For a landlord whose borrowing is being constrained by rental coverage, the conversation around a higher fee can look very different. The product isn ' t necessarily designed to deliver the lowest total cost. The lower rate can instead help the client secure the borrowing they need to complete a purchase, refinance existing debt or achieve another investment objective.
There are still important trade-offs.
If a percentage fee is added to the mortgage, it increases the outstanding balance, and interest is payable on it. A large fee can also affect the client ' s effective net advance and potentially their position against an LTV limit. On an interest-only mortgage, the added fee isn ' t gradually repaid either, meaning the additional debt remains unless the borrower chooses to reduce it.
Repeated use of high-fee products also warrants consideration. If substantial fees are added to the balance every time a landlord refinances, the cumulative effect on their debt could become significant. That ' s why the expected length of time the client will retain the product, their refinancing strategy and their wider portfolio objectives all matter.
The comparison is different again where a percentagebased fee is being considered against a fixed fee. A fixed £ 1,995 fee, for example, doesn ' t increase as the mortgage becomes larger, while a percentage fee does. In those circumstances, loan size becomes another important part of the calculation.
The picture becomes even more interesting within the limited company market. While a larger product fee may attract closer scrutiny, many incorporated landlords may be able to treat mortgage arrangement fees as a legitimate business expense for tax purposes, subject to their individual circumstances and professional tax advice. As a result, the effective cost of the fee could
be lower than the headline figure suggests, further strengthening the case for considering products with higher fees and lower rates where they deliver a better overall outcome.
But tax treatment shouldn ' t be viewed as a simple justification for choosing a higher fee option. Where this forms part of the client ' s decision, appropriate professional tax advice should always be considered.
Ultimately, the argument in favour of higher product fees isn ' t that they ' re cheaper. It ' s that cost isn ' t the only measure of value.
For one borrower, keeping the upfront fee and overall borrowing as low as possible might be the priority. For another, a higher fee and lower rate could provide access to the loan amount they need. In other circumstances, a different combination of rate and fee could produce a better overall cost over the period the mortgage is expected to be held.
That ' s why product fees shouldn ' t be considered in isolation.
Brokers need to look at the combination of rate, fee, affordability, borrowing capacity, LTV, expected product term and the client ' s wider objectives. The question isn ' t simply whether a fee is high or low. It ' s what that fee enables the client to achieve, and whether the trade-off represents the right outcome for them.
A larger product fee won ' t be right for every borrower. But neither should it automatically be dismissed because of the headline number. In the right circumstances, the value may not be in saving money on the mortgage. It may be in making the mortgage possible in the first place.
Want to learn more?
CHL Mortgages for Intermediaries can look at cases that some other lenders won’ t, or often can’ t. Visit the website to find out more.
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