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.
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