Mortgage fee warning for buy-to-let landlords

Property investors looking for a cheap buy-to-let mortgage have been issued with a warning, as fees and charges cancel out low interest rates.

Landlords looking for a buy-to-let property are increasingly being hit with high fees as mortgage lenders compensate for low headline rates with higher fees.

"The idea of lenders offering the choice between products that offer comparatively high interest rates with low fees, and low interest rates with high fees, has been around for a year or two now," said Alan Harper, senior analyst at eMoneyfacts.co.uk.

"Individual circumstances will determine which is the better option in any specific case, but it's worth bearing in mind the effect a large fee can have over the term of the deal on the overall cost of the mortgage."

The comparison site points out with booking fees now as high as £3,999, before valuation or legal fees are taken into account, buy-to-let property investors can see fees approaching £5,000 on their property.

And on a three-year fixed-rate buy-to-let mortgage, this is equivalent to an interest rate 0.5 per cent higher than without the fees.

Abbey and Standard Life Bank take this low-rate, high-fee approach on buy-to-let mortgages, eMoneyfacts points out, both charging four-figure fees on some of their mortgage range.

But not all lenders are going down this route, with people looking for a buy-to-let mortgage from Northern Rock having the option of tiered percentage fees (rather than flat amounts).

Buy-to-let mortgages with Northern Rock have fees of between 0.75 per cent and 2.5 per cent depending on the interest rate of the product - the lender also offers a fee-free product.

"Whilst getting a low-rate deal may appear an attractive option, it does come at a price – and it's a price that's increasing all the time," Mr Harper said.

"Whatever the scenario, consumers should seek guidance from a qualified independent adviser before taking on a commitment of this kind."