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Buy-to-let lenders see squeeze on margins

Estate-Agent-To-Let-Buy-Sign-700.jpgBuy-to-let lending margins have been squeezed, with providers absorbing costs to remain competitive in the last quarter of 2017.

The new Buy-to-Let Mortgage Costs Index, published by Mortgages for Business, shows underlying fund costs rose in the last three months of 2017.

Higher costs were driven by elevated swap rates, co-inciding with the increase to the Bank Rate.

By the end of the year two, three and five-year swaps, on which fixed-rate mortgages are typically based, were higher than at the start of 2017.

However buy-to-let lenders – whose margins have been diminishing since July 2016 – chose not to pass on these increases to borrowers.

Mortgages for Business says lenders opted to “squash their margins further” in a bid to win customers and meet end-of-year targets.

The data in the index shows that between the beginning and end of 2017, average lender margins over swaps had declined by 0.4 per cent.

Mortgages for Business chief operating officer Steve Olejnik says: “I doubt lenders will consider lowering rates again. If anything, I would expect them to find ways of making up for the lost margins, particularly given that overall buy-to-let lending looks set to dip this year.”

The index also revealed that the effect of fees remains largely unchanged quarter-on-quarter, adding an average of 0.58 per cent to the headline rate advertised to borrowers.

This is the lowest amount since 2013, when the Mortgages for Business started tracking this data. Fees include lender arrangement fees, valuations fees and legal costs.

Lenders also increased the number of buy-to-let mortgage products without arrangement fees, which Mortgages for Business says was likely to be part of their drive to meet targets.

Fee-free products accounted for 16 per cent of the market in Q4, an increase from the 14 per cent seen in the previous three months.

The proportion of products with percentage-based fees also declined – from 44 per cent in Q3 to 42 per cent in Q4.

The proportion of products with a flat fee structure remained the same, although the average fee charges by lenders rose by £53 to £1423 over this period.

Olejnik adds: “Looking back over the last couple of years, flat fees have actually come down in price from over the £1,500 mark. The fact that they increased in Q4 could be a sign that borrowers are about to experience price hikes, not only on the underlying costs but also at the point of sale.”

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