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BTL lenders see margins squeezed

Buy-to-let lending margins have been squeezed, with providers absorbing more costs to keep their rates competitive in the last quarter of 2017, according the latest results of the Buy to Let Mortgage Costs Index, published by Mortgages for Business.

Higher costs were fuelled by elevated swap rates, coinciding with the hike in the Bank Rate.

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.


But buy-to-let lenders, whose margins have been diminishing since July 2016, opted against passing 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 from Mortgages for Business reveal that, between the start and the end of last year, average lender margins over swaps had fell by 0.4% points.

Steve Olejnik, COO 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.”

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 start of 2013 when the index started tracking this data. Fees include lender arrangement fees, valuation fees and legal costs.

Lenders also 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 Q4 2017, up from 14% in Q3 2017 and the proportion of products with percentage-based fees dropped from 44% in Q3 to 42% in Q4.

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.

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.”

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