In short
- Most mortgage costs sit in a handful of charges: a product fee, a valuation fee, any adviser fee, and an early repayment charge if you leave a deal early.
- The FCA does not cap ordinary fees, but its rules say charges must not be excessive and an early repayment charge must be a reasonable pre-estimate of the lender's cost.
- A fee can only be added to the loan if you choose that, and you then pay interest on it for as long as it stays in the balance.
- The APRC rolls the rates and the fees into one yearly percentage, worked out as if you kept the mortgage for its whole term.
- A flat fee is the same on any loan while the saving from a lower rate grows with the amount borrowed, so the total cost over the deal period is the fairer comparison.
What mortgage fees are, in short
Mortgage fees are the charges you pay as well as interest to set up, run and close a mortgage. The main ones are a product (arrangement) fee, sometimes an application or booking fee, a valuation fee, any adviser fee, legal fees, a funds transfer fee, and at the end an early repayment charge or exit fee. Each lender sets its own amounts.
This guide covers the mortgage's own charges. For the other costs of a purchase, such as the deposit, stamp duty, searches and moving, see the costs of buying a house guide.
Every mortgage fee at a glance
Amounts are not listed here because lenders set and change them. Each lender publishes its current figures in its tariff of mortgage charges, and your own figures appear in your mortgage illustration.
| Fee | What it is | When you pay | Amount |
|---|---|---|---|
| Product fee (arrangement fee) | The lender's charge for a particular mortgage deal | On application or completion, or added to the loan | Set by the lender, as a fixed sum or a percentage of the loan |
| Application fee (also known as a booking or reservation fee) | A charge some lenders make to assess and process an application or reserve a deal | When you apply | Set by the lender |
| Valuation fee | Pays for the lender's valuation of the home | When you apply | Set by the lender, often by property value; some deals include it |
| Mortgage adviser (broker) fee | The adviser's charge for advice and arranging the loan | As the adviser's terms say | Set by the adviser; some are paid only by lender commission |
| Legal fee | Your solicitor's or conveyancer's bill, which normally covers work for the lender too | As the law firm's terms say | Set by the law firm |
| Funds transfer fee (some lenders call it a CHAPS fee) | The cost of sending the loan money electronically to you or your solicitor | Before the funds are sent, or added to the loan | Set by the lender |
| Higher lending charge | A charge some lenders make when the loan is a high share of the home's value | On completion, or added to the loan | Set by the lender |
| Early repayment charge (ERC) | A charge for repaying, or overpaying beyond your allowance, during a deal period | When you repay early | Set out in cash in your illustration |
| Mortgage exit fee (once also called a closure fee) | An administration charge when the mortgage ends or moves to another lender | When the mortgage is repaid | Set by the lender |
Fees when you set the mortgage up
Mortgage arrangement fee or mortgage product fee
These are two names for the same thing: the lender's charge for the deal itself. It can be a flat sum or a percentage of the amount you borrow, and many lenders offer the same mortgage with a fee and a lower rate, or with no fee and a higher rate.
Application or booking fee
Some lenders charge a fee when you apply. Its standard name is an application fee; before lenders agreed standard names it was also called a booking fee or a reservation fee. The standard tariff wording describes it as covering the assessing and processing of your application, even if the application is unsuccessful or you withdraw it, so whether any of it comes back if the mortgage does not go ahead depends on the lender's terms.
Mortgage valuation fee
The lender has the home valued to decide how much it will lend. Some deals include it, and some charge on a scale that rises with the property's value. The valuation is for the lender, not for you, and it is not a survey.
Mortgage adviser (broker) fee
Advisers are paid in one of three ways: a fee from you, commission from the lender, or both. FCA rules require an adviser to tell you, in good time before it acts for you, what it will charge: as a cash sum where possible, or as a percentage with a worked example in cash. The mortgage broker guide explains what the fee buys.
Legal fees and the funds transfer fee
Your solicitor or conveyancer normally acts for the lender as well as for you, and you pay the bill. The lender may also charge a funds transfer fee for sending the money electronically to your solicitor; some lenders call this a CHAPS fee.
Higher lending charge
A higher lending charge is a fee some lenders make when the loan is a large share of the home's price or value. FCA rules say any communication about it must call it a higher lending charge and use no other name. The loan-to-value guide explains how that percentage is worked out.
Adding the fee to the loan, and what that costs
Many lenders let you add the product fee to the mortgage instead of paying it upfront. Under the FCA's rules a lender cannot add fees automatically: you have to make a positive choice to do it.
The cost is interest. An added fee becomes part of the loan, so interest is charged on it at the mortgage rate for as long as it stays in the balance, which can be the whole term. Over a long term that interest can add up to a large share of the fee itself.
