A mortgage expert has advised landlords not to be put off by high arrangement fees on BTL mortgages, but some landlords and brokers have accussed lenders of profiteering.
With some fees as much as 7% of the mortgage amount, lenders have been accused of taking advantage of a precarious mortage market, but Lee Grandin of Landlord Mortgages says this simply isn’t true.
“The only reason this has come about is that the regulations are more stringent now for when lenders are working out cover, as interest rates have risen,” he tells LandlordZONE. “Those landlords coming off fixed rates can’t go onto a fixed rate with a new lender.”
Brokers have explained that higher arrangement fees – introduced after last year’s mini-Budget - are the only instrument lenders have to ensure borrowing can still continue for the benefit of the landlord, but also to satisfy their stress tests with the regulator.
In short, lenders are acting out of necessity to enable landlords to achieve affordability.
Grandin adds: “Five years ago, fixed rates were a lot lower and they may have lent on a fixed rate of 4% for five years. That’s the only reason lenders are charging a fee – but with a 7% arrangement fee, the pay rate comes down significantly.”
He adds that the mortgage environment is set to evolve as lenders still need to get rid of money. “Margins will come down over the next few years and there will be a move towards tracker mortgages with much lower margins,” says Grandin.
“Lenders weren’t offering any lifetime trackers after the credit crunch like they used to, but these are starting to emerge again.”
But portfolio landlord, Kundan Bhaduri, director of London-based The Kushman Group, has accused lenders of profiteering and urged the Government to step in: “While some argue that these fees are a strategic way to maintain lower interest rates and enhance affordability, it is becoming increasingly evident that they border on profiteering, as they are causing extreme financial distress to landlords.
"Lenders used to charge around £995 to 2% in arrangement fees, but they're now not far off £50,000 in some cases."
Read more about mortgage arrangement fees on the LandlordZONE Forum.