When a lender advertises a secured loan rate, the figure displayed is the APR (Annual Percentage Rate), which is designed to represent the total annual cost of the borrowing. In practice, many borrowers find that the fees and charges they encounter during and after the application process add considerably more to the total cost than the APR alone suggests. Arrangement fees, valuation fees, solicitor costs on both sides, broker charges, and potential early repayment penalties are all real costs that contribute to what the loan actually costs in full.
This guide explains every significant fee type associated with secured loans (second charge mortgages), how each is charged, what the typical amounts look like in practice, and which elements are negotiable. It also covers what APR does and does not include, and how to use the standardised documentation lenders are required to provide to make a genuine like-for-like comparison between different loan offers. For a comparison of how APR is calculated and what it represents, the APR on secured loans guide covers the technical detail.
At a Glance
- Fees typically add 4% to 6% of the loan amount to the total cost, in addition to interest. On a £75,000 loan, that means approximately £3,000 to £4,500 in additional costs before interest is considered. The interest cost dwarfs the fees over a long term, but in shorter-term borrowing the fees represent a much higher proportion of the total: the total cost picture.
- Arrangement fees are the largest single fee and are often 1% to 2% of the loan. Adding the arrangement fee to the loan rather than paying it upfront avoids an immediate cash outflow but increases the total cost: a £1,125 fee added to a loan at 9% APR over ten years generates approximately £585 in additional interest: lender fees: arrangement, admin, completion.
- Valuation, legal, and broker fees are charged separately and apply regardless of which lender is used. Third-party costs typically total £800 to £1,500 or more for legal fees alone, plus £200 to £600 for a valuation. These arise whether or not the loan ultimately completes: third-party fees.
- APR must include compulsory fees, but not all fees are compulsory, and rolling fees into the loan increases the true cost. Third-party costs, broker fees, optional insurance, and future rate changes on variable products are all excluded from the APR calculation: what APR captures and what it does not.
- The ESIS is the document to use when comparing offers: it shows total amount repayable on a standardised basis. Lenders are required to provide an ESIS before any binding offer is made. The total amount repayable in Section 12 is the most reliable single comparison figure: how to use the ESIS.
The Total Cost Picture
Before examining each fee type in detail, it is useful to see all the costs together. The following example shows a realistic complete fee breakdown for a £75,000 secured loan. These are illustrative figures based on the typical range for each fee type; actual amounts depend on the lender, broker, and individual circumstances.
| Cost item | Charged by | Illustrative amount | When payable |
|---|---|---|---|
| Total interest (9% APR, 10 years) | Lender | £39,008 | Monthly |
| Arrangement fee (1.5% of loan) | Lender | £1,125 | Upfront or added to loan |
| Valuation fee | Valuer (via lender) | £400 | On instruction |
| Borrower’s legal fee | Borrower’s solicitor | £650 | On completion |
| Lender’s legal fee (passed on) | Lender’s solicitor | £450 | On completion |
| Broker fee | Broker | £750 | On completion or upfront |
| CHAPS / completion fee | Lender | £35 | On completion |
| Total fees (excluding interest) | £3,410 | ||
| Total cost of borrowing | £42,418 |
In this example, fees represent approximately £3,410 on top of £39,008 in interest, meaning fees add around 8% to the total interest cost, or 4.5% of the loan amount. This proportion is broadly representative: for a typical secured loan, fees tend to add 4% to 6% of the loan amount to the total cost, though the figure varies significantly depending on whether a broker is used, which lender is selected, and whether legal costs are covered by the lender. The interest cost dwarfs the fees over a ten-year term, but in shorter-term borrowing, or where the loan is expected to be repaid early, the fees represent a higher proportion of the total.
Lender Fees: Arrangement, Administration, and Completion
The fees charged directly by the lender fall into three categories: the arrangement fee, which is charged for setting up the loan; smaller administrative charges during the life of the loan; and a completion or drawdown fee when funds are released.
