Once upon a time, life was simple when you wanted to by a house. You paid fees for a surveyor to value the property, a lawyer to do the conveyancing, maybe a small insurance premium if your loan to value was over a giddy 70%, stamp duty and the cost of registering the deeds. But nothing lasts forever and today couldn't be more different as lenders charge a variety of fees for doing just the same job as they used to.
Why we have fees is really a different discussion, but it's probably partly down to too many lenders coming into the market and then having to prop up falling margins with ever more exotic ways of earning money from you the borrower. And, partly the fact that a fee helps keep the headline rate of a mortgage down, so that a lender can look better in best deals tables.
So, what are the main fees that you might have to pay to the lender today? These are an arrangement fee, an early repayment fee and an exit fee.
The arrangement fee is simply the lender's charge to you for doing business with them.
An early repayment fee is the charge which the lender will levy against you if you want to pay off your mortgage early. Basically it covers the lender for their lost profits from not lending the money to you for as long as had originally been agreed.
The exit fee is the most controversial of the three fees because it's the fee for doing the admin when the mortgage comes to the end of the agreed period. You might expect the lender to have thought that the mortgage would have to end at some point, and that they would take that into account when setting the mortgage up, wouldn't you? Well not only do some lenders make a charge, but they've been upping the charge, often without telling the borrower, during the course of the loan, so much so that the regulator said "enough" in 2007 and told lenders to justify their charges (a bit like unauthorised overdraft charges).
As we've said already, charging fees is one way to keep the headline rate of a mortgage down. If you're comparing like with like it shouldn't be too hard to work out what's the best deal for you is to help saving money. But not all lenders charge all of the fees, so you might have to get your calculator out to work out whether it's better to pay a higher headline rate and make up for that with lower fees. You'll also have to have a stab at how likely you are to want to move your mortgage before it comes to the end of its term and see which lenders offer the best deals.
To sum up with a savings tip - don't be dazzled by a low rate and ask tough questions about fees.
