BTL rates low, but arrangement fees are a sting in the tail
A leading buy to let lender has recently cut the rates on its two-, three- and five-year fixed rate deals; to 2.79%, 3.49% and 3.89% respectively.
In doing so, they became the latest in a long line of buy to let providers hoping to entice landlords by lowering rates on both fixed and tracker deals. Whether intended to attract new business during the traditionally quieter winter months or to provoke a flurry of refinancing in advance of what many believe will be the end of the low-rate ‘honeymoon’, this trend of lenders to slash their rates is certainly an established one. What is also established, however, is the ‘sting in the tail’ – the high fees that low rates bring along with them.
To benefit from any of the three above deals, which are available at up to 65% LTV, fees of £1,999 are required. Lenders with competing deals don’t pull their punches either: the five-year fix from another buy to let specialist slightly undercuts the above rate at 3.79%, and is available at up to 75% LTV, but requires an up-front payment of 2.5%. For a 75% mortgage on a £100,000 property, this amounts to £1,875.
The ‘entry cost’ of buy to let is a very important indicator of how the investment will come to perform in the future, and for landlords, the reality that low buy to let rates are often accompanied by such high fees is a troublesome one.
When are low buy to let rates worth higher fees?
The tendency of lenders to put particular emphasis on their fixed rates – in particular, their long-term fixes – is becoming more prominent. This is likely due to the fact that the slow but steady improvement of the UK’s economic prospects are causing plentiful speculation as to the possible rise of interest rates, and many mortgage customers – both commercial and residential – are seeking to abandon their tracker products in favour of greater security.
For landlords with the long game in mind, who are hoping to lock-in for three years or more and benefit from more certainty in their monthly budgeting, the higher fees might be justified. Similarly, landlords investing for short-term gain from premium properties such as corporate or higher-end inner city lets might find a fixed fee is worth the added expenditure. Whatever the case, though, fees add large amounts to the up-front cost and will often have a noticeably adverse effect on your real returns, particularly at the start of an investment.
Always remember that each landlord’s investment requirements are different, and not all landlords will be able to access the best buy to let rates that lenders offer. Your mortgage adviser will help you in this regard – if you would like to arrange a discussion, request a quote or call us for free on the number above.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.