|
 |
Costs of a mortgage
Valuation Fee
The amount charged to conduct a valuation of the property on behalf of the lender. It is important to note that the valuation is carried out on behalf of the lender - not the mortgage applicants! Frequently lenders include an administration fee as part of the valuation fee collected to cover the costs of arranging the valuation. The valuation does not represent a detailed inspection. For peace of mind it may be appropriate to obtain a "House buyers Report" or a "Full Structural Survey". These are more detailed than a lender valuation but they produced on behalf of the applicant. They are more expensive than the lenders valuation. |
Booking Fee and Arrangement Fee
Both are up-front fees charges levied at the outset of the mortgage.
A booking fee will normally be required with the application form. A booking fee is paid to reserve funds on a mortgage product that has limited funds available e.g. a first-come, first-served fixed rate. Booking fees are often non-refundable, so if the mortgage applicant cancels the mortgage application before completion the fee will not be reimbursed.
An arrangement fee is typically charged on completion of the mortgage. Arrangement fees are common on fixed and capped rate mortgages. Frequently they can be added to the mortgage hence the fee does not become an "out of pocket" expense.
Mortgage Indemnity Charge (sometimes referred to as a High Percentage Lending Fee)
For high Loan to Value (LTV) mortgages i.e. where the loan is not much less than the value of the property, it is common practice for the lender to take out a form of "insurance" to protect against some or all of the losses incurred if the property needs to be taken into possession because of serious arrears. It is common practice for lenders to pass this charge on to the borrower. Depending on the amount of loan and the LTV the Mortgage Indemnity Guarantee charge can be a significant cost e.g. a £47,500 mortgage on a purchase price / valuation of £50,000 would result in a £750 charge on a typical MIG charge of 7.5% on a normal lending limit of 75% loan to value. Most lenders have a different name for this charge i.e. it may not appear on the mortgage Offer as Mortgage Indemnity Charge or High Percentage Lending Fee.
There are some important facts to understand about the mortgage indemnity charge. It acts as a form of insurance for the lender not the borrower. This means that the lender can claim part or all of its losses incurred repossessing the property from the insurance company providing the MIG cover. Note that even after repossession the former borrower will remain liable for any sums owing (shortfall between selling price and mortgage outstanding plus arrears, lenders legal costs and any other charges applied to the mortgage) and can be pursued by the insurance company for payment at a subsequent date.
Legal Fees
It is necessary to have a solicitor or licensed conveyancer to act on behalf of the mortgage applicant and the lender in the house purchase or remortgage transaction. The costs will be greater for house purchase than for remortgage. It is the role of the solicitor or licensed conveyancer to note ownership of the property on the title deeds; note the lenders interest in the property; register with the Land Registry and conduct searches to identify if there may be factors which could affect the property e.g. coal mining search to check for subsidence; check to see if there are some planned major road developments going through the back garden etc.
Beware Redemption Penalties
When you take out a mortgage you have an agreement with the lender. This covers the amount you repay and is set for a particular period.
For example you may have a mortgage for a three year fixed interest rate of 5%.
If you want to get out of this deal before the three years is up you?d probably have to pay a redemption penalty. This is a charge which supposedly compensates the mortgage lender for the time and expense of your leaving.
Some lenders may try to hide the redemption penalties in the small print.
Simply ask your prospective lender what the exit / redemption penalties are. If you're not sure what they mean ask them to spell it out. If you still don't understand you can take it that there's something they might be trying to hide so walk away.
... and "Overhanging lock-ins"
This is a penalty for leaving a lender AFTER a special deal interest rate has come to an end (i.e. not DURING the agreed timescale of the deal).
So, using the same example as above, if you got a mortgage with a three year fixed interest rate of 5% the mortgage lender could charge you a penalty if you left after the three years was up, say in year four.
Stamp duty
Stamp duty is a government tax levied on the purchase of properties. Currently, no duty is payable on properties valued at under £60,000; between £60,000 and £250,000, you pay 1 per cent of the total purchase price; between £250,001 and £500,000 you pay 3 per cent of the total purchase price; and above £500,001 you pay 4 per cent of the total purchase price. You will lodge the funds for paying stamp duty with your solicitor who will usually pay it for you.
Insurance
Lenders will insist that the property is adequately insured, with a suitable Buildings Insurance Policy , as it represents security against the mortgage debt. A buildings policy covers against storm damage, fire, flooding etc and relates to the fabric of the house or flat etc. It is normal for lenders to check that any policy arranged is adequate and a fee will sometimes be levied to check the policy, if the borrowers take a policy other than the one sold or recommended by the lender. In addition, borrowers will need a Contents Policy that provides cover for the contents, such as carpets, TV's, furniture etc. Most lenders and insurance companies offer a combined Buildings and Contents Policy . In the past some lenders have made their insurance compulsory with some very competitive mortgage products although this is less common now.
Another form of insurance common in the mortgage industry is a Mortgage Payment Protection Plan . This policy is designed to offer income protection against unemployment, sickness and redundancy. This form of insurance has become more important as the Department of Social Security has steadily withdrawn the benefits available. This form of insurance is not compulsory.
Another form of insurance is Mortgage Indemnity Guarantee . This is covered above.
Other Charges
There are a whole series of other fees that some lenders apply in certain circumstances e.g. arrears, late payment, removing the lenders name from the Title Deeds at the end of the mortgage. Under the terms of The Mortgage Code of Practice the lender will, before a mortgage applicant takes a mortgage, provide a tariff covering the repayment of the mortgage, including charges and additional interest costs payable in the vent of arrears and will advise of any other charges for services before or when the service is provided
|
