Decision making in the new buy to let landscape

The new normal…a saying we all hoped we’d never have to hear again, but here we are!

In a market that feels like rates are forever rising, how do we know the best thing to do and the best time to invest? When we are ready to invest, what product do we choose? It can feel like a minefield with new, unfamiliar products carrying sky-high fees not helping with our decision making. We have had the luxury of low rates with minimal fees for such a long time that now everything can feel a bit overwhelming. However, this is where seeking professional mortgage advice is key.

A few years back it was easy to pick a mortgage product. The 1% or £999 fee was the norm and your rental would easily allow you to borrow enough to cover your outstanding mortgage balance. Today many of the most attractive interest rates come with arrangement fees of 5% or higher which can seem eye-watering. But why have lenders done this and what is the benefit?

Many lenders base their affordability criteria around the interest rate of the product, with a lower fixed rate generally meaning you can borrow more. Mortgage rates are now pushing higher than we’ve seen for a long time and, with speculation in the press they’ll rise further, getting the borrowing you need can be challenging. This is where higher arrangement fees come into play. By keeping the interest rate as low as they can, but offsetting that with a higher arrangement fee, the lender can still cover their costs whilst boosting your borrowing potential. These high fees may not sound great on face value, but the overall cost of borrowing remains similar to products with a higher rate and lower fee. Remember to speak to your accountant about mortgage fees as some of the one-off costs may be tax deductible.  

Understanding all of this is great, but is now a good time to invest with these high rates, fees and uncertain house prices? The answer really comes down to the reason you are investing. If you are after a quick monthly income, then there is an argument for caution. However, if you’re here for the long term, for your future, your children’s future, then it might well be a different story. Property prices will fluctuate, rates will go up and (hopefully) down, but for long-term investors these things don’t matter. Everything is cyclical and if you wait just like everyone else you may miss out on what could be your best investment yet.