Last autumn’s mini-Budget, and its subsequent impact on SWAP rates, saw the introduction of staggeringly high product fees on buy-to-let mortgages.
One landlord has described the fees as daylight robbery, while another said the fees “border on profiteering, as they are causing extreme financial distress to landlords.”
Brokers noted the trend but most believe lenders are acting out of necessity to enable landlords to achieve affordability.
Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages, said: “Arrangement fees on buy-to-let mortgages have become brutal since the mini-Budget, with some as high as 7% of the mortgage amount. Not only is the fee often staggeringly high, but thousands in extra interest is then charged, too, as the fee is typically added to the loan. No one likes the high fees, but that lower rate and payment each month may be crucial for landlords to make the numbers work.”
James Miles, director of Exeter-based broker, The Mortgage Quarter, mirrored Moy’s views: “Whether you like it or not, higher arrangement fees are the only instrument lenders have to ensure borrowing can still continue for the benefit of the landlord but also satisfy their stress tests with the regulator.”
But portfolio landlord, Kundan Bhaduri, director of London-based The Kushman Group, accused lenders of profiteering and urged the Government to step in: “While some argue that these fees are a strategic way to maintain lower interest rates and enhance affordability, it is becoming increasingly evident that they border on profiteering, as they are causing extreme financial distress to landlords. Lenders used to charge around £995 to 2% in arrangement fees, but they’re now not far off £50,000 in some cases.”
He added: “It’s vital that the Government steps in to regulate and curb these exploitative fees. Transparent fee structures and fair competition should be the bedrock of the buy-to-let mortgage market, because right now it’s the Wild West.”
A client of Amit Patel, adviser at Welling-based mortgage broker, Trinity Finance, was on the same page as Bhaduri: “Daylight robbery were the words of one client when I told him that, for the affordability to fit, he would have to pay a 7% arrangement fee. A 7% arrangement fee on a mortgage of £350,000 equates to £24,500 and this is a serious dilemma for any landlord.”
Another broker, Elliott Culley, director at Hayling Island-based Switch Mortgage Finance, is concerned that the current level of arrangement fees will drive more landlords out of the market: “Something needs to change because landlords are struggling to make any profit and now they are being told to pay high fees to gain access to lower rates. More landlords will sell up, which will pile further pressure on the rental market.”
Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages, urged landlords to adapt to the new market conditions, which have changed considerably since this time last year:
“Some buy-to-let arrangement fees in the market could make your eyes water. Yet, for those landlords aiming for a certain loan size, choices might be limited without lower interest rates, and to achieve those lenders are now having to charge bigger fees. A drop in rates will often expand options for landlords and, for now, the way high arrangement fees are helping improve affordability seems like the status quo. Many landlords are adjusting to today’s buy-to-let market landscape, a shift from what they once knew of low rates and low fees. We’re not in Kansas anymore.”
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