In a nutshell, no-fee mortgages are a type of mortgage that comes with no arrangement fees, meaning borrowers will pay less when they take out the deal. Lenders often use no-fee mortgages as an incentive for new customers, offering them an appealing alternative to more standard funding options.
Most mortgage deals, whether you choose a tracker, fixed, discount, capped, or offset deal, come with arrangement fees. These fees are charged by lenders to set up the mortgage on your behalf. Sometimes, they even cost in excess of £2,000.
The good news is that you don’t always have to fork out for steep charges at the start of your plan, as there are plenty of low- or no-fee mortgages on the market. Bear in mind, though, that these deals tend to have higher mortgage interest rates. This means they are likely to be more expensive in the long run.
The biggest benefit of low- or no-fee mortgages is that you don’t have to pay a large lump sum to secure the deal you want.
Although many lenders allow arrangement fees to be added to the loan, this could leave you paying interest on it for the entire term of the mortgage. If the extra borrowing takes you above the loan agreed, you may have to pay the arrangement upfront, which can be tricky if you’re on a tight budget.
With a low-fee mortgage, however, you may only have to pay a couple of hundred pounds, making it much more manageable. If you go for a no-fee deal, instead, you won’t have to pay any fees at all.
Yes, low- or no-fee mortgages are more affordable to take out at the start, as you will not be faced with pricey charges. However, due to higher interest rates, they’ll turn out to be more expensive overall
If you take out a larger amount of money, opting for low- or no-fee mortgages could be costly in the long run. This is because you’ll need to pay higher interest rates for longer
Just like all other standard mortgages, low- or no-fee deals still include other charges, including valuation, legal, and survey fees
It can be tricky to work out whether a low- or no-fee mortgage with a higher rate is likely to be more cost-effective than a lower-rate deal with a high fee. Therefore, it’s always wise to do your sums to ensure you find the best deal to suit your needs.
A good rule of thumb is that the smaller your mortgage is, the bigger the impact arrangement fees will have. So, if you are only looking for a small loan, it’s probably best to go for a low- or no-fee mortgage.
The length of the mortgage is also something to consider. If it’s a two-year deal, for example, your fee will also only last for that long. Whereas if you take out a five-year deal, it will be longer before you have to fork out another arrangement fee than if you took a two-year deal.
If you’ve decided you want a low- or no-fee mortgage, you can compare hundreds of deals using MoneySupermarket’s free independent comparison service.
If you’re not sure which mortgage is right for you, it’s a good idea to get help from a mortgage broker who can talk you through the available options. This way, you can work out which mortgage will be the cheapest overall, based on your individual circumstances.
Your home may be repossessed if you do not keep up repayments on your mortgage.
As with all types of loans, to qualify for low- and no-fee mortgages, you will need to meet specific eligibility criteria.
There are no universal terms and conditions, as each lender will have their own set of rules. However, you’ll generally be expected to have a good credit score, as providers will assess your rating, outgoings, and income to determine whether you’re a reliable borrower. Some lenders will also set an age limit as part of their eligibility criteria.
Not necessarily. The size of your deposit should not have an impact on whether you can apply for a no-fee mortgage or not.
As always, though, bear in mind that the bigger the deposit, the more favourable the mortgage offer. This is because lenders will see you as a lower-risk borrower, as you’ve already put down a large amount of money to take out the loan.