The increase in buy to let investment is set to strengthen in 2013, with surging tenant demand and record-low interest rates helped in part to the Funding for Lending Scheme (FLS) prompting increased competition amongst lenders.
However, borrowers have been warned that the arrangement and valuation fees of some low-rate mortgages can add a significant amount to the cost. New research suggests that fees can effectively add as much as 2% to the cost of a mortgage.
As one might expect, this has the greatest effect on short-term deals. Figures show that fees add on average 0.85% to the annual cost of a two-year deal, meaning that the true cost of a mortgage might be slightly higher in the long run.
Rather than indicate an alarming trend, this research may simply highlight the importance of considering your investment carefully. Whilst some fees can now add significantly to the overall cost, the average amount has decreased since 2010 (when the additional cost of fees was at its highest).
Three years ago, the fees added an average of 1.14% to the yearly costs of a two-year mortgage. The average addition to all buy to let mortgages was 0.66% – it now stands at 0.57%.
In addition, average rates have fallen – from 5.77% for a fixed deal in 2010 to 4.69% today.
It is likely that, because the market is seeing the lowest rates on record and headlines are being grabbed by these rates, emphasis is being placed on the hidden additional cost of lender fees. Little in this respect has changed, however; it always has, and continues to be, vital for borrowers to assess the true costs of a buy to let mortgage before making an investment.