If you’re considering investing in a property to rent out, and you’ll need a buy to let mortgage to fund your purchase, make sure you’re aware of the various fees and costs involved.
Many people turn to buy to let property to provide them with an additional source of income in retirement. Here, we outline exactly what sort of charges you can expect to pay when you take out a buy to let mortgage.
If you’re looking for expert advice on getting a buy-to-let mortgage, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice. Your first consultation is free.
What buy to let mortgage fees and costs might I need to pay?
There are a number of costs you could face when taking out a buy to let mortgage, the most common of which we outline below.
Mortgage broker fee
When looking for the right buy to let mortgage many people will use a mortgage broker to help them search all of the market for the best deals. While some brokers offer fee-free advice (taking a commission from the lender rather than the buyer), others will charge a fee for buy to let mortgage advice and support through the application process.
If your mortgage broker charges a fee then this is usually around £500, or they may charge a percentage-based payment, depending on the value of the mortgage. When you need to pay this fee will vary from broker to broker, but before you sign up to use their services, they should give you a key facts document which will outline their fees, and when they will need payment. Each mortgage broker is different, so always check their fees carefully before agreeing to their services.
If you’d like to see how much you might be able to borrow for a buy to let property, simply enter your expected rental income in our buy to let mortgage calculator to get an estimate.
Buy to let mortgage arrangement fee
A buy to let arrangement fee is usually one of the biggest costs you can expect to pay when taking out a buy to let mortgage. It’s used to secure your buy to let mortgage and covers the administrative cost of setting up your mortgage.
The average cost of a buy to let arrangement fee is £1,500, according to our Rest Less Mortgage brokers, however it could be a higher or lower figure than this, depending on the value of the property you’re buying and the type of mortgage you’ve chosen. Often, but not always, if you’ve chosen a low interest rate for your buy to let mortgage, then the arrangement fee will be higher, so make sure you look at more than just the headline interest rate.
You can usually either pay an arrangement fee upfront, or add it to your mortgage. While adding the fee to your mortgage means you won’t have to pay a lump sum upfront, you’ll be paying interest on it usually over a period of many years. So, if you can afford to, overall it’ll generally be cheaper to pay this fee at the outset.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
Booking fee
Also known as an application or reservation fee, a booking fee is sometimes charged by lenders as a way to show you’re committed to taking out a particular mortgage.
Booking fees aren’t always charged, but when they are they tend to be around a couple of hundred pounds. If your lender does charge a booking fee on your buy to let mortgage, it’s usually payable when you submit your buy to let mortgage application.
Valuation fee
Your lender will want to arrange for the property you are buying to be valued before they offer you a mortgage, which you’ll be charged a valuation fee for. The purpose of the valuation is essentially to make sure your buy to let property is worth the money they are lending you, but doesn’t provide any insight to the condition of the property or any maintenance needed.
A valuation fee typically costs between £100 and £300, but some lenders have a sliding scale of valuation fees which can be considerably more than this, depending on the value of the property.
Conveyancing costs
You’ll usually need to instruct a solicitor to carry out the conveyancing process (the process of buying a property and transferring it into your name). The exact cost you’ll have to pay will depend on the solicitor and your property, but generally it will be somewhere between £850-£1500, plus the costs of disbursements, although it could be more if the process required is particularly complicated. You can read more in our article How to find a good conveyancer or solicitor.
Bank transfer fee
Also known as a telegraphic transfer fee or CHAPS (Clearing House Automated Payment System), this fee pays for the process of your mortgage provider transferring the money you’re borrowing to buy the property to your solicitor. The cost varies from lender to lender, but will generally be between £8 and £50. It is usually charged upfront when your mortgage completes, although some lenders might let you add it to your mortgage balance.
The amount of money your lender transfers during a property purchase is considerable, so there’s greater risk involved in the process. This fee pays for the additional staff and processes that are required to carry out the transfer securely.
Other costs to consider when buying to let
When buying a property to let out, it’s important to remember that there’s more to consider than just the mortgage costs. Here are a few of the other costs you might need to think about:
Buy to let survey fee
While your lender will include a property valuation in their pricing, you might want to arrange a more comprehensive survey to ensure you won’t find any nasty surprises or unexpected maintenance costs once you’ve bought the property.
A survey can cost anywhere from £250 to over £1,000, depending on how detailed you want it to be. You can read more about surveys in our article Which property survey should I get?
Buy to let deposit
Lenders usually require a minimum deposit of 20% – 25% when you take out a buy to let mortgage, compared to as little as 5% for a residential mortgage, so you need to factor this in when thinking about your overall costs.
Buy to let Stamp Duty charges
You will pay Stamp Duty when buying a property that costs more than £125,000, with the rate of tax you need to pay rising alongside the property value. It’s also important to note that if the property you are buying is in addition to your main residence, which all buy to let properties will be, you will pay an additional 3% Stamp Duty on top of usual rates. You can read more about this in our article Stamp Duty explained.
Letting agent fees
If you want to rent out your property through a managing or lettings agent, then you’ll need to consider the fees they might charge in your calculations. Most lettings agents will charge anywhere between 5% and 15% of the monthly rent you’re charging to manage your property, so the exact sum you’ll pay depends on the rental income you’re expecting to get.
Buy to let income tax
Any rental income you get from your buy to let property is just like any other income, so you will pay tax on all income that exceeds your personal allowance, which in the 2022/2023 tax year is £12,570. You can read more about this in our article How is my buy to let property taxed?
Mortgage charges
Provided you keep up with your monthly mortgage payments and stick with your mortgage product until the end of its term, you might not need to think about the following costs, but, they’re worth knowing about just in case:
Missed payment penalty
If you miss a monthly mortgage payment, then your lender might charge you a missed payment penalty. The specific charge will depend on each lender’s rules. Failure to keep up with mortgage repayments could also result in your property being repossessed.
Early repayment charge (ERC)
If you pay more than your overpayment limit (the maximum value you can pay off of your loan each year) or you pay the mortgage off early, you could be charged an ERC. These are usually a percentage of the outstanding loan value, often around 1-5% of the value of your outstanding mortgage balance.
Exit/Closure fee
When you fully pay off your buy to let mortgage, your lender might charge you a small fee to cover the general administration of closing your mortgage account, usually within the region of £75-300.
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