Fixed arrangement fees could help B2L

CONOR MURPHY, MANAGING DIRECTOR, CAPRICORN
CONOR MURPHY, MANAGING DIRECTOR, CAPRICORN

Mortgage arrangement fees were introduced on some mortgage products as a genuine way for lenders to cover costs associated with administering mortgage applications.

But the advent of the credit crunch saw fees on many products increase dramatically.

Thankfully over the past 12-18 months these have gradually reduced as more lenders have returned to the marketplace.

But large arrangement fees still apply in the buy-to-let sector.

While there is pressure to reduce these it might be counter productive as high arrangement fees serve two important purposes.

They encourage lending at higher LTVs than might otherwise be the case and bring down the headline interest rate – normally the rate on which the rental yield requirement is calculated.

Fewer mortgages have been declined due to rental yields over the past three years but this is potentially a problem for the future.

Many landlords would happily pay a higher arrangement fee in return for a lower interest rate.

This is especially true on buy-to-let remortgages for landlords with sizeable portfolios.

The best solution would be low buy-to-let rates with fixed arrangement fees becoming available again.

While there have been some limited signs of lenders willing to do that recently I think it will still be a while before the whole marketplace is willing to do this again.