The arrangement fee (also called an origination fee, facility fee, or product fee) is the most significant lender charge. It represents the lender’s cost of processing and setting up the loan and is separate from the interest rate. Typical arrangement fees for second charge mortgages range from 0% (on some no-fee products) to 2% of the loan amount, with 1% to 1.5% being the most common range in the mainstream market. On a £75,000 loan, a 1.5% arrangement fee is £1,125. Some lenders charge a flat fee rather than a percentage: this can be more or less expensive depending on the loan size. A flat fee of £995 is cheaper than 1.5% on a £75,000 loan but more expensive than 1.5% on a £40,000 loan.
| Loan amount | 1% arrangement fee | 1.5% arrangement fee | Flat fee of £995 |
|---|---|---|---|
| £30,000 | £300 | £450 | £995 (most expensive) |
| £50,000 | £500 | £750 | £995 (most expensive) |
| £75,000 | £750 | £1,125 | £995 |
| £100,000 | £1,000 | £1,500 | £995 (cheapest) |
| £150,000 | £1,500 | £2,250 | £995 (cheapest) |
Arrangement fees can usually be added to the loan balance rather than paid upfront. This avoids an immediate cash outflow but has a compounding effect: the fee attracts interest at the loan rate for the full term. On the £75,000 example above, the arrangement fee of £1,125 added to the loan would cost an additional £585 in interest over ten years at 9% APR, making the effective total cost of the fee £1,710 rather than £1,125. Where cash allows, paying the arrangement fee upfront is almost always cheaper over the life of the loan.
Beyond the arrangement fee, lenders may charge a CHAPS (same-day bank transfer) fee on completion, typically £25 to £50. Some lenders also charge a deed of release or discharge fee when the loan is fully repaid, usually £50 to £250. These are modest but worth confirming in the credit agreement before signing.
Third-Party Fees: Valuation and Legal
In addition to lender fees, secured loans typically involve charges payable to third parties whose services are required to complete the transaction. The two main categories are the property valuation and the legal work to register the charge. Both of these arise regardless of the lender chosen, and both must be included in any realistic total cost comparison.
Valuation fee
Typically £200 to £600
Most secured loans require an independent property valuation by a RICS-qualified surveyor, instructed by the lender. The fee is typically paid by the borrower and varies with property value: a straightforward residential property worth £250,000 might cost £250 to £350 to value; a larger or more complex property may cost £500 to £600 or more. Some lenders include the valuation within their arrangement fee or absorb the cost themselves. Where an automated valuation model (AVM) is used instead of a physical inspection, there may be no valuation fee at all. Always confirm whether the valuation fee is included or additional before comparing quotes.
Legal fees
Typically £800 to £1,500 combined
Registering a second charge at HM Land Registry requires legal work on both sides. The lender’s solicitors handle the charge registration and their fees are typically passed on to the borrower, commonly £300 to £600. The borrower is also required to instruct their own solicitor to review the mortgage offer and documentation, at a further cost of £400 to £800 for a standard case. Some lenders offer “free legals” arrangements where they absorb one or both sets of legal costs. These can represent a genuine saving of up to £1,000, but for complex cases a borrower may benefit from independent legal representation regardless of cost.
There is one additional point on valuation and legal costs worth being explicit about: in most cases, these costs are incurred regardless of whether the loan ultimately completes. A borrower who instructs a valuation and then withdraws from the application during the reflection period will typically still owe the valuation fee. Legal fees may also be partially or wholly chargeable on withdrawal depending on how far the legal work has progressed. Confirming the refund policy on all third-party fees before they are incurred is advisable, particularly in cases where the borrower is uncertain about proceeding.
Broker Fees
Many borrowers arrange secured loans through a broker rather than approaching lenders directly. Brokers provide access to a wider range of lenders than most borrowers could access individually, manage the application process, and often achieve better rates by matching the case to the most appropriate lender. FCA rules require all brokers arranging regulated second charge mortgages to be authorised and to disclose how they are paid before making any recommendation.
