Other mortgage costs

This content applies to Scotland only.

Housing laws vary between Scotland and England. This page applies to Scotland only. Get advice relating to England

As well as your mortgage payments, you will also need to budget for a deposit, arrangement fees and possibly also mortgage protection and a mortgage indemnity guarantee.

Deposit

When you take out a mortgage to buy a home, most mortgage lenders won't lend you the full price of the property. Many won't lend more than 90 or 95% of the value of the property or of the purchase price, depending on which is lower. If you need to borrow 90% or more, you may have to take out mortgage indemnity guarantee insurance (see below).

Remember the 'value' is what the lender's valuer thinks the property is worth, and this may be less than the price you actually pay. For example, if you are bidding £105,000 for a property worth £100,000 and your lender will only lend you 90% of the value (£90,000), you'll need to come up with £15,000 for a deposit.

Read the page on how much can I borrow to find out more.

Arrangement fees

When you take out a mortgage, you will usually have to pay an arrangement fee to the mortgage lender. This will probably be around £200 to £300, but always ask your lender beforehand. You may be able to roll this fee into the total amount of the mortgage, but this means you will have to pay interest, so will be more expensive in the long run.

If a broker arranges your mortgage, you may also have to pay an arrangement fee to them.

Mortgage protection

You may also need to take out insurance in case you are unable to pay your mortgage.

• If you have a partner or a family you may also want to take out mortgage protection insurance or life cover, which would pay off the mortgage if you died. This may also include critical illness cover, which pays out a lump sum if you are diagnosed with a serious illness such as cancer, heart disease or stroke.
• If you do not have any savings, you may want to take out accident, sickness and unemployment (ASU) insurance, which would pay the mortgage if you were to fall ill or get made redundant.

Mortgage indemnity guarantee (MIG)

A mortgage indemnity guarantee is an insurance policy which covers the lender if you default on the loan (don't pay off your mortgage). It is sometimes called a mortgage insurance premium (MIP). If you are borrowing 90% or more of the value of the property you are buying, the lender may insist that you take out a MIG. This will be a one-off payment that could amount to several thousand pounds. Some mortgage lenders will let you add the cost to your mortgage, but try to avoid this if you can as you'll then have to pay interest on it.

Be aware that a MIG doesn't offer you any protection - it's purely for the benefit of the lender. So, for example, if you default on your mortgage and the lender repossesses your home and sells it at a loss, the MIG policy would cover the lender for any shortfall and then pursue you for the money.

If you have a CAT mortgage, you will not be asked to pay a separate MIG.

Buildings insurance

Your mortgage lender will also require you to take out buildings insurance to cover any loss or damage to the structure and fittings of your home. Some mortgage packages may require you to take out the lender's own buildings insurance, but if this is not a condition of your mortgage, it will usually be cheaper to shop around.