Vast majority of homeowners still don't understand mortgage fees

A new survey has revealed that 81% of British homeowners lack knowledge about the fees associated with buying a home and securing a mortgage.

Related topics:  Finance,  Mortgages
Property | Reporter
10th June 2024
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"Speaking to a good mortgage broker as early as possible in the process will help you to understand not just how much you can borrow, but also how much deposit you’ll need and what other costs you will be expected to pay. Ultimately, all of this could impact the size of your deposit"
- Terry Higgins - The New Homes Group

Almost one million UK mortgages will be up for renewal before September 2024, according to ONS statistics. That means almost one million Brits will be struggling to research mortgage deals around a turbulent market.

Research conducted by David Wilson Homes revealed that an overwhelming 91% surveyed were unfamiliar with higher lending charges, 85% were unfamiliar with early repayment fees, and 54% were unfamiliar with stamp duty.

The 13 most misunderstood mortgage and property fees

When buying a house, your deposit isn’t your only financial consideration. When it comes to your mortgage and the overall house-buying process, there are various fees to be aware of.

What you’ll be charged depends on your personal circumstances and your chosen mortgage. To help you understand your obligations, this guide outlines the different mortgage fees you’ll be expected to pay.

In a survey of 500 prospective and current UK homeowners, 81% said they lacked knowledge about the fees associated with buying a home. They agreed that this lack of understanding would influence their choice of mortgage lender and product.

Since March 2016, mortgage providers have been legally obliged to give an annual percentage rate of charge (APRC) for every mortgage deal. This interest calculation includes any additional fees, making mortgage comparison much easier than it was in the past.

Your key facts document (also known as a European Standard Information Sheet (ESIS) and mortgage illustration sheet) also includes details of the mortgage fees you will need to pay, so there should be no surprises.

Here is a list of 13 mortgage and property fees arranged from the least to the most well-known among our survey respondents.

1. Higher lending charge

The survey found that 91% of respondents expressed unfamiliarity with higher lending charges, making it the least recognised mortgage fee among homeowners.

If you only have a small deposit, your mortgage provider may require you to pay a higher lending charge (HLC), which is often around 1.5% of the amount you borrow. They can use this to buy a Mortgage Indemnity Guarantee, an insurance policy that covers them should you fail to make your monthly repayments.

2. CHAPS fee

Despite it being a common practice of most banks to charge a CHAPS fee, a surprising 88% of prospective and current UK homeowners were unaware of it, potentially leaving many vulnerable to unexpected costs during the home-buying process.

A Clearing House Automated Payment System (CHAPS) fee pays for your mortgage money to be transferred from your provider to your solicitor. Typically, this fee amounts to around £25-30, but CHAPS charges vary between banks. It must be paid on completion and is usually taken off the balance your solicitor receives or added to the mortgage.

3. Mortgage account fee

Your mortgage provider may charge a mortgage account fee, typically between £100 and £300, to set up, maintain and close your mortgage account. This can be added to your mortgage on completion, or you can pay it upfront. Shockingly, 85% of our survey respondents were unaware of this fee.

If you pay a mortgage account fee, you should not have to pay any redemption administration fees in the future.

4. Early repayment fee

There are more fees to be aware of once your mortgage begins. If you decide to come out of a fixed, discounted, or tracker deal early, you may have to pay an early repayment charge. This is added to the redemption figure provided by your existing mortgage provider. The amount you will be expected to pay will depend on your mortgage size, as it is a percentage-based fee.

You may also have to pay a redemption administration fee of between £100 and £300 to your existing mortgage provider for closing your mortgage account. However, 85% of our survey respondents reported being unfamiliar with the costs of these fees.

5. Own building insurance fee

Some mortgage providers will arrange insurance for you, but you do have the option of finding your own deal, which is often cheaper. We found that almost 4 in 5 people were unfamiliar with the costs of their own building insurance. If you go down this route, you may need to pay around £25, but this could still be the better option in the long run.

6. Conveyancing fees

Aside from your mortgage provider’s fees, you need to pay your solicitor or licensed conveyancer’s conveyancing charge (legal fees). Surprisingly, 78% of people were unfamiliar with the costs of these fees. Legal fees are typically around £800 to £1,500, but the final price will depend on the cost of the property.

