What is a Mortgage Arrangement Fee?

Author: Mark Langshaw Head of Content Peer-reviewed by: Lee Trett Mortgage Advisor & Director

Author: Mark Langshaw
Head of Content

Peer-reviewed by: Lee Trett
Mortgage Advisor & Director

When shopping around for a mortgage, it's important to compare not only the interest rates but also arrangement fees. A higher rate with a lower arrangement fee could work out cheaper than a lower rate with a higher fee and vice versa.

Here you will learn why lenders charge arrangement fees, how much they are and whether it is possible to get a mortgage with no fee at all.

What is a mortgage arrangement fee?

A mortgage arrangement fee is a one-off fee charged by some mortgage lenders when you agree to take out a mortgage with them. The fee covers the costs of setting up your mortgage and can range from a few hundred pounds to a couple of thousand pounds.

Other names for arrangement fees are product fee, completion fee or booking fee. These are all one and the same and are simply different words for the amount your mortgage lender bills you for the administrative work involved in your application.

Arrangement fees can add a significant amount to your mortgage costs so it is a good idea to shop around and compare them before applying for a deal.

You can do this using our live rates tool below, which also lists product fees.

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How much is a typical arrangement fee?

The average mortgage arrangement fee in the UK is between £999 and £1,499 for a standard residential mortgage. For more specialist mortgage products or large loan amounts, this fee can be higher and exceed £2,500 in some cases.

Mortgage lenders calculate arrangement fees in two ways:

• Fixed fee: A set amount charged upfront regardless of the mortgage amount. 

• Percentage fee: Some lenders will calculate the arrangement fee as a small percentage of the loan amount (1% or less). This is more common for investment mortgages or large loans and typically means a higher cost than a fixed fee.

Examples of arrangement fees at specific lenders

The table below shows examples of arrangement fees at specific UK mortgage lenders to give you an idea of how they can vary from one provider to another.

As you can see from the table above, most UK lenders charge between £0 and £1,499 for their arrangement fees, although a few go higher. It is important to remember that individual lenders do not have a single arrangement fee as they are set on a per-product basis.

Are arrangement fees refundable?

Mortgage arrangement fees are usually non-refundable once your mortgage has been completed but most lenders will consider refunding them if your application breaks down or you decide not to go through with it at any point prior to completion.

However, this isn’t always the case so it is important to check with your lender and review your mortgage’s terms and conditions on fee refunds before you enter the agreement.

Some lenders might still charge you arrangement fees if your mortgage application doesn’t go through, depending on the reason it broke down. This charge is to cover their admin costs, which they will still have incurred even if your house purchase falls through.

Other fees, such as the valuation fee and the mortgage broker fee, are usually only payable if your mortgage goes through, so these are not additional costs you are at risk of being liable for if your application breaks down at any point during the process.

How to pay a mortgage arrangement fee

Mortgage lenders usually give you two options for paying a mortgage arrangement fee: settle it upfront as a single payment or add it to your mortgage loan.

There are advantages to both approaches. If you were to add the fee to the loan amount, you would have less to pay upfront and are at no risk of losing this money if your house purchase falls through, but adding it to the mortgage does mean paying more overall.

This is because it will increase the amount you are borrowing and therefore your interest payments too. It will also mean you hold slightly less equity in your property to begin with.

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Can you get a mortgage with no arrangement fee?

Yes. Some lenders may offer a 'no-fee' mortgage deal, but this could mean that the interest rate is higher. It's important to do your sums and work out which option is best for you.

Many lenders offer fee-free alternatives to some of their existing products, which means you essentially get the same mortgage deal with a higher interest rate.

The table below shows an example of a no-fee mortgage from a high street mortgage lender and how it compares to its fee-carrying equivalent.

This example is based on a £200,000 mortgage taken over a 25-year term, comparing two different 2-year fixed-rate deals.

Please note that these specific mortgage products were representative of the market at the time of writing. Rates can change at any time but the above example will remain illustrative of the difference between no-fee mortgages and ones that include upfront fees.

If you're working with an experienced mortgage broker, they should be able to help you compare different mortgage deals and find the one that's right for you. At Teito, we compare the best deals from across the entire mortgage market, so you don't have to. Our expert mortgage advisors can save you time and money, so why not get in touch today?

How are buy-to-let mortgages affected?

Arrangement fees on buy-to-let mortgages are typically higher than they are for residential mortgages, as are the interest rates on them. It is also more common for buy-to-let lenders to charge you a percentage of the mortgage amount, rather than a fixed fee.

The good news for landlords is that arrangement fees are not classed as a capital cost under current tax legislation, which means they can be deducted from rental income. You should deduct this cost on your tax return for the year in which the arrangement fee was incurred.

You and/or your account should consult HMRC’s Property Income Manual if there is any uncertainty around your tax position as a buy-to-let landlord.

Other mortgage fees you should expect

In addition to arrangement fees, there are other fees and costs that you might need to pay when taking out a mortgage, and they include:

• Mortgage Booking fee: This is charged by some lenders when you first apply for a mortgage. A mortgage booking fee covers the cost of processing your application and will not be refunded even if your mortgage does not go through. Cost estimate: £100-250.

• Mortgage valuation fee: This is a fee charged by the lender to cover the cost of having your property valued. Cost estimate: £250-1,500.

• Mortgage account fee: This is an annual fee that you may be charged to cover the cost of maintaining your mortgage account. Cost estimate: £100-300

• Higher lending charge: This is a fee that some lenders charge if they are lending you a high percentage of the property value (usually 90% or more). Cost estimate: If applicable, this is typically around 1.5% of the mortgage value.

• Costs indirectly related to the mortgage

• Stamp duty: This is a tax that you have to pay on properties worth more than £125,000.

• Legal fees: You will need to instruct a solicitor or conveyancer to carry out the legal work involved in buying a property.

• Survey fee: It is strongly recommended that you have a survey carried out on the property before you buy it, in order to check for any structural defects. The cost of the survey will depend on the size and type of property.

• Mortgage broker fee: If you use a mortgage broker to help you find a mortgage, they may charge you a fee for their services.

• CHAPS payment fee: This is a fee charged by your bank when you instruct them to make a large payment, such as when you're buying a property.

All of these fees you need to pay can add up, so it's important to factor them into your budget when you're trying to figure out how much you can afford to spend on a property.

If you're not sure what all of these fees are, or how much they might cost, your mortgage advisor should be able to give you more information.

Get independent advice about mortgage fees

At Teito, there are mortgage brokers on our team who are experts when it comes to mortgage fees and how to save money on them.

They will compare deals from across the market for you, including no-fee options, and help you make an informed choice on which one to select with every cost factored in.

Get started here to book in a free, no-obligation chat with one of our whole-of-market mortgage advisers today and find out how much they could save you in fees.