When comparing mortgage deals in the UK, it is tempting to focus entirely on the interest rate. However, the fees attached to a mortgage can add thousands of pounds to your overall costs and can sometimes make a seemingly cheap deal more expensive than a higher-rate alternative with lower fees. Understanding the full range of mortgage fees is essential to making a well-informed decision.
The Main Types of Mortgage Fees
The arrangement fee, also known as a product fee or completion fee, is the charge a lender makes for setting up the mortgage. This is usually the largest single fee and can range from nothing at all to over 2,000 pounds. Mortgages with the lowest headline interest rates often come with the highest arrangement fees, so it is critical to weigh the two together.
You typically have the option to pay the arrangement fee upfront or add it to your mortgage balance. While adding it to the loan avoids an immediate outlay, you will pay interest on it for the entire mortgage term, significantly increasing the true cost. On a 25-year mortgage at 5%, adding a 1,000-pound fee to the balance would cost you approximately 1,750 pounds in total once interest is included.
A booking fee or application fee is a smaller charge, usually between 100 and 250 pounds, paid when you apply. This is often non-refundable even if your application falls through, so be aware of this risk before committing. Not all lenders charge booking fees, and where they do, they are sometimes deducted from the arrangement fee.
The valuation fee covers the cost of the lender's survey to confirm the property is worth what you are paying. Basic valuations can cost between 150 and 1,500 pounds depending on the property value, though many lenders now offer free valuations as part of their mortgage package. Note that this is not a full structural survey and is primarily for the lender's benefit, not yours.
Legal and Other Costs
Solicitor and conveyancing fees cover the legal work required to transfer ownership of the property. These typically range from 1,000 to 2,000 pounds including disbursements such as Land Registry fees and local authority searches. Some mortgage deals include free legal work as an incentive, particularly remortgage products where the legal process is simpler.
A higher lending charge (HLC), sometimes called a mortgage indemnity guarantee, may apply if you are borrowing a high percentage of the property value, typically above 90% LTV. This insurance protects the lender, not you, against the risk of negative equity. Not all lenders charge this, and where it applies, it can cost several hundred pounds. Ask specifically whether this charge applies to any deal you are considering.
Early repayment charges (ERCs) are not upfront fees but are important to understand. If you repay your mortgage or switch deals during a fixed or discounted period, you may face a penalty typically ranging from 1% to 5% of the outstanding balance. On a 200,000-pound mortgage, a 3% ERC would cost 6,000 pounds. Always check the ERC terms before committing to a deal, particularly if there is any chance you might move house or remortgage before the deal period ends.
How to Compare the True Total Cost
The most effective way to compare mortgage deals is to calculate the total cost over the deal period. Add together all the monthly payments during the fixed or discount term plus all fees, including the arrangement fee, booking fee, and valuation fee. This gives you a single figure you can compare across different products.
For example, consider two five-year fixed deals on a 200,000-pound mortgage. Deal A has a rate of 4.5% with no fee, giving monthly payments of around 1,111 pounds and a total cost over five years of approximately 66,660 pounds. Deal B has a rate of 4.2% with a 999-pound fee, giving monthly payments of around 1,083 pounds and a total cost of approximately 65,979 pounds including the fee. In this case, Deal B is cheaper overall despite the fee, but only by a small margin.
Many mortgage comparison websites and brokers can run this calculation for you. If you are using a broker, ask them to show you the total cost comparison for each deal they recommend. This approach ensures you are making a genuinely like-for-like comparison and not being swayed by a low headline rate that disguises high fees.
Remember to also factor in any cashback offers or free valuations and legal work. These perks can be worth several hundred pounds and may tip the balance between otherwise similar deals.