When searching for a new mortgage, you can easily get fixated on securing the lowest possible rate, especially since lenders have recently put them up.
But the deal with the lowest rate won’t always be the cheapest overall, particularly once you factor in fees.
Here, we explain how mortgage fees have changed, the cost of adding a fee to your loan, why you should consider fee-free deals and how early repayment charges can cost you thousands.
1. Upfront fees can cost almost £4,000
Most mortgages only have one upfront fee to pay. Just 10% of residential mortgages have more than one upfront fee, according to Moneyfacts data checked on 12 August.
The most expensive fees are not to be sniffed at, with some coming to almost £4,000. However, our analysis of the best rates for the most popular mortgage scenarios found that £999 was the most common fee.
Upfront fees are typically charged as a fixed amount, but occasionally they are calculated as a percentage of the loan. Percentage-based fees are more likely on larger mortgages, such as loans of more than £500,000 or £750,000, and are particularly common on buy-to-let mortgages.
- Find out more: best mortgage rates & deals – updated daily
2. Remortgages typically face the highest fees
If you’re remortgaging, you could face higher upfront fees than first-time buyers or home movers when shopping for the best rates.
Remortgagers paid the highest average fees in our analysis, at £1,117. By comparison, the average was below £900 for both first-time buyers and home movers.
Some of the best remortgage deals had particularly high fees of £1,999 and £1,499, while the highest fee we found among the best deals for first-time buyers was £999.
To compare fees, we analysed the five best rates for the most popular mortgage product and loan-to-value (LTV) ratio among remortgagers, first-time buyers and home movers over a four-week period in July and August.
Among the deals in our four-week snapshot, First Direct was the lender most likely to combine a top rate with a below-average fee or no fee at all. So a competitive rate doesn’t necessarily mean having to accept a high upfront fee.
- Find out more: the cheapest mortgage lender in July
3. Average fees have fallen since 2024
Despite some deals having high upfront charges, average fees on the best mortgage deals have fallen since 2024 for first-time buyers, home movers and remortgagers.
Looking further back, the picture is more mixed. Average fees for the best remortgage deals have risen slightly since 2021, with some higher fees appearing in the market today. For first-time buyers and home movers, however, average fees have fallen by almost £200.
To see how fees have changed, we analysed the fees charged on the five cheapest deals for the most common scenarios for first-time buyers, home movers and remortgagers. We compared deals over four-week periods in July and August this year, summer 2024 and summer 2021, giving you an idea of how today’s fees compare if you’re coming off a two or five-year fix.
- Find out more: best mortgage rates & deals – updated daily
4. Fee-free deals may be cheaper
Sometimes, a fee-free mortgage with a slightly higher interest rate can work out cheaper overall.
That’s because the savings you make from a lower rate can be outweighed by a large upfront fee. For example, paying a £1,499 fee to secure a lower rate won’t necessarily save you money compared with taking a slightly higher rate with no fee.
The best option for you will depend on factors including the size of your mortgage and how long you’re taking the deal for. Compare the total amount you’ll pay over the initial deal period, including any upfront fees, rather than focusing on the rate alone.
You may also want to consider using a broker when choosing your next mortgage. A whole-of-market broker can search for a deal that suits your circumstances and help you compare the overall cost, including both the interest rate and any fees.
You can also compare the cost of different deals using our mortgage repayment calculator.
5. You can add upfront fees to your mortgage
It is possible to add upfront mortgage fees to your loan. Home movers and first-time buyers may have the most to gain from doing this because it frees up cash to cover the long list of costs associated with buying a home.
Of course, if you do choose to add the fee to your loan, you’ll pay interest on it for as long as it remains outstanding.
On a £250,000 loan, with a mortgage term of 25 years and an interest rate of 4.5%, adding a £1,000 fee to the loan would increase your monthly repayments by almost £6.
That might not sound like much each month, but the cost adds up if you leave the fee on your mortgage for years.
- Find out more: the most unexpected moving costs
6. Watch out for costly overpayment charges
For the majority of mortgages, there is a limit on how much you can overpay before early repayment charges (ERCs) kick in. Typically, you can overpay up to 10% of your mortgage balance each year without being charged.
ERCs can be hefty, potentially reaching 5% of the amount repaid in the first year of a mortgage deal. They are often structured so that the fee falls each year.
If you think you might move in the next few years, consider choosing a mortgage with no ERCs or factor the potential charge into your decision.
You can sometimes avoid ERCs by getting a portable mortgage, which you can take with you when you move home, but bear in mind your old mortgage might not be the most suitable for your new property.
