BTL lenders favouring percentage-based fees
Percentage based arrangement fees have become the new standard among buy-to-let mortgage products, according to the latest edition of the Buy-to-Let Mortgage Costs Index, published by Mortgages for Business.
Flat fees have long been popular as a way for lenders to maintain profitability while still offering competitive rates, while other products instead carry a variable fee based on the loan amount. Figures from the first quarter of 2017 show that 44% of all buy-to-let mortgage products now carry a percentage-based fee, overtaking flat fees (41%) for the first time in four years.
There was also an increase in the average flat fee, up to £1,446 from £1,397 in Q4, and together these changes have increased the average effect of mortgage charges to 0.64%. This compares to 0.62% in Q4 and is the strongest effect observed since H1 2015.
Commenting on the results, Steve Olejnik, COO of Mortgages for Business said:
“With the challenges lenders have faced to generate business in the face of successive blows to the buy-to-let sector, it is only natural that many have chosen to focus on cutting rates at the cost of increased fees. The recent trend towards percentage-based fees is an example of lenders doing exactly this, as fees of this type become more expensive for larger loans.”
The index also shows that there has been a shift in the pricing of five-year fixed rate products. Although products available to 75% LTV and below remained on trend, five-year fixes at higher LTV saw a 0.2% increase in headline rates. This has been fuelled by an influx of investor demand following tighter PRA affordability guidelines, which only partially apply to long-term fixed rates.