All lenders charge interest on their loans and this is the major element in the cost of the finance. Building societies and banks have variable interest rates which may vary according to the size of the loan.

However, there are other charges that are normally involved in arraning a mortgage:

Arrangement fees

Banks and building societies do not always charge arrangement or setup fees, but many lenders do charge them, particularly for some of the specialist mortgages described later in this guide. Arrangement fees are typically in the range of £100 - £400.

Valuer's report

In order to protect its security, the lender will want to be sure that the house is worth the sale price, so will alwas insist on a valuation for mortgage purposes. This will be carried out by a qualified surveyor, who will charge a survey fee, paid by the borrower.

The lender's survey aims to establish if the value of the house is enough to protect the lender's security. It does not mean that the property is free from any defects. It is therefore recommended that house buyers obtain a homebuyer's report or a full survey to ensure that they are aware of any problems. This will increase the cost but could prove to be a wise investment.

Indemnity guarantee fee

Some lenders insist on an indemnity guarantee policy if the loan exceeds 75 percent of the property value. This protects the lender in the event of the borrower defaulting on the mortgage and the sale price of the property not being enough to repay the loan. However, this policy is paid for by the borrower and often, the premium has to be added to the loan. In recent times, the threshold for mortgage indemnity guarantees has increased - many lenders now set the level at 90 percent.

Stamp duty

This is a tax charged by the Government on the document transferring ownership of the house, paid by the purchaser. The rates are:

Nil - up to £60,000
1% over £60,000 but not more than £250,000
3% over £250,000 but not more than £500,000
4% over £500,000

Legal fees

There will be legal fees payable to the solicitor or licensed conveyancer handling the transaction. The legal fees will include the local search fees (carried out to reveal matters affecting theproperty) and land registry fees, as well as the lawyer's own charges.

Other charges

All mortgage lenders will have a tariff of other charges that you may incur in certain circumstances at various points during the life of your loan. These are not universal charges - lenders will vary in terms of which ones apply, but all should be able to provide details on request.