Broker fee structures vary across three broad models. A fee-charging broker charges the borrower directly, typically a flat fee of £500 to £1,500, or 0.5% to 1.5% of the loan amount. A commission-only broker is paid entirely by the lender from its own product margin, with no direct charge to the borrower. Some brokers combine both, charging a modest borrower fee and receiving lender commission. The FCA requires all commission and fee arrangements to be disclosed clearly, and brokers must act in the customer’s best interests regardless of how they are remunerated.
A commission-only broker is not inherently less independent than a fee-charging one: the key question is whether the broker has access to a sufficiently wide panel of lenders to provide genuine whole-of-market advice. A broker with access to 30+ lenders is likely to find a more suitable product than one with a panel of five, regardless of their fee structure. When comparing broker fees, also consider the value of active case management: a broker who manages the application process, handles lender queries, chases the valuer, and liaises with solicitors can save significant time and reduce the risk of delays or mistakes.
Early Repayment Charges
An early repayment charge (ERC) is a fee levied when a secured loan is settled before the end of its agreed term. Not all secured loans carry ERCs: some products are marketed as ERC-free, but many fixed-rate products include them, particularly during an initial fixed period. ERCs compensate the lender for the interest income lost when the loan ends early.
ERCs on second charge mortgages are typically expressed as a percentage of the outstanding balance at the point of settlement, and they usually follow a sliding scale that reduces over the early years of the loan. A common structure is 3% in year one, 2% in year two, 1% in year three, then ERC-free from year four onwards. On a £75,000 loan, a 3% ERC in the first year represents £2,250; the same 1% ERC in year three is £750. The credit agreement must disclose the ERC schedule in full before signing.
Under UK consumer credit regulations, borrowers have the statutory right to settle a regulated secured loan early at any time, and lenders must provide a settlement figure on request. ERCs are legally permitted where they are disclosed in the credit agreement, so they can be charged, but the legal right to settle exists regardless. If there is any possibility of repaying the loan early (for example, if the property might be sold within the ERC period, or a financial windfall is expected), an ERC-free product may be preferable even if the headline rate is slightly higher. The early repayment guide covers the settlement process and ERC calculation in detail, and the early repayment charge calculator models the cost of settling early at different points in the term.
What APR Captures and What It Does Not
APR (Annual Percentage Rate) is a standardised measure of borrowing cost that includes the interest rate and all compulsory fees charged by the lender, expressed as a single annual percentage. Under UK consumer credit rules, any fee that the borrower is required to pay in order to obtain the loan must be included in the APR calculation. This means the arrangement fee, if compulsory, is reflected in the APR.
However, there are important limitations to APR as a comparison tool for secured loans.
| Included in APR | Not included in APR |
|---|---|
| Interest charges | Valuation fee (third party) |
| Compulsory arrangement fees | Legal fees (third party) |
| Compulsory insurance (if any) | Broker fee |
| Any other fee required to obtain the loan | Optional payment protection insurance |
| Early repayment charges (future and contingent) | |
| Additional costs if the rate is variable and rises |
There is also a structural issue with using APR to compare offers where fees are rolled into the loan. APR is calculated as if fees are paid at the outset: it does not account for the compounding effect of fees attracting interest when added to the loan balance. Two loans with identical APRs can have different total amounts repayable if one has a higher arrangement fee rolled in and a lower rate, versus another with a lower fee paid upfront and a higher rate. The total amount repayable, the sum of all monthly repayments across the full term plus any fees paid upfront, provides a more reliable basis for comparison.
How to Use the ESIS to Compare Offers
Before a binding offer can be made, all regulated second charge mortgage lenders are required to provide a European Standardised Information Sheet (ESIS). The ESIS is a standardised document, the same format is used across all lenders, designed specifically to make like-for-like comparison easier. It is the most useful document a borrower can request when comparing offers from different lenders.
The following fields on the ESIS are the most important for fee comparison purposes.
Section 3
Key features of the loan
Shows the loan amount, term, interest rate type (fixed or variable), and the representative APR. This section establishes the basis for the rest of the document. Check that the loan amount shown reflects whether fees are being added or paid upfront, as this affects subsequent figures.
