It is standard practice:
"The charging of arrangement fees by lenders has become increasingly common over recent years. Most lenders will now charge an arrangement fee, particularly if you are looking for a fixed or discounted mortgage. These can vary from a few hundred pounds up to a full 1% of the mortgage amount (occasionally even more). Some lenders will ask you to pay this fee up front when you submit the application, others will add the fee to the loan. You should always find out at the outset what terms apply to the arrangement fee and ask if the fee will be refunded if your application does not proceed for some reason (some lenders will wish to hold onto the arrangement fee even if they decline your application). If the fee is to be added to the mortgage then remember that you will be charged interest on this for the term of the mortgage - you may prefer to pay the fee on completion so ask if this is possible."
http://www.moneynet.co.uk/mortgage-guide/mortg age-g03.shtml
It's too late for you now - but always, always read the small print and make sure you understand what you are signing