We often hear from customers who are wondering whether a buy to let mortgage would be a good investment for them.
The answer to this question comes down to many factors, but the first thing prospective investors should establish is the rental yields and offset them against the costs involved. If you’re unsure about what kind of fees are typically associated with a buy to let mortgage, you’ve come to the right place.
This article provides an overview of the standard buy to let fees you’re likely to incur as well as the legal costs these mortgage products usually include.
Fees on buy to let mortgages in the UK typically include…
Lender application/booking fees
Mortgage product fees
Mortgage exit fees
Buy to let Broker fees
It depends on complexity
Broker fees can vary depending on the complexity of the mortgage and the product type you’re taking out. For instance, buy to let purchases for individuals who are not considered portfolio landlords (have less than 4 properties), are more straightforward than a landlord with 20 properties in a Ltd Company, looking to purchase another house of multiple occupation (HMO) that needs renovating.
Buy to lets have become increasingly complex since the PRA changes came in, increasing the number of checks and measures no end, which has pushed many brokers away from handling buy to let customers altogether. This increased work, given that lenders still pay the broker the same, means that most brokers will now charge a fee for a buy to let deal.
What broker fees to expect
Some brokers don’t charge any BTL mortgage fees (usually for large loans), while with others a typical fee might be around £500-999, and with a select few, you could be expected to stump up as much as 3-4% of the loan amount.
Fees on buy to let secured loans can be different
Broker fees for buy to let secured loans and second mortgages tend to be higher than those of a standard residential deed, which is something buy to let borrowers with an existing home should keep in mind.
Buy to let Lender application/booking fees
This relates to any upfront fees payable before or on application. Whether you’ll be required to pay these will vary across the lender spectrum. Some offer buy to let mortgages with no upfront fees while others might demand a payment of £500 or so. Some providers believe upfront fees makes them more likely to attract borrowers who are committed to seeing the deal through.
Buy to let Valuation fees
These are dependent on the property value, type, location and the mortgage product you’re after. Some buy to let mortgage deals include a free basic valuation but expect to pay more for home buyer or full structural surveys. They can range from free - £3,000+ for £multi-million size properties.
Buy to let Mortgage product fees
Mortgage product fees will again vary depending on the product type and property value. Certain lenders offer buy to let mortgages with no fees, others with a cost of £500-£1,500 or so, and some take a percentage of the loan amount.
For larger loans, it may be more cost effective to seek out a lender offering no fee or a fixed fee.
Buy to let Mortgage exit fees
Not to be confused with early repayment charges, exit fees are charged by some lenders on some products, to any borrower closing an account, whether tied in or not. They tend to be relatively small to cover the admin costs, and can range from free - £300 (although the odd few can be higher).
Buy to let Early repayment charges
Early repayment charges (ERCs) are found on most mortgage deals that tie a customer into an attractive initial rate period. This is often on fixed rate deals but also applies to many tracker/variable rate products.
ERCs are charged to protect the lender in event of someone leaving a product for which they have priced the profits over the full term of the rate period, as there is understandably a great deal of expense involved in underwriting and securing the funds being lent that need to be recouped.
For this reason, ERCs generally taper down toward the end of the rate period. The following is an example of early repayment charge schedule on a 5-year fixed rate mortgage (interest only buy to let, borrowing £100k):
Year of deal
Max ERC payable
1% of the loan amount
2% of the loan amount
3% of the loan amount
4% of the loan amount
5% of the loan amount
Buy to let legal fees
Buy to let legal fees usually include solicitor fees, disbursements, and stamp duty.
Buy to let Solicitor costs
Solicitor costs vary depending on their billing structure, with most conveyancers charging fixed fees, others by the hour, and a small number come up with a figure based on a percentage of the loan amount.
Meanwhile, select lenders will often waive the legal fees as an incentive for borrowers to choose them as their mortgage provider, most commonly on remortgage deals.
Buy to let Stamp duty
The UK government introduced stamp duty reforms as part of the 2017 Budget and, as a result, most buy to let landlords must now pay an additional 3%.
Where a main residence priced at £275,000 would normally set you back £3,750 in Stamp Duty fees, buying it as a second home or an investment property now costs £12,000 under these circumstances.
As a result, buy to let properties are now considered less lucrative as short-term investments, but that doesn’t mean turning a profit is out of the question. Get in touch and the advisors we work with will discuss how viable your plans for the buy to let sector are.
Buy to let income tax reform
The 2017 Budget also introduced income tax reforms which placed a cap on the amount of tax relief some buy to let landlords are able to claim.
These measures are being rolled out in phases, beginning during the current fiscal years, and largely impact landlords in the higher income tax brackets. For instance, a buy to let property generating £500 per month in rent now counts as £6,000 income per year, regardless of how much mortgage interest, management and maintenance costs the landlord is footing.
This is something all buy to let investors should be aware of, and we recommend that you speak to your tax advisor or accountant if you’re planning on moving or purchasing a property through a limited company.
Buy to let’s other costs
As well as broker fees and legal bills, buy to let investors must also consider the on-going costs associated with property maintenance. They usually include…
Letting agent fees
Letting agent fees are usually charged at a fixed rate or a percentage of the rental income. In the case of the latter, charges are typically 10% of the monthly rent, so a £350pm rental comes with a monthly fee of £35.
Income tax, meanwhile, can range between zero and 50%, depending on your current income and the rate of tax paid. We suggest consulting the HMRC’s website for help with your buy to let tax.
Fee free buy to let mortgages
Fee free buy to let mortgages are popular with home buyers and investors who want to keep their initial costs down as there are no application charges.
Sounds great, doesn’t it? So, what’s the catch? Well, fee free buy to let mortgages in the UK tend to come with higher interest rates. This is the main drawback to be aware of and it’s important to calculate whether the money you’ll save on fees outweighs what’s lost from the less favourable rates.
Also keep in mind that taking out a buy to let with no fees will only make you exempt from charges related to the mortgage product itself. You’ll still have the valuation fee and legal costs to foot.
Will I need a larger deposit for a fee free BTL mortgage?
To take out a buy to let mortgage with no arrangement fee, the borrower doesn’t necessarily need a larger deposit as these products are typically offered at a range of loan to values (LTVs). This means it’s possible to obtain a BTL mortgage with no fees with a range of deposit sizes, providing you pass the lender’s affordability checks.
Keep in mind that it’s the overall cost of the mortgage that’s important, not just the sum you pay up front. It may be the case that a low fee buy to let mortgage is a better option than a no fee buy to let mortgage once the interest rates have been factored in.
Get advice from a Buy to Let Mortgage Expert
If you’re unsure which is the best option for you, make an enquiry and the whole-of-market advisors we work with will help you decide and pair you with the best broker to handle your mortgage application.
If you like anything in this article or you’d like to know more, call us today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.
Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
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