The Revolution Brokers team deals with thousands of buy to let mortgage applicants, and one of the many factors often overlooked is fees.
We all appreciate that a buy to let mortgage will carry interest charges – but if you’re calculating rental yields and overall profit, you also need to know what costs you’ll need to pay.
Today we’ll explain some of the standard fee structures on buy to let mortgages and how to consider these expenses when working out your next investment move.
For help calculating like-for-like comparisons between mortgage products or access to low-cost buy to let borrowing, please give us a call on 0330 304 3040 or email the team at info@revolutionbrokers.co.uk.
Fees on UK Buy to Let Mortgages
Some of those costs we’ve mentioned, over and above the interest charge, include:
- Application or booking fees
- Valuation costs
- Mortgage product charges
- Exit penalties
- Broker’s commission
Let’s run through each of these in turn to give you a good idea about what to expect.
Buy to Let Mortgage Application Fees
Application fees include anything you need to pay upfront before proceeding with a complete buy to let mortgage application.
Some lenders insist on booking charges, and others have no application fee, but for those that do, the average is around £500.
Rental Property Valuation Costs
Valuations are part of the application process, and the exact costs depend on the property’s value, type of residence, where it’s based, and the nature of the mortgage you’re applying for.
Lenders sometimes offer free basic valuations as part of the mortgage offer, but you’re usually advised to pay separately for a complete structural survey.
Property valuation costs vary, getting up to around £3,000 or more for larger premises.
Common Mortgage Product Charges
Product charges depend on the lender and what sort of deal they’re offering.
Buy to let mortgage products can have zero fees, whereas others will be between £500 and £1,500, often calculated as a percentage of the total borrowed.
If you need a substantial buy to let mortgage, it’s vital you work with an experienced broker to ensure you’re fully aware of any payable product charges.
Typical Buy to Let Exit Penalties
Exit fees aren’t the same thing as an early repayment charge – and you might need to pay exit fees on any buy to let mortgage, whether or not you’re tied into a fixed term.
If there is an exit fee to pay when you close an account, it’s usually a relatively small administration fee of around £300.
Early repayment charges work differently and are most commonly linked to fixed-rate deals but can be payable on tracker or variable buy to let mortgage products.
This cost tends to reduce the further along you are in the mortgage term, but as a rough indication could be around the following rates, based on a five-year fixed-term buy to let mortgage of £100,000:
- Year one: 5% – £5,000
- Year two: 4% – £4,000
- Year three: 3% – £3,000
- Year four: 2% – £2,000
- Year five: 1% – £1,000
Average Brokers Commission
Brokerage fees depend on how complex your mortgage application is and what sort of buy to let product you’re applying for.
For example, if you aren’t a portfolio landlord and have fewer than four properties, it’s probably going to be much faster and easier to secure a new buy to let loan.
Suppose you have 20 properties, held through an SPV company, and want to buy an extensive HMO requiring substantial renovation. In that case, your broker will spend multiple times more negotiating and liaising with lenders, as well as compiling a solid application on your behalf.
Other Buy to Let Mortgage Costs
Alongside the costs of setting up your mortgage, it’s essential to understand the other expenses associated with owning a rental property.
Outgoings include letting agent fees if you’re not managing your tenants directly and tax payable on your rental profits.
Letting agent fees typically work on a fixed rate basis or as a percentage of the rental income.
For example, you might pay £35 per month on rent of £350, covering tenant management, communications, holding deposits and organising repair works.
As a landlord, you are responsible for property maintenance, so it’s also essential to ensure the rent is sufficient to repay your mortgage interest, cover the cost of letting agency charges and generate a profit when you’ve factored in ongoing repairs.
Income tax depends on your tax bracket and how much you earn from your rental property, but it’s also vital to be prepared for self-assessment tax return submissions.
For more advice about fees on company buy to let mortgage products or to compare the deals currently available on the market, please get in touch with Revolution on 0330 304 3040 or via email at info@revolutionbrokers.co.uk.