7. Land registry fee

A land registry fee transfers the title and deeds of the property to you. This fee changes depending on the property’s value, which can be confusing. 75% of our survey respondents reported being unfamiliar with this cost. Now, you can work out how much your land registry fee would cost using a land registry fee calculator.

8. Booking fee

When you apply for a mortgage, your provider may charge a booking fee. This is also called a reservation or application fee and costs between £100 and £300. However, 73% of people had no idea how much this fee would set them back.

It must be paid upfront and is non-refundable as it “reserves” your mortgage funds until your application goes through. It does not, however, guarantee that you will receive a mortgage from your provider. Some lenders do not charge a booking fee; others include it in your arrangement fee, so you don’t have to pay for it separately.

9. Surveyor’s fee

Additionally, you will be responsible for compensating your surveyor for any surveys they conduct on your behalf. There are three distinct tiers of house surveys, each associated with varying price points. This variation in cost may account for the fact that 70% of our survey respondents lack knowledge about these fees. Surveyor fees can cost anywhere between £400 and £1,500, depending on the survey type.

10. Arrangement fee

The arrangement fee sometimes called a completion fee or product fee, is imposed by your mortgage provider to establish your mortgage. According to our research, 67% of individuals lack awareness of the expenses linked to arrangement fees. The average arrangement fee is £1,000, while others can be up to £2,500, yet some mortgage schemes have no fees. When deciding which mortgage deal to choose, you need to consider both the arrangement fee and the interest rate offered.

A mortgage broker will advise you on the most cost-effective combination of arrangement fee and interest rate, depending on the size of the mortgage you need. However big or small your arrangement fee, you can decide to pay it straight away or add it to your mortgage (this means you will have to pay interest on it for the life of the loan). If you decide not to take the mortgage or are declined, this money is usually refunded.

11. Valuation fee

The mortgage provider will want a surveyor to assess the property’s value, so they may charge a valuation fee. This can range from £50 to £1,500 (depending on the property’s value) but typically sits around £300. Surprisingly, 63% of people surveyed were unfamiliar with the costs of valuation fees.

You can also instruct your own surveyor to check the property’s condition, highlight any concerns and suggest any repairs, either through a Homebuyer or Full Structural Survey.

12. Mortgage broker fee

Some brokers are fee-free, and some require a broker fee. Nonetheless, 62% of individuals were unsure about the associated costs. On average, you can anticipate paying between £300 and £500 for your mortgage broker fee, depending on the value of your mortgage.

Brokers usually charge a fee for their service, which is either paid by you, the borrower or the lender. Additionally, brokers receive a commission from the lender they place your mortgage with, although this does not affect the rate of interest you pay on your mortgage. Some mortgage brokers offer a free mortgage advice service and receive a commission from your chosen mortgage provider.

13. Stamp Duty

Stamp Duty is an additional expense for homes valued at over £250,000. However, first-time buyers are exempt from this duty on homes valued at less than £425,000. Our research revealed that 54% of individuals lack awareness of the potential costs associated with these fees. Nevertheless, you can easily calculate your Stamp Duty using an online calculator, making the process quick and straightforward.

Understanding mortgage and property fees

With numerous fees to consider during the house-buying process, Terry Higgins, Group Managing Director at TNHG, highlights the importance of understanding each one.

Why is it important for buyers to understand the fees they may be facing?

“Taking out a mortgage is a big financial commitment and one of the biggest financial decisions you’ll take in your life. For many, this can feel overwhelming just working out where to start.

“Speaking to a good mortgage broker as early as possible in the process will help you to understand not just how much you can borrow, but also how much deposit you’ll need and what other costs you will be expected to pay. Ultimately, all of this could impact the size of your deposit.”

What issues might arise if buyers aren’t aware of the fees they may face?

“If you are not aware of what fees you could be expected to pay then this could impact the size of your deposit. For example, the amount of stamp duty you will have to pay not only depends on your circumstances but also on where you are buying. This differs between England, Wales and Scotland.”

What common fees do buyers often overlook, and how can these impact them later?

“Legal fees and associated costs like local authority searches, called disbursements, form a large part of the initial fees that need to be paid. Yet, these are often overlooked or not fully understood.”

What additional costs should buyers budget for when buying a home?

“The advice I would give is to speak to an independent mortgage adviser as early as possible in the house buying process, and they can explain all associated costs personalised to you including when you need to pay them.”

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