Charges at the start of a mortgage

Mortgage Guide Contents

Charges at the start of a mortgage

Mortgage lenders don’t just make their profits from the interest they charge on the money they lend.

They also do very nicely out of a whole raft of related fees.

Most apply a one-off charge when you borrow from them.

This is supposed to cover the admin costs involved in lending to you, but it’s largely another way of lining their pockets.

It might be described as a set-up, booking, reservation, arrangement or administration fee.

The two ways this fee is charged

Most lenders charge a flat fee of anything from a couple of hundred to several thousand pounds.

The average is about £800 – at time of writing – but these charges are creeping up all the time.

In an effort to disguise their greed, some lenders now ask for a percentage of the amount borrowed.

A few mortgages are offered without either type of fee, but they aren’t necessarily the good deal they might seem.

(To find out why, go to The free-free mortgage.)

Is a better to pay a flat fee or a percentage?

Working out which type of fee will be cheapest is a matter of simple maths.

Say, you wanted to borrow £120,000 and were choosing between two mortgages with the same interest rate, terms and conditions, but one came with an initial fee of £799, while the other charged 2 per cent of the loan

The deal with the flat fee would be far better value, as the percentage fee works out at a whopping £2,400.

If, however, you wanted a £250,000 mortgage and were choosing between a flat fee of £2,950 and a 1 per cent charge (£2,500), you would save £450 by paying the percentage fee.

While we’re on the subject of up-front fees, you could save hundreds of pounds by reading Should I add my mortgage fee to my loan?

To find out more about other fees you might face, see Charges during a mortgage and What’s happening to mortgage exit fees?

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