In the current financial climate, marked by higher interest rates, the landscape for buy-to-let (BTL) mortgages is evolving. Lenders, faced with increasing costs of funds, are adapting their offerings. Many now present a range of mortgage products that feature a compromise: lower interest rates coupled with higher arrangement fees. This strategy aims to address the affordability challenges landlords face, enabling them to either refinance existing properties or invest in new ones under more manageable terms.

The rationale behind this approach is straightforward. By lowering interest rates, the measure of rent income versus loan payments is improved, simply because the lower interest rate results in lower regular loan payments. This can help a borrower to demonstrate the required level of borrowing costs cover, whilst achieving the required loan amount. The lender doesn’t lose out by offering the lower interest rate because they have charged a higher fee, which is typically added to the loan balance and repaid gradually over, say, 25 years, except where an interest-only product is used. This model can be particularly beneficial for borrowers whose rental income margins have become tighter due to the prevailing higher-interest-rate environment.