What sort of extras costs will I have to make to the lender on a buy to let purchase? For example, are there product and arrangement fees, like with a normal mortgage? Also, how much commission would I have to pay a broker – is it a flat fee or a percentage of the loan?
There are quite a number of fees involved in taking out a buy to let mortgage and charges are typically higher than for a residential mortgage. Our research shows that these charges typically add c.0.5% to the headline mortgage rate.
A big cost is the lender arrangement fee. We regularly track this fee in our Buy to Let Mortgage Costs Index. Results for Q3 2015 revealed 46% of BTL products have an average flat arrangement fee of £1,496. 37% of products have a percentage-based fee usually between 0.5% and 2% of the loan amount. Many lenders allow borrowers to add the arrangement fee onto the loan. 17% of products had no lender arrangement fee but this doesn’t mean that they are necessarily cheaper.
Lenders sometimes charge a booking fee, usually in the low hundreds of pounds, which enables a prospective borrower to secure a particular rate for a certain period of time. This fee is payable on submission of the mortgage application.
Valuation fees are charged either by the lender directly or via the broker. These fees, also known as an application fee, pay the surveyor for the property valuation and may include an amount for administration. Most lenders use a fee scale depending on the value of the property.
Legal fees are payable to the solicitor for conveyancing of the property and include things like searches and registration with the Land Registry. The buy to let mortgage lender will normally use the same solicitor as the customer (the practice must have two or more partners). All legal fees are payable by the borrower including disbursements, as and when required by the solicitors.
Like solicitors, accountants and surveyors, many brokers charge fees for their services. A good broker spends a lot of time searching the market to find the customer the most suitable product. They then spend a lot of time managing the application through to completion. This includes liaising with the client, estate agents, valuers, solicitor and lenders. Although brokers may also receive commission from lenders, it doesn’t always cover the broking costs which is why customers are also charged a broke fee. At Mortgages for Business we have variety of fee structures but the most commonly used option is £495 which we only charge if we are successful in obtaining a formal mortgage offer.
The thing to remember is that all fees and charges (not necessarily the exact amount) should be provided by the lender and the broker upfront. Don’t be afraid to ask for more information if you need clarification.