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Spike in mortgage arrangement fees

Journalist: Jane Matthews, FTAdviser

ended 26. January 2023

Hello mortgage advisers! 

Hearing anecdotally about a big jump in mortgage arrangement fees - in particular on BTL mortgages - so I'm wondering if this is happening widely across lenders and if you are also seeing it for residential mortgages? 

Have you had any big surprises on this front? Are most lenders in line with each other? 

Interested to hear all of your experiences and will be covering later today or tomorrow for FTAdviser.

Many thanks, 
Jane 

13 responses from the Newspage community

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Craig Fish
Director at Lodestone Mortgages & Protection
I prepare a weekly rate watch for my clients and followers to keep them abreast of the market, and sadly this is true, lenders do seem to be increasing their fees, in particular in the LTD company buy to let space. For a while now we have seen a shift from personal buy to let over to ltd company for many reasons, not least the affordability calculations are better, but it seems that the lenders are also sensing this shift and increasing their fees, and in some cases substantially. We are regularly seeing fees of 3%, and in some cases, this can be as much as 5%. It's ludicrous and stinks of profiteering. I'm not sure how this excessive charging structure will fit in with new consumer duty regulations, but I suspect that the lenders will continue to 'make hay while the sun shines.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Lenders justify higher arrangement fees by claiming that they allow them to lower headline rates and thus increase loan sizes. The market will determine whether there is demand for these products, but the math has not worked on any of the deals we have looked at thus far.

Many clients are now looking at a two-year time horizon rather than a five-year time horizon because they expect interest rates to fall in the future. However, the arrangement fees for two and five-year deals are very similar. A 2% arrangement fee spread out over 24 months could be equivalent to a few months' rent or even more. Market stability and market forces, hopefully, will increase competition in this field. However, most landlords will be forced to pass on increased costs to the tenants.
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Mike Staton
Director at Staton Mortgages
There has been an increase in the number of lenders charging fees. Many lenders have been participating in an interest rate war, lowering rates to appear to be more competitive but increasing arrangement fees to claw back some of that lost income. A good mortgage broker can sit down with you and show you the best mortgage available on something we call "True Cost", this takes into account all fees and monthly payments that you will make over your initial period. Some lenders don't do this directly as it makes their great interest rate seem less attractive. If you are choosing a mortgage on interest rates alone, you have no clue what you are doing. Last week I spoke with a client who told me he had seen the best interest rate on the market on google for his Buy to Let, it was 4.58%, he wasnt aware of the £3458 fee that was attached to it.
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Hannah Bashford
Director at Model Financial Solutions
If you want one of the rates in the low 4% you are going to pay a fee for it and I believe this is how lenders can reduce their fixed rates so aggressively, however, this is not across the board as there are a few discounted rates that have fees as low as £199.
BTLs have generally always had a higher product fee and this can usually be offset against income but I am seeing more that is a percentage fee based on the amount of borrowing as opposed to a fixed fee.
It comes down to how lenders are going to maintain levels of lending and be attractive to consumers in the current financial climate without losing money.
When looking for the cheapest mortgage overall you need to look at the cost of the fees as well as the interest rate.
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Rob Peters
Principal at Simple Fast Mortgage
Arrangement fees on BTL mortgages have spiked because lenders are looking for ways to better assist landlords by enabling them to borrow more money in the new climate of higher interest rates. Unlike residential mortgages, BTL mortgages are based on rental income Vs interest costs. It's called stress testing. Interest rates have increased fairly rapidly and rents can't keep up. Hence many landlords have found themselves unable to raise sufficient finance to buy a property, and some have become BTL prisoners unable to refinance their existing mortgages. The solution some lenders have come up with is to increase the product fee and keep the interest rate low. The product fee is not included in the stress test which means it is easier for landlords to pass the stress test and borrow a higher amount of mortgage.
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Gindy Mathoon
Senior Mortgage Broker at Create Finance
There has been a big shift recently in mortgage arrangement fees, especially BTLs where fees can now be as high as 5% of the mortgage borrowing.
When a customer looks at the Money Market tables it's really important to understand the total cost of borrowing over the mortgage product term. Whilst a deal with a 5% fee may be market-leading in terms of rate, when you add the fee into the equation it can make the mortgage very costly. Residential mortgages adopt more of a fixed arrangement fee approach as opposed to a percentage with fees typically no higher than £2000 so this area hasn't seen the changes which have been seen in the BTL market.
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Mark Hosker
Mortgage Adviser at Cyborg Finance
I have observed an increase in mortgage arrangement fees, particularly for landlord mortgages. This trend seems to be happening across multiple lenders and can make it more difficult for landlords to secure financing. Additionally, there appears to be a reduction in products offering no-fee or fixed-fee options, which can further compound the issue. It can be especially challenging for those in high-value areas such as the south east. Overall, it is important for borrowers to carefully consider all costs associated with a mortgage, including arrangement fees, to make an informed decision.
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Imran Hussain
Director at Harmony Financial Services
There has been a massive jump in arrangement fees since Trussonomics from lenders mainly moving away from the typical £999 to % based fees; a £100,000 loan can now incur fees of around £3000 to £5000 subject to the lenders % on the arrangement fee so those not seeking advice and solely relying on the best buy table will now end up likely paying more, but I think these % based arrangement fees are likely to stay for a while especially if lenders look to make a profit on buy to let business whilst remaining competitive rate wise as it's always about total cost for the client over the term of the loan.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
When it comes to pricing products lenders have very limited levers they can pull, the only two that have any significant impact are the rate and the fees. In periods of higher rates, we tend to find fees increase, as lenders try to maintain their profitability without increasing interest rates. In terms of Buy-To-Lets it also allows them to maintain business volumes, as increasing rates will mean more and more applications fail their Interest Coverage Ratio (ICR) calculations, which do not account for fees, but are very sensitive to interest rates - so it is better for borrowers and the lender to increase the fee in that scenario than the rate.
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David Conway
Director at Clayhall Financial Services Ltd
A couple of lenders applied noticeably high fees to their mortgages, as much as 7%. On a £250k mortgage, paying close to £20k of your money is galling until you realise the rates are substantially lower. Paying 4.5% with a 7% fee on a 5 year fixed rate is cheaper than paying 6% with no fee. The real benefit to landlord clients is these lower rates allow them to borrow more / avoid having to drain cash reserves to reduce the balance since the stress rate is based on payrate. This is a well thought out model for landlords facing a cashflow squeeze and brokers able to see the benefit of these for their clients
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Ashley Thomas
Director at Magni Finance
I have noticed that several BTL mortgages are charging higher arrangement fees (1%) in comparison to previous ones where the products had a more modest fee of around £1,995.
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Amit Patel
Adviser at Trinity Finance
"Daylight robbery" as one of my clients told me.

The fees for limited company buy-to-lets are shocking, in some cases can run into thousands of pounds. The result is the sums may not be financially viable.

Lenders will always offer a lower interest rate but in return, they will charge a higher fee and vice versa.

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Austyn Johnson
Founder at Mortgages For Actors
Up to 7% arrangement fees, actually are not that bad. When you work out over the fixed term, they often work out cheaper due to the lower rate.
Lenders are trying to help landlords with lower rates, but they also need to think of their own bottom line. Where will they make their money if the rate is too low? On the fees.
It's business and for a lot of landlords, it works. The 7% fee has actually been rather popular!