Section 6
Regular repayments
Shows the monthly repayment amount. For variable-rate products, this section must also show the repayment at both the current rate and a stressed higher rate, which provides an indication of how much monthly payments could increase.
Section 8
Additional obligations
Lists any compulsory additional products, such as a current account or insurance policy, that must be taken alongside the loan. These add to the true cost and must be factored into any comparison, even if they are not reflected in the APR.
Section 12
Costs and charges
This is the most important section for fee comparison. It itemises all charges associated with the loan, including the arrangement fee, valuation fee (if charged by the lender), and any other lender-side charges. The total amount repayable, the single most useful comparison figure, is also shown here.
When comparing two ESIS documents from different lenders, the total amount repayable in Section 12 is the most direct comparison figure: it captures everything included in that lender’s offer on a like-for-like basis. However, it does not include third-party costs (legal fees, broker fees, or valuation fees charged directly rather than through the lender). To complete the comparison, add those costs to each offer’s total amount repayable on a consistent basis.
One practical note: request an ESIS from each lender (or ask your broker to obtain them) before committing to a formal application. Most lenders will provide an ESIS based on an indicative quote before any credit search is run. Comparing ESIS documents at this stage allows informed shortlisting without adding hard search marks to the credit file.
What Is Negotiable and What Is Not
Not all fees are fixed. Understanding which elements of the cost picture can be reduced or avoided helps a borrower or broker approach the market more effectively.
| Fee type | Negotiability | What to ask or look for |
|---|---|---|
| Arrangement fee | Sometimes | Larger loans occasionally attract reduced arrangement fees. Some lenders offer no-fee products at a slightly higher rate, worth comparing the total cost either way. Brokers with strong lender relationships may negotiate fee reductions on specific cases. |
| Valuation fee | Rarely | The lender instructs the valuer from its own panel. The borrower cannot choose or negotiate the fee directly. However, choosing a lender who absorbs the valuation cost, or one whose property qualifies for AVM, effectively eliminates this cost. |
| Legal fees (borrower’s side) | Yes | The borrower chooses their own solicitor. Obtaining two or three quotes from solicitors experienced in second charge conveyancing can produce meaningful savings. Some lenders offer “free legals” which covers one or both sides, worth requesting. |
| Broker fee | Yes | Broker fees vary considerably. A commission-only broker charges nothing directly. Fee-charging brokers may be willing to discuss their fee, particularly for straightforward cases or larger loan amounts. Always compare the total cost including broker fee, not just the loan itself. |
| Early repayment charge | At product selection | ERCs cannot be negotiated once a product is selected. However, choosing an ERC-free product eliminates this cost entirely. The trade-off is typically a slightly higher rate, which may be worthwhile if early settlement is probable. |
| CHAPS / completion fee | Rarely | A small fixed fee set by the lender. Usually not negotiable but may be included in some “no-fee” promotions. |
Tools to help you compare total cost
Tool
Shows what different APR bands cost in total pounds for a given loan amount and term. Directly relevant to this article’s central point: APR alone is not a reliable comparison figure because it excludes third-party costs. This tool shows the total interest difference between rate bands, helping identify whether a lower rate justifies a higher arrangement fee.
Calculator
Models monthly repayments and total interest across different loan amounts, rates, and terms. Directly relevant to the arrangement fee section: allows both scenarios (fee added to loan vs fee paid upfront) to be compared side by side so the compounding effect of rolling fees into the balance is visible before a decision is made.
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Checking won’t harm your credit scoreFrequently Asked Questions
Can I add all the fees to the loan?
The arrangement fee can usually be added to the loan balance in most cases rather than paid upfront. Some lenders also allow the valuation fee to be added. Third-party fees, the borrower’s legal costs and broker fee, are typically paid directly to those parties and cannot normally be added to the loan. Adding fees to the loan removes the upfront cash requirement, but every fee that is added to the loan balance attracts interest at the loan rate for the full remaining term. On a £1,125 arrangement fee added to a £75,000 loan at 9% APR over ten years, the extra interest cost is approximately £585, so the effective cost of the fee rises from £1,125 to £1,710.
