According to the Financial Conduct Authority, the value of gross mortgages at the end of the second quarter of 2023 was £52.4 billion.
This also includes remortgages, which allow borrowers to switch their mortgage product or borrow additional funds for a variety of reasons.
However, the process of remortgaging can include additional costs and expenses.
And this guide will help you know all about various remortgage fees and costs involved in the process.
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What Are Remortgage Fees And Costs?
When you convert an existing mortgage into a new one, lenders tend to apply some additional charges and fees to cover various expenses involved in the remortgage.
Such costs can include a fee that has to be paid for leaving your current lender, administrative and legal fees, and other expenses.
Charges can vary from lender to lender, they will also depend on the cost of your existing mortgage and the cost of the new loan.
Depending on these factors, it can range from a few hundred pounds to several thousand pounds. That is why these costs are a key factor to consider when remortgaging.
Early Repayment Charge
You may need to pay an early repayment charge to the lender when remortgaging property if the term of the existing mortgage isn’t over. This will depend on whether the mortgage rate is fixed and your current product has Early Repayment Charges (ERC’s) associated with them.
An early repayment charge depends on the amount outstanding on your current mortgage, generally calculated as a percentage of this amount. So, in some cases, it can be a considerable sum. Generally, the early repayment charge can cost between 1% and 5% of the mortgage amount you’ll be clearing with a new mortgage.
You may want to wait for your current mortgage deal to come to an end before planning to remortgage to avoid an early repayment fee.
Solicitor’s Fees
It is the job of a solicitor to handle the remortgage process or conveyancing. Conveyancing refers to the legal paperwork involved in the remortgage process, and the solicitor charges a fee for this service.
In some remortgage deals, lenders may offer cashback or a free legal incentive to cover the solicitor’s fees.
But this is not the case if you decide to shift to a new mortgage deal without changing the provider. This process is known as a product transfer and does not require the services of a solicitor since no conveyancing is required.
Additionally, if you accept the assistance of the mortgage provider regarding the legal aspects of the remortgage process, you will have to use the solicitor selected by the lender.
Exit Fee
An exit fee may be charged by a lender when you decide to remortgage to a different provider.
It may be charged when paying the standard variable rate or even in a current deal, but it is generally a small amount, ranging from £50–£65.
Deeds Release Fee
The deeds release fee covers the expenses of transferring the title deeds of the property to the new mortgage provider.
You may be able to pay this fee at the time the loan period starts in some cases or when applying for a new loan.
Costs Involved When Setting Up A New Mortgage
1. Product Fees
Also known as an application fee or arrangement fee, product fees are the cost of setting up a new mortgage.
Some lenders may charge a low-interest rate but have a higher fee to balance the overall cost of the remortgage. The product fees can range from £995 to over £2,000.
It can also be added to the cost of the mortgage, which will help spread out its cost but will increase the amount owed and the monthly payments. However, this fee may be refundable in certain cases if the mortgage deal does not go through.
Most lenders have products with and without arrangement fees so it’s worth comparing the two before deciding on your final mortgage product.
2. Booking Fee
A booking fee is a one-time fee of around £100–£200 that some lenders charge when you sign up with them. It has to be paid when you submit the application and is non-refundable.
3. Valuation Fee
Lenders need to know the value of your property when assessing the mortgage application. And the valuation fee is the cost of having it valued.
Some lenders may offer a free valuation, while others may charge a fee based on the property value.
4. Broker Fee
You may also need to pay the broker for arranging the mortgage for you and finding you the best deal, or they may get a commission from the mortgage provider rather than charging a fee.
The broker’s fee may be a flat fee costing between £300 and £600 or may cost up to 1% of the value of the mortgage.
Brokers will explain any fees from the outset before proceeding with any mortgage application.
Keep in mind that the products brokers may have access to could save you more than their fee over the term of the mortgage if they’re able to find you preferential rates.
5. Conveyancing Fee
As already explained above, a conveyancing fee may be charged when taking out a new mortgage in order for them to complete the necessary legal work for the application.
FAQs
1. Can you remortgage without paying an Early Repayment Charge (ERC)?
Waiting till the end of the current mortgage period may allow you to avoid the ERC.
2. Is staying with your current lender more cost-effective?
In some situations, staying with your current lender may be cheaper as you may not need to pay any additional fees. Although, you may not always get the best rate by staying with your current lender, which could work out more costly over the term of your mortgage.
3. When is the best time to remortgage for maximum cost savings?
The best time to remortgage for maximum cost savings is when the tie-in period of the current deal ends. After this period, the mortgage will switch to the standard variable rate, which is when you can start your new mortgage product without incurring any ERC’s. We would always recommend looking into a new mortgage product within 6 months of your current deal coming to an end so you can switch onto the new product as soon as you revert to the lender’s standard variable rate.
Final Thoughts
Knowing about the various costs associated with the remortgage process can make things significantly easier when converting an old mortgage into a new one.
You can take the help of a mortgage specialist or expert to determine the costs charged by different lenders.
Once you know the different rates charged by various lenders, selecting the most suitable one will not require much effort or time. Just make sure you assess the long-term affordability of the remortgage plan.
After all, some deals are designed in such a manner that the up-front costs are low, but the overall cost may be higher. So, they may seem affordable for the current period but may end up costing more in the long run.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
I am CeMAP (Certificate in Mortgage Advice and Practice) qualified mortgage adviser with a strong background in Finance. I specialise in providing expert advice on a range of mortgage products, including first-time buyers, remortgages, buy-to-let mortgages and bad credit mortgages.
