Buy-to-let lender margins are being squeezed

Ryan Bembridge

February 14, 2018

Buy-to-let lenders are squeezing their margins as they look to stay competitive despite the Bank base rate going up and swap rates rising.

That was according to Mortgages for Business’s Buy to Let Mortgage Costs Index, which worked out that lender margins over swaps – a source of funding for mortgage lenders – has declined by 0.4% points.

However Steve Olejnik, chief operating officer of Mortgages for Business, said: “I doubt 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.”

In the fourth quarter of 2017 lenders increasingly launched fee products, as they accounted for 16% of the market, up from 14% in Q3 – which is said to be down to a drive to meet end of year targets.

The proportion of products with percentage-based fees dropped from 44% in Q3 to 42% in Q4. At 42%, the proportion of products with a flat fee structure stayed the same, although the average fee charged by lenders rose by £53 to £1,423.

Olejnik added: “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 Q4 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

“If I were in the market for a buy-to-let mortgage, for either a purchase or a refinance, I would consider fixing for five years.

“And I would be asking my broker about fee-free products whilst there are more of them around.”

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