This is being written before the Bank of England’s Monetary Policy Committee Base Rate decision, but we anticipate a further rate rise and – somewhat conversely – product rates to continue moving in the other direction, albeit still above their pre-mini Budget levels.
As mentioned, in the residential space, it’s possible to see progress, however that unfortunately is yet to be matched by anything that is happening, or rather not happening, in the buy-to-let sector.
Fees not matching rates
Rates have come down off their autumn highs, but there is little to get excited about and much to be genuinely perplexed by, not least some of the huge arrangement fees that are accompanying a lot of the ‘better priced’ products at the moment.
We recently worked on case for a landlord client, looking for a £125,000 mortgage on a property in Fulham valued at £800,000. One lender – who shall remain nameless – came back with a half-decent rate but a huge seven per cent arrangement fee was the sting in the tail.
That’s nearly £9,000 on a £125,000 mortgage.
A two per cent fee in our view is bad enough, but one nearly quadruple that amount is bordering on the immoral, and makes you wonder whether the rate on offer is making the need to make profit/margin elsewhere on the deal, even more of an imperative.
Certainly, you can see this in the buy-to-let sector where we have a real mixture in terms of the way lenders are funded. But, we should point out, the exorbitant fees being charged are not just the preserve of the capital market-funded lenders, or the specialists in the sector.
‘Mainstream’ buy-to-let lenders are also seeking to recoup a significant amount of money from the landlord via the fees, especially if the rate is slightly more competitive.
Hence ,we looked at a mid-three per cent tracker rate option for the same client that would require close to a £4,000 fee, and you could pay over that for two-year fixes, while a specialist in the field – again on a discount product, this time for a house in multiple occupation (HMO) property – would be charging close to £5,000 on the same loan amount.
Less competitive rates – in the mid-four per cent for a discount range – are available with a much more acceptable fee, less than £1,000, but as we know, the loan to value (LTV) has to be right in terms of being able to access this and the client has to be comfortable with rates probably rising again, at least once, in 2023.
Unfair to borrowers
No one can truly believe that a fee over two per cent for a buy-to-let mortgage is in any way fair, even if lenders are currently facing difficulties in terms of marrying up their pricing with the profit margin they need to achieve, against a backdrop where demand may not be what we wish it to be.
It is not ideal, but at some point, buy-to-let lenders – particularly those who are all currently working around the same product price points – are going to probably have to sacrifice margin, in order to secure business. Either that, or they simply won’t do any business at all.
Ramping up the fees to the point where they are simply unrealistic is not a strategy that is going to get any traction this year. For those who think it is, they are likely to be counting the cost in terms of vastly reduced business volumes.
