There are so many factors to consider when people look at applying for a mortgage. When looking at the amount, how much can be borrowed? Is it enough? Or consider the products available; is it better to fix the rate? Or keep it flexible with a variable to allow overpayments?
The first thing to do, though, is consider the budget, understanding the deposit and other potential costs.
When borrowers apply for a mortgage, what other costs need to be factored into their budget, other than the property deposit?
Product booking fee
Booking fees can vary from £0 to £2,000, and are paid to secure a specific rate (normally fixed), while the application is processed and approved. Some lenders may refer to it as a reservation or application fee.
Valuation fee
When approving lending on a property, the lender is looking for assurance that the property is of sound structure. They require a basic valuation report, although more detailed reports can be requested dependant on the age of the property, and the borrower’s requirements. Some lenders provide free valuation, whereas some of the more detailed reports will be more expensive.
Associated legal costs
Buying a property comes with legal costs and ensures that the relevant paperwork is completed correctly. When buying a property, as opposed to raising capital on an existing property that is owned, as well as the solicitors cost there will be stamp duty and search fees with the land registry.
Telegraphic transfer fee
When the purchase is ready to complete, the solicitor will request the funds from the lender. This is generally done as an electronic transfer, as it takes place on the same day as requested.
Buildings insurance fee
Some lenders also charge a fee if the borrower decides to take their building insurance elsewhere. As part of the application process, an ‘alternative insurance’ form would be completed and if a fee was applicable (as it is not always), it would generally be applied at the time of completion.
The fees mentioned above all need to be considered by the borrower prior to submitting a mortgage application, to ensure that they can afford the mortgage as a whole. It would be discussed with the mortgage professional when assessing the affordability and the funds in place for the deposit, and associated costs.
The mortgage advisor would also run through other charges that may be applied once the mortgage has drawn down, if the terms and conditions of the mortgage were not adhered to.
These include:
Mortgage Exit Charge
This is often referred to as a completion fee, and can be incurred if you switch lenders to obtain a better rate, if your switch deals with the same lender. Some lenders also apply this as your mortgage reaches its own natural conclusion.
Early Repayment Fee (ERC)
Many mortgage products are for a relatively short period of time. For example, fixed rates generally span two, three or five-year periods. The ERC is a penalty applied for exiting the product early, and is a percentage of the outstanding balance, so it is important that the borrower understands this before looking to exit a product early.
