A plethora of fees can add up to 2% to the effective annual cost of individual buy to let mortgages and the impact of these fees has varied over time, according to research conducted by specialist broker Mortgages for Business.
Fees include lender fees, valuation fees and legal fees.
Costs were at a peak in 2010 when they added 0.66% to the average cost but this has since fallen to around 0.57%.
Fees have a greater impact on short term (i.e. two year) mortgages. In 2010 they added an average of over 1.13% to annual costs whereas this is now around 0.85%.
The results were revealed in 12 indices which track the average buy to let mortgage costs of two, three and five year fixed rate and discounted/tracker mortgage products at 65% and 75% loan to value.
The data was extracted from details of more than 16,000 buy to let mortgage products from 2008 onwards, held in Mortgage Flow, the broker’s bespoke sourcing tool.
David Whittaker, managing director of Mortgages for Business, said: “By including fees we have produced indices that more accurately reflect the costs of taking on a buy to let mortgage without the distortions caused by the way lenders structure fees on products to meet marketing requirements.
“Lender arrangement fees vary enormously. Some products carry a flat fee but most have percentage fees which can be in excess of three per cent. This can make headline rates extremely misleading.”
The report also suggests that using the APR as an overall cost for comparison as legislated by the FSA doesn’t particularly help borrowers understand the true costs involved because it fails to recognise the incentive to borrowers to re-mortgage at the end of the fixed rate / discount period.