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Application fees
Lenders like to think of lots of different names for these types of fee so it looks more impressive, but essentially it is a payment to the lender for the please of them giving you a mortgage and for our purposes we will call them application fees.
Traditionally they used to be around £100 - £500 however since the tightening of the markets in the credit crunch lenders have been looking for ways to increase their revenue and application fees are now an average of £1,000.
Sometimes a lender will issue different rates with different application fees whereby the lower the rate, the higher the fee. If you have a small mortgage then it normally works out better to pay the reduced fee and suffer a higher interest rate. Conversely, if you have a larger mortgage then it can be better to pay the higher product fee in order to secure a lower interest rate.
The secret is to calculate how much more your payments will be per month with the lower application fee and then work out how much extra you will pay over the introductory period. If it is less than the application fee then go for the reduced fee / higher rate.
Most lenders will allow you to add application fees to the loan and they are not normally due until completion. There is a trend however for lenders to start charging application fees at the point of application, whether your case is ultimately accepted or not. This can be frustrating, as the mortgage may not go through due to circumstances beyond your control, i.e. low valuation or credit score, yet you will not receive a refund of your application fee.
- Mortgage Service Brochure.pdf (443Kb)
