In this new financial environment, landlords need to look carefully at all the numbers associated with a loan. The headline interest rate may look attractively low, but lenders fees may not.
When a rate is fixed for 5 years or more the stress rate is calculated on the pay rate. In order to achieve a lower interest rate and therefore a higher loan advance lenders increase their arrangement fee.
Here are some scenarios using the same rental income to calculate the loan advance that can be achieved on a 5 year fixed rate, where different levels of interest rates and fees result in a very different financial outcome for investors.
| Rate | Arrangement Fee | Gross Loan | Monthly Payment | Net Advance |
| 5.69% | 7% | £253,000