Percentage-based arrangement fees have replaced flat fees to become the new standard for buy-to-let mortgage products.
Some 44 per cent of all buy to let mortgage products carried a percentage-based fee in the first quarter of 2017, overtaking flat fees (41 per cent) for the first time in four years, according to the latest Buy to Let Mortgage Costs Index from Mortgages for Business.
Flat fees have previously been used by lenders to maintain profitability while continuing to offer competitive rates, while other products carry a variable fee based on the loan amount.
The index also reveals a quarter-on-quarter increase in the average flat fee from £1,397 to £1,446, taking the average effect of mortgage charges from 0.62 per cent to 0.64 per cent – the strongest effect observed since the first half of 2015.
Steve Olejnik, chief operating officer at 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.”
David Hollingworth, associate director, communications at London and Country Mortgages, commented: “I think we are still getting a good selection of different types of fee. Percentage fees are not a new thing; they have been around for some time.
“There is still a good breadth of choice. You can get a large percentage fee to small or even no percentage fee. It is something landlords will need to work out for themselves and find the right balance for their circumstances.”
simon.allin@ft.com