The pounds depend on the rate and the term, and rates change, so this guide does not print a figure. The mortgage calculator gives one: run it once with the loan alone and once with the fee added to the loan, then compare the two monthly payments and the two totals.
The fee also stays in your balance when the deal ends, and a bigger loan can tip you into a higher loan-to-value band.
An added fee can be paid off early through overpayments within the deal's allowance, which ends the interest on it; the overpayment calculator shows the effect, as an illustration, not advice.
Fee or lower rate: how to compare
Whether a fee pays for itself through a lower rate depends mostly on the size of the loan and the length of the deal. A flat fee is the same on any loan, while the saving from a lower rate grows with the amount borrowed.
One sum needs no interest rate: the fee divided by the months in the deal. A £999 fee spread over a two-year deal is about £42 a month (£999 ÷ 24), and over a five-year deal about £17 a month (£999 ÷ 60). For the deal with the fee to cost less over the deal period, its lower rate has to cut the monthly cost by more than that figure. On a large loan a small difference in rate can do that; on a small loan it may not. If the fee is added to the loan, the interest on it goes on top.
For real figures:
- The mortgage rates comparison shows each lender's published rates with the fee, the APRC and the true cost over the deal period, for your own price, deposit and term.
- The remortgage calculator sets the fees and any early repayment charge of switching against the interest saved.
- The mortgage calculator shows the monthly payment with and without a fee added.
All three are illustrations, not advice. A qualified, regulated mortgage adviser can compare the total cost of specific deals for your circumstances.
What is APRC, and how to read it
APRC stands for annual percentage rate of charge. The FCA describes it as showing, as a percentage, the annual cost of a mortgage over its lifetime, with all the relevant charges, including fees, built in. Your mortgage illustration states it, with the note that it is provided to help you compare different offers.
How to read it:
- It combines the initial rate, the rate the mortgage moves to afterwards, and the fees the lender knows about.
- It assumes the mortgage runs for the full period agreed. Many borrowers switch when a deal ends, so the APRC is not the rate you will actually pay.
- Where the later rate is variable, the APRC assumes it stays at its level on the day of the calculation. The FCA has said that where that later rate is lower than the initial rate, the calculation uses the initial rate for the whole term.
So the APRC compares offers on the same whole-term basis, while the total cost over the deal period describes a two-year or five-year horizon. The standard variable rate guide covers the rate a deal moves to.
Early repayment charge
An early repayment charge (ERC) is what a lender charges if you repay the mortgage, or overpay more than your allowance, during a deal period such as a fixed rate. MoneyHelper says it is usually worked out as 1% to 5% of the outstanding balance, although some deals have a flat charge; on some deals the percentage steps down each year. Moving home does not always trigger it: where a deal allows porting a mortgage, the deal can go with you to the new home if the lender agrees.
The FCA's rules for regulated mortgages set limits on it:
- It must be able to be expressed as a cash value.
- It must be a reasonable pre-estimate of the lender's costs from your repaying early. A lender may work this out across a group of similar mortgages, not loan by loan.
- The maximum ERC must be shown in your illustration before you take the mortgage, take a further advance or change rate.
- Any communication about it must call it an early repayment charge and nothing else.
The Financial Ombudsman Service says that if an ERC was not a reasonable pre-estimate, the lender cannot charge it or swap in a lower one.
See the guides to remortgaging and mortgage overpayment.
Exit fee, closure fee and other charges at the end
A mortgage exit fee is an administration charge for closing the account, whether you have reached the end of the term, repaid early or moved to another lender. It is separate from any ERC. Before lenders agreed standard names, some called it a closure fee.
Charges can also arise along the way, such as for changing the term or for missed payments. FCA rules say an arrears charge must be no more than a reasonable calculation of the cost of that extra administration.
The tariff of mortgage charges: standard fee names
Lenders used to give the same fee many different names. In 2015 the consumer body Which? and the Council of Mortgage Lenders, now part of UK Finance, published a joint report at the government's request, and lenders committed to standardise how mortgage fees are presented and defined.
The result is the tariff of mortgage charges, a document many lenders publish on their websites with the same fee names, in the same order. It groups fees by when you pay them:
- Before your first monthly payment, such as the application fee, product fee, valuation fee, legal fee and funds transfer fee.
- If you ask for extra documents or services beyond the standard running of the account.
- If you change your mortgage, such as an early repayment charge or a change of term fee.
- If you are unable to pay your mortgage.
- Ending your mortgage term, such as an early repayment charge and the mortgage exit fee.