Whether to add fees or pay upfront is a cashflow decision as much as a cost calculation. If the cash is available and there is no better use for it, paying upfront is usually cheaper over the life of the loan. If cash is tight and the difference in monthly repayment is the key concern, adding fees to the loan manages the immediate position at a modest long-term premium. The secured loan calculator allows both scenarios to be modelled side by side.
What is the difference between the APRC and the APR on a secured loan?
APRC stands for Annual Percentage Rate of Charge and is the term specifically used in mortgage regulation (including for second charge mortgages) following the Mortgage Credit Directive. It is calculated in the same way as APR under consumer credit regulation, but uses the specific methodology prescribed by the MCD. For practical purposes the two terms refer to the same concept, the annualised cost of credit including all compulsory charges, and the difference in terminology reflects the regulatory framework rather than any meaningful difference in what the figure represents.
In practice, the APRC on second charge mortgage documentation is the figure to use when comparing total annual borrowing costs across offers. It will be displayed prominently on the ESIS and on any financial promotions for the product. The same caveats about what is and is not included apply to APRC as they do to APR: third-party costs, optional insurance, and future interest rate changes on variable products are not captured in the APRC figure.
Are there fees payable if the loan does not complete?
Potentially yes, depending on how far the process has progressed. If the borrower withdraws during the mandatory seven-day reflection period (after receiving the formal offer), there is no penalty and the arrangement fee may not yet have been incurred. However, the valuation fee is typically chargeable once the inspection has been carried out, regardless of whether the loan proceeds: the surveyor has done the work and their fee is due. Legal fees may also be partially chargeable depending on the stage reached and the terms agreed with the solicitor.
Before incurring any third-party fee, it is worth confirming explicitly with the broker and with each third party what the refund position is if the application does not proceed. Some brokers only charge on completion; others charge upfront regardless of outcome. Clarifying this at the outset, particularly for a case where there is genuine uncertainty about proceeding, avoids an unpleasant surprise. Any non-refundable costs incurred before a formal credit agreement is signed should be clearly disclosed by the broker or lender in advance.
Why does a lower rate sometimes mean a higher total cost?
A lower interest rate does not always mean a lower total cost because the arrangement fee has a significant effect on the total, particularly for shorter-term loans. A loan at 7.5% APR with a 2% arrangement fee will cost more in total than a loan at 8% APR with no arrangement fee if the term is short, because the arrangement fee adds a fixed cost that the rate saving does not recover in time. The longer the term, the more a rate saving is worth and the less significant the arrangement fee becomes relative to total interest.
The cleanest way to compare is using the total amount repayable on a consistent term and loan amount, and adding any third-party costs that are not reflected in the lender’s figures. If two ESIS documents show different total amounts repayable on the same loan amount and term, the lower figure is cheaper by that margin, with no further calculation needed. If the terms differ, or if third-party costs differ materially, a broker can prepare a true total cost comparison across multiple quotes on a consistent basis.
Squaring Up
The interest rate is the largest component of secured loan cost over a long term, but fees, arrangement, valuation, legal, and broker, typically add 4% to 6% of the loan amount to the total. For a £75,000 loan that means approximately £3,000 to £4,500 in additional costs before interest is considered. APR captures compulsory lender fees but not third-party costs, and comparing APR across different fee structures can be misleading. The total amount repayable, shown in the ESIS that lenders are required to provide, is the most reliable single figure for comparison, with third-party costs added consistently on top. The arrangement fee is the largest variable in the fee picture and is worth examining carefully: on shorter loans a high arrangement fee can negate the benefit of a lower rate entirely.
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Checking won’t harm your credit score Check eligibilityThis article is for informational purposes only and does not constitute financial advice. Fee amounts and ranges are illustrative; actual costs depend on lender, broker, and individual circumstances. Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it. Always review the full credit agreement and European Standardised Information Sheet before committing to any secured loan.
