Residential property lenders in the UK have been absorbing more costs so that they have keep their buy to let rates as competitive as possible, new research suggests.
However, in the final quarter of 2017 arrangement fees for buy to let products increased and fees and charges added 0.58% to advertised rates, according to the latest mortgage costs index from Mortgages for Business.
The analysis revealed that the underlying cost of funds rose the fourth quarter and in particular swap rates remained elevated, coinciding with the hike in Bank Rate, the data shows.
Indeed, by the end of the year, two, three and five year swaps, on which fixed rate mortgages are typically based, were higher than at the start of 2017.
Buy to let lenders, whose margins have been diminishing since July 2016, chose not to pass on the increases to borrowers. Instead, it seems they opted to squash their margins further, as they vyed for customers in light of fast approaching year end lending targets.
The data revealed that, between the beginning and the end of 2017, average lender margins over swaps had declined by 0.4%.
While on the face of it this is good news for buy to let landlords, Steve Olejnik, chief operating officer of Mortgages for Business, said he doubts that lenders will consider lowering rates again.
‘If anything, I would expect them to find ways of making up for the lost margins, particularly given that overall buy to let lending looks set to dip this year,’ he added.
The index also revealed that the effect of fees remained largely unchanged quarter on quarter, adding an average of 0.58% to the headline rate advertised to borrowers, the lowest amount since the beginning of 2013 when the index started tracking this data. Fees include lender arrangement fees, valuation fees and legal costs.
To the detriment of products with fees calculated as a percentage of the loan amount, lenders increased the number of buy to let mortgage products without arrangement fees, probably as part of their drive to meet targets.
Fee free products accounted for 16% of the market in the fourth quarter of 2017, up from 14% in the third quarter and the proportion of products with percentage based fees dropped from 44% quarter on quarter.
At 42%, the proportion of products with a flat fee structure remained the same, although the average fee charged by lenders rose by £53 to £1,423.
‘Looking back over the last couple of years, flat fees have actually come down in price from over the £1,500 mark. The fact that they increased in the fourth could be a sign that borrowers are about to experience price hikes not only on the underlying costs but also at the point of sale. Now is definitely a very good time for landlords to review their borrowing arrangements,’ Olejnik concluded.
