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In the past we were used to seeing low BTL interest rates and low arrangements fees from lenders, however, since the market turbulence happened and base rates have increased from 0.10% to 5.25%, we’ve seen lender arrangement fees as high as 9.99%, but are lenders exploiting customers or giving you a fair deal?
What’s Happened to BTL Interest Rates?
As the Bank of England has increased the base rate, this meant the swap rates also increased (which is the rate in which the lender borrows funds at) so in turn, the interest rates for mortgages/loans have risen to highs many of us are not used to.
Keeping lower BTL interest rates is not feasible for lenders as they will not be making a return on their capital. Rates were increased so that lenders could make a profit and stay afloat; this is the same way rates were before the increases but the base rate was much lower then; nothing has changed and the lenders are not exploiting us, it’s just interest rates are higher now so we notice it more.
Examples of Lender Arrangement Fees in the BTL Mortgage Market
We’ve compared 5 lenders with various interest rates and arrangements fees to show you the difference over the fixed rate term.
The below scenario is based off a £250,000 mortgage like-for-like at a loan of 75% LTV with the monthly rent as £1,400.
The BTL mortgage market did see this month a product with a 9.99% fee, but this was capped at 70% LTV and as a firm of advisers we thought this product was excessive although it did have a very competitive interest rate.
Each lender offers brokers and their respective clients options of lower interest rates and higher arrangement fees OR higher interest rates (which reflect the true cost of borrowing) with lower arrangement fees. Current examples as of October 2023 are below:
Which products options are better for you
The overall total cost of borrowing difference between the products over a 5 year period is relatively small. Even the largest difference in the table above at £2,425 as a percentage of the total cost of borrowing is less than 3% over a 5 year period, so 0.57% per annum.
If the most important criteria you are looking for is the cheapest cost of borrowing, then a product with a higher interest rate and a lower fee will always have a lower cost of borrowing because you are paying the lender a higher payment per month.
If you want to maximise the borrowing, then you will need to go for the higher interest rate and higher fee option as this will give you the maximum loan possible.
The lenders total return on capital is the same, so the choice is simply yours and down to your preference.
How can Advocate Finance help?
With over 15 years of experience in arranging mortgages and loans, our extensive panel of over 160 lenders, means we always try to find the best solution for you!
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