Fee-free should mean what it says on the tin but unfortunately, according to advisers FTAdviser spoke to, the term is often abused.
A fee-free mortgage should be one where usual product and application fees are excluded. Additionally, the mortgage may also come with a free standard valuation of the property.
The product should be designed to lower the initial cost of a mortgage for applicants but advisers need to be aware legal fees may still be payable depending on the home loan in question.
Given the variation of the terms and conditions of deals branding themselves fee-free it is clearly vital that advisers do not take the term as a given that there will be no costs to taking out a mortgage.
The main fee that may apply on a mortgage is an arrangement fee, which goes under a variety of names, including completion fee, product fee booking fee and reservation fee.
A valuation fee, remortgage legal fees and an exit fee can also be added to a mortgage.
Ray Boulger, senior technical manager of John Charcol, says a fee-free mortgage should mean none of these fees are charged and while this will be true for the arrangement fee, under any of its names, he notes lenders which charge an exit fee, which appear to be the majority, often do not waive it on fee-free mortgages.
Many fee-free remortgages still impose some charges from the solicitor, using the excuse that they are for disbursements, such as a Chaps fee, Mr Boulger adds.
However, he says this is still a fee - the clue is in the name.
The faster payments system, which is basically the same as Chaps except that the banks do not charge a fee, can be used for payments up to a maximum of £100,000, Mr Boulger points out.
Some banks apply a lower limit but for corporate clients, such as solicitors, Mr Boulger says most apply the system’s maximum of £100,000.
He says: “The key facts illustration should identify what fees, if any, are being charged on a mortgage which is promoted as fee-free.”
Checking the small print of the KFI is vital to understand whether a mortgage with the fee-free label is just that.
