Mortgages. We all hate them.
Yes, it’s the dreaded M word again…
I’m sure wherever you are reading this, the M word is mentioned phone call after phone call, with each agent claiming to have ‘the best’ broker, or the ‘open to market’ broker… blah, blah, blah… BUT.. what as much as we hate the M word, it’s a necessary evil to get you onto the property ladder.
HOWEVER. There are some costs you may want to calculate into your figures when working out what you need to save to be able to buy a property. So these cannot be overlooked.
As interest rates have dropped, property prices have continued to rise, but the fees for estate agents and brokers haven’t dropped like interest rates. No. the opposite, they have risen as well.
You need to make sure you have got a clear understanding of ALL fees that you will be expected to pay, so you don’t get a nasty surprise further down the line.
So, with that in mind, here are some fees you may want to ask your broker about, so you can calculate these within your budget
If you use a financial adviser/mortgage broker they normally charge an advice fee, this is either calculated on the loan value of the mortgage or can be a fixed fee. There are some lenders who offer to pay the adviser a commission directly without adding it onto your debt. So it is worth finding out what their ‘advice fee’ is, and if it’s a fixed fee or not, and also ask if the lender pays the fee or if it gets added to your loan amount.
This is a feel to arrange the mortgage, or a ‘set up’ fee so to speak. They are normally in the region of around £1000, but I have heard up to £2000. There is two ways this can be paid, either upfront OR added to the loan value/the mortgage. One thing to bear in mind, if you decide to add this to the mortgage amount you most likely will end up paying interest of the arrangement fee. If the arrangement fee is calculated on the loan amount it could end up being costly, so its worth checking and seeing if you could pay this in advance.
Booking, Application or Reservation fees.
This is usually a non-refundable fee and applies to the ‘booking’ or application process. Fees can range dramatically. I typically hear of anything between £99-£495 being normal for this part of Essex.
Higher Lending Charge (HLC)
This is usually a charge on mortgages, which effectively is very similar to an insurance policy. It protects the lender should you default on the loan. Something to note however, you normally won’t be covered in the case of defaulting on your loan repayment. Its normally refundable if you change your mind about the mortgage/loan and typically is calculated via a percentage.
Legal and CHAPS fee
This covers the legal work required when purchasing or mortgaging a property, also known as ‘conveyancing’. Sometimes the lender will contribute towards these fees or offer to pay for the standard fee associated with your mortgage. CHAPS fees are charged for sending paperwork to your solicitor and can typical cost between £25 and £50.
Own building insurance fee
A small cost of around £25-50 to ensure that you have got buildings insurance on the property should you not wish to go through the lender.
Valuation fee / survey fee
This is typically known as a ‘survey fee’. Some lenders offer this for free included within your mortgage package however more likely than not, it is chargeable. There are several different surveys available however the most common are basic valuation, homebuyers report and full structural. Each survey goes into different details, with basic valuation being the most basic, full structural being the most in depth and the most commonly used is the homebuyers report which is the ‘middle’ survey.
ERC – Early repayment charge.
This is something to pay attention to, it’s the cost if you were to terminate your mortgage early. This could be for a million different reasons, the most common are for moving home, relocation and/or grabbing a much better rate should interest rates get better (or look at going up). The early repayment can differ hugely and often be several thousand pounds. So its worth checking what your ERC is so you can be aware of your options.
Exit or mortgage completion fee.
This is normally charged when you close your mortgage account or end the mortgage for what ever reason. For example, if you find a better deal at the end of your term, or decide to sell and pay off your mortgage entirely. This cost can vary but can usually be anything up to £200.
Some people like to overpay on their mortgage to clear the balance quicker should they find themselves in a better position, for example should you have a pay rise or secure a better job whereby you can afford to pay more off to clear your balance and build your equity you may find you want to overpay. The downside is, some lenders have a limit on what you can overpay a year. If you go over this balance, there can be implications and fees to pay.
I hope you find this information helpful. 😊
Should you have any questions please do get in touch.