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Buy-to-let affordability and product fees

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 21. March 2023

Interested in speaking to mortgage brokers about whether buy-to-let affordability has improved since higher product fees have been introduced. 

  • What is the “typical” product fee now and how does it compare to six months to a yer ago? 
  • Has it been harder to place buy-to-let cases/get the required loan/fit the stress? 
  • Do higher product fee products allow you to get the loan you need/at the rate you need? What is the feedback/interaction with clients like?
  • What would you like to see from lenders on the buy-to-let side?  

8 responses from the Newspage community

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Editor
Justin Moy
Managing Director at EHF Mortgages
Happy to chat Anna, we have plenty of examples to share and how the reducing rates do help with placing cases. The product fees can be a sideshow if not careful.
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Rohit Kohli
Director at The Mortgage Stop
Buy-to-let affordability has faced real challenges in recent months, especially for landlords in the higher tax bracket struggling to hit the stress test levels needed. To be fair to lenders they are attempting to provide lower rates, albeit with higher fees offset some of the risks, and this seems to have appeased some landlords who were just seeking like-for-like remortgages. However, those landlords seeking to xtract equity are finding it harder to achieve the levels from their portfolios that they had been able to release previously. New landlords are still being discouraged by the choice between high fees or high-interest rates. Interestingly, we've seen an increase in some landlords opting to invest in properties in the north, rather than expanding their southern portfolios.
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Aaron Strutt
Product and Communications Director at Trinity Financial
The typical buy-to-let product fee is between £999 and £1,999 although some of the lenders are charging a lot more including BM Solutions and some of the specialist providers.
The buy-to-let sector has taken such a battering it needs some positive changes. Lenders are starting to lower their rates and rental calculations are improving. Coventry for Intermediares recent stress test changes was very positive and hopefully other lenders will make similar improvements soon.
In many cases landlords need to have a huge deposit to get a buy-to-let mortgage or remortgage. These issues are filtering through to tenants and causing real problems.
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Imran Hussain
Director at Harmony Financial Services
Buy-to-let product fees right now are not for the faint hearted as the majority of lenders have gone from having product fees typically between £999 - £1999 to now having a % of the loan I have seen some around £8000 which is crazy but lenders are having to do this to drop the rate and make cases fit but also get a return on the lending.
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Riz Malik
Independent Financial Adviser at R3 Wealth
I've witnessed significant challenges in the buy-to-let market, and I believe it can no longer function as it has. Landlords are already in a financial bind due to the high arrangement fees, which can amount to 6-8 months' rent. Adding these substantial fees to the loans will also have long-term consequences for property owners.

My business used to be heavily reliant on buy-to-let financing. Recent changes, however, have reduced landlords' ability to refinance, release equity, and add to their portfolios, particularly in the South. Many landlords may be forced to leave the market unless there is a significant shift, which I believe can only come with a significant reduction in rates.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Currently, many buy-to-let deals, at least those with low enough rates to pass the lenders' ICR test, have a fee of a couple of thousand pounds for an average-sized mortgage. There are of course deals with smaller fees, and there are also deals with much larger fees, each targeting different segments of the market, to give the best value to different types of clients. The main driver for the rise in fees has been that as rates have risen it has become harder to pass the lenders' ICR test for any LTV greater than 50 or 60%, so to combat this and maintain funding to landlords with smaller deposits, they have raised fees to allow the interest rate to remain lower than it otherwise would have been; which has been welcomed by those landlords looking to continue to buy properties without having to sink huge sums in as a deposit.
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Luke Thompson
Director at PAB Wealth Management
It has been incredibly difficult to place any BTL cases in recent months as even the most vanilla of cases tend to struggle on the stress rates now.

In terms of product fees to get a rate which a lot of landlords will feel is acceptable and will actually pass the stress tests it seems most lenders will be charging around 2% to 3%. This gives landlords a real headache especially those with highly leveraged portfolios as they need to decide if it is worth cutting into their equity to get their monthly payments down.

I think to a certain degree lenders hands are tied and a lot will fall to what landlords wish to do with their properties some may decide now is the time to sell or they may increase rents to cover the increased monthly mortgage payments.
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Austyn Johnson
Founder at Mortgages For Actors
Some of the quirks can be used to make a much better case. For example, Landbay will stress test the mortgage at pay rate on a 5 year fixed, so with their higher fee, lower rate products, you can essentially borrow more. Although you are paying up to 7% for a fee, you will be able to gain a much bigger mortgage and be able to buy the property you want rather than let it go due to stress rates not giving you the loan.