A lender lists only the fees it charges, and where it uses its own name for a fee, the tariff shows that beside the standard one. Separately, FCA rules require a lender to give you a tariff of charges with the mortgage offer.
What the rules say about fair fees
The FCA does not set the price of mortgage fees. Its rulebook says the level of charges is not typically a matter for regulation, with specific protections:
- A lender must not impose excessive charges, judged against similar products on the market and how clearly the charge was disclosed.
- Early repayment charges and arrears charges are limited as described above.
- Fees cannot be added to a loan without your positive choice.
If you think a fee was not disclosed or was applied unfairly, complain to the firm first. If you are not satisfied with the answer, the Financial Ombudsman Service can look at it.
Mortgage fees on a new build
The fees are the same on a new build, with a few extras to plan for:
- Offer extensions. A mortgage offer has an expiry date. If the build runs late, some lenders charge to extend the offer, or you may need a new application with a new product fee.
- Re-inspection. Where an offer is made before the home is finished, the lender may want the valuer to confirm completion, which can carry a re-inspection fee.
- Fees paid by the builder. If a builder offers to pay your legal or valuation fees, that is an incentive, and it must be declared to your lender on the UK Finance Disclosure Form.
The new-build mortgages guide covers offer periods and incentives in full, and the cash you need calculator adds the fees to the deposit and stamp duty on a real home.
Your mortgage fees checklist
- Read the lender's tariff of mortgage charges.
- Find the product fee, and decide whether to pay it upfront or add it to the loan.
- Check whether the valuation is included.
- Ask your adviser for its fee in cash, and when it is due.
- Note the early repayment charge for each year of the deal, and the overpayment allowance.
- Compare the total cost over the deal period, not only the rate or the APRC.
For the wider picture, the mortgages hub gathers the guides, the calculators and the lenders' published rates.
Questions people ask
What are the fees on a mortgage?
The usual ones are a product or arrangement fee, sometimes an application or booking fee, a valuation fee, any mortgage adviser fee, legal fees and a funds transfer fee. At the end there can be an early repayment charge and a mortgage exit fee. Each lender sets its own amounts and publishes them in its tariff of mortgage charges.
Do you have to pay an arrangement fee for a mortgage?
No. Many lenders offer mortgages with no arrangement or product fee, commonly at a higher interest rate than the same deal with a fee. Which costs less overall depends mainly on the size of the loan and the length of the deal.
What is APRC on a mortgage?
APRC is the annual percentage rate of charge: the total cost of the loan, including fees, expressed as a yearly percentage. It is worked out as if you kept the mortgage for the full term, so it is for comparing offers, not a forecast of the rate you will pay.
Can I add the mortgage product fee to the loan?
Usually yes, but only if you choose to: FCA rules stop lenders adding fees automatically. You then pay interest on the fee for as long as it stays in the balance, and the larger loan can affect your loan-to-value.
What is an early repayment charge?
It is a charge for repaying a mortgage, or overpaying beyond your allowance, during a deal period such as a fixed rate. FCA rules say it must be expressed in cash, be a reasonable pre-estimate of the lender's costs, and be shown in your illustration before you commit.
What is a registered charge on a mortgage?
It is not a fee. A registered charge is the lender's legal interest in your home, which in England and Wales is recorded in the charges register of the title at HM Land Registry and is what makes the loan secured. When the mortgage is paid off, the lender normally tells HM Land Registry so the entry can be removed.
Is a mortgage valuation fee the same as a survey fee?
No. The valuation fee pays for the lender to check the home is adequate security for the loan. A survey or, on a new build, a snagging inspection is something you arrange and pay for separately.
Sources
- FCA Handbook: MCOB sourcebook in full (PDF), including MCOB 3A.2.6R on fee names, 4.4A on adviser fees, 4.6A on adding fees to the loan, 5A on the illustration and 12 on chargesapi-handbook.fca.org.uk
- FCA Handbook: MCOB 10A.1, calculation of the APRChandbook.fca.org.uk
- FCA: Annual Percentage Rate of Charge (APRC) calculationsfca.org.uk
- Financial Ombudsman Service: Early repayment chargesfinancial-ombudsman.org.uk
- GOV.UK: Spending Review and Autumn Statement 2015, mortgage fee transparencygov.uk
- GOV.UK: Registering land or property with HM Land Registry, update or correct the registergov.uk
- MoneyHelper: Mortgage fees and costs when buying or selling a homemoneyhelper.org.uk
A guide, not advice. NewHomeSearch is independent: it does not sell homes, arrange mortgages or take payment from builders. Rules change, so the stamp duty figures and live counts here come from the dated tables and today's listings. Take independent legal and financial advice before you commit.