Buy-to-let mortgage fees

There are numerous fees involved when taking out a buy-to-let mortgage. It’s important to keep on track of the costs that you will face, to ensure you don’t get into financial trouble as a result of having more outgoings than expected.

Make careful and precise budgeting a priority right from the start, and ensure you always find out about potential costs as early as possible.

Arrangement fees

With buy-to-let mortgages, there are normally higher arrangement fees to pay. Arrangement fees of approximately 1 to 3 per cent are usually charged, and you should look around the market carefully. A lower-rate mortgage may actually have higher arrangement fees than other deals, making it more expensive in total than other mortgages.

Arrangement fees aren’t always charged, but you should always try and find out beforehand. It’s better to set aside thousands of pounds and not have to spend it, than not budget and suddenly have to pay a big arrangement fee.

Letting agent fees

If you use a letting agent, you need to budget for around 10 to 20 per cent of the annual rent for their fees, depending on how much they get involved. It’s important to know exactly how much you will have to pay them before officially signing with them, and also whether you will incur penalties if tenants default, for example.

You can save money by not having a letting agent, but be careful not to underestimate the amount of commitment required if you decide to manage the property and tenants yourself.

Mortgage broker fees

Mortgage brokers can be very helpful, offering professional advice as well as opening up more options in the buy-to-let market. This help may come at a fee, however, so again you need to do your research and shop around to find the best option.

Typically their fees range between £300 and £1,000, but you should avoid paying more than £1,000 because that price is on the extreme side, as well as avoiding brokers who ask to be paid before you complete your mortgage.

Although this service can sometimes be done for free, it’s best to find out beforehand what a mortgage broker will charge.

Other fees

As a landlord, you need to have buildings insurance, and contents insurance too if the property is furnished.

Although the tenant is responsible for the interior costs of the house, such as the utility accounts, council tax and the TV licence, if you have a vacant period you will incur these costs. You also need to ensure the property remains appealing to potential tenants, which can cost money in maintenance fees each month.

If you pull out of a mortgage deal early, you may face penalties from the lender. The best practice is to research properly beforehand so that you are prepared if this happens.