor in the chain who is dragging their feet.
If you are remortgaging, there are many lenders who will offer this service for FREE as an incentive to gain you as a new customer. It is definitely worth shopping around as you will save yourself between £600-£1000.
This fee is paid usually to your solicitor. The solicitor uses a telegraphic transfer to arrange for your mortgage amount being raised to be sent to them in a quick and very secure way. This is not a large fee and will normally cost £30 – £40.
What survey and valuation fee will I pay?
If purchasing a home, there are three types of survey –
Valuation Survey – This is carried out by the mortgage lender and the cost is approximately £350. This is a basic survey that will confirm that you are not overpaying for the property and will also look for any major problems with it. There are quite a few lenders that will offer this for FREE as an incentive to gain you as a new client. Once again shop around the different banks and building societies.
HomeBuyers Report – This survey is more in-depth and will produce a 10 -15 page report on the property. The surveyor will once again let you know that you are not paying too much for the property however they will also spend a couple of hours at the property looking far deeper into the state and repair of it. Depending on the size of the property you can expect and will need to pay £500-£700. A RICS Homebuyers report will include.
- The general condition of the property
- Major faults inaccessible parts of the building that may affect the value
- Urgent problems that might need inspecting by a specialist before signing a contract
- Testing for damp in the walls
- Damage to timbers – including woodworm or rot
- Condition of any damp-proofing, insulation, and drainage although drains will not be tested
- The estimated cost of rebuilding the property for insurance purposes
Full Structural Survey – These surveys are usually instructed on properties of unusual construction or properties that are a couple of hundred years old. This is the most in-depth survey and the cost will vary depending on the size of the property, somewhere between £1,000-£1,500. Here are circumstances that may require you to need a building survey.
- Listed buildings
- Older properties
- Buildings constructed in an unusual way, however old they are
- Properties you plan to renovate or alter
- Properties that have had extensive alterations
If you are remortgaging this means you already own the property. Lenders will want to carry out a survey to make sure they are happy to lend the money based on the current value and repair of the property. This can cost you in the region of £350. Once again shop around as many lenders will offer the valuation survey for FREE as an incentive to gain you as a new customer.
Will I have to pay any mortgage broker fees?
Mortgage brokers usually charge a set fee between £500-£1000. There are many advantages to using a mortgage broker as they will search the whole market to find you the best rates and deals. With over 14,000 mortgages to choose from getting the right one for you is essential. A mortgage broker will also be able to find you mortgages that are offering FREE surveys, legal fees, and arrangements fees.
Although most mortgage brokers do charge for their services there are many that don’t charge any fees or costs. known as a NO FEE mortgage broker. Do a Google search for ‘fee-free mortgage broker’ and you will find any that are local to you. Look at their website, Facebook page and Google reviews. Make sure they are both popular and offering a great service.
Local Authority Search
This fee is paid only when purchasing a property and is compulsory as all mortgage lenders require it to be carried out. A local authority search is instructed by your solicitor and will cost you in the region of £300.
The local authority search will provide information on any possible problems or issues with the property and the surrounding area. These will include amongst others:
- If the property is a listed building
- Subject to a tree protection order
- Located in a conservation area
- Public highway proposals
- Road widening or new roads
- Rail schemes
- Any planning decisions that could affect the property
The local authority search is normally applied for by your solicitor soon after you agree to buy a property. They will normally ask you to pay this upfront and can take between 2-5 weeks depending on how busy the local authority and housing market is.
Stamp duty is a tax paid when you buy a residential property or land costing more than £125,000. It is due whether it be a leasehold or freehold property that you are buying, with or without a mortgage.
Stamp duty has several rate bands.
The rate only applies to the part of the property price falling in each band:
- £0 – £125,000 = 0%
- £125,001 – £250,000 = 2%
- £250,001 – £925,000 = 5%
- £925,001 – £1.5 Million = 10%
- Over £1.5 Million = 12%
There is no stamp duty for first time buyers on properties up to a value of £300,000. For properties over £300,000, there will be stamp duty due on the percentage over that amount.
Stamp duty is also due on second homes and this includes buy-to-let properties. You will have to pay an extra 3% stamp duty on top of each band above.
Stamp duty needs to be paid within 14 days of completing on a property. This is usually paid by your solicitor as part of your completion.
Stamp duty has had a lot of changes over the last few years and therefore we would suggest you update yourself of any changes by visiting – https://www.moneyadviceservice.org.uk/en/articles/everything-you-need-to-know-about-stamp-duty
Mortgage Fee Summary
As this guide proves, buying a home and sorting a mortgage can be expensive. We would suggest you start by getting yourself a NO FEE independent mortgage broker who can shop around to keep your costs at a minimum. Not only can they save you money, but they will also have contacts with good local solicitors able to once again shop around and find the lowest cost.
At YesCanDo Money we are a Fee Free Mortgage Broker. Being a family-run independent mortgage broker, we know the importance of looking after our clients. With over 14,000 mortgages available at any one time we will search the whole market to get you the best rates and deals. With a team of very experienced and also very helpful mortgage advisers, why not give us a call or drop us an email to see if we can be of any help.
FREQUENTLY ASKED QUESTIONS
What is an arrangement fee and is it worth it?
Most lenders offer 2 options on each mortgage. A mortgage interest rate with no fee and an even lower mortgage interest rate but with a fee. How do you know which one is best for you?
Why do mortgages have arrangement fees and are they worth it? When applying for a mortgage this question is often asked and the answer is not straight forward. However, if the mortgage you are applying for is over £150,000 the answer is usually yes.
We dig deeper within the guide linked below to see what situations you will benefit from getting a lower mortgage interest rate by paying arrangement fees. We also explain a few exceptions to the rule you should be aware of. – https://yescandomoney.com/should-i-pay-an-arrangement-fee-to-get-a-lower-interest-rate
How much you can borrow for a mortgage?
Before you start to look for a property you need to know how much you can borrow on a mortgage. Each bank and building society can calculate this with their own mortgage affordability calculator. This could be anywhere between 4 and 4.75 times your household income. In some circumstances, this can be as high as 5 times your household income.
Should I pay an arrangement fee to get a lower interest rate?
Most lenders offer 2 options on each mortgage.
- Pay interest on your mortgage with no fee
- Pay even lower interest on your mortgage but with a fee.
Is it worth it? If the mortgage you are applying for is over £150,000 the answer is usually yes.
Should a mortgage broker be regulated?
Yes, your broker should be authorised and regulated by the Financial Conduct Authority.