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How Massive Fees Distort Landlord Mortgage Costs

Posted on February 15, 2013 by siadmin in Mortgages

Buy to let property investors should look out for big fees on landlord mortgages that can substantially increase the cost of borrowing, warn brokers.

Some additional charges can raise the effective rate of a two-year fixed deal by more than 2%.

The Mortgage Works, the landlord mortgage lending arm of Nationwide, has the current advertises the lowest buy to let mortgage rate of 2.74% fixed for two years.

However, after paying a 3.5% arrangement fee, borrowers could add several thousand pounds to the deal. Taking valuation and legal fees in to account, the deal comes out at an effective rate of 4.81% over the two years.

Mortgages for Businesses, a specialist broker, says fees, valuation and legal costs add an average 0.57% on to a mortgage in today’s market. The costs have a bigger impact on short-term deals. The average fee is up from the 2008 average of 0.47%.

Often, the headline rate is not a true reflection of the actual cost of the mortgage, and despite the fact that buy-to-let mortgage rates have fallen over recent years, costs can still be high.

“Adding in fees has let us produce an index that more accurately shows the cost of buy-to-let borrowing without the distortions introduced by lender fee structure on mortgages to meet marketing requirements,” said Mortgages for Business managing director David Whittaker.

“Lender arrangement fees can range vastly. Some products carry a flat fee, but most have percentage fees which can be in excess of 3%. This can make headline rates extremely misleading.”

An online only two-year fixed-rate landlord mortgage offer with Skipton Building Society at exclusive rates and with a lower flat fee of £995 rather than a percentage charge.

What this means for buy-to-let landlords is a real need to compare mortgage deals very carefully and take into account the fees and charges, not just focus on the headline interest rate. Some mortgages may seem appealing because of a low interest rate, but adding on the extras can make it a worse deal than a property loan with a slightly higher interest rate but much lower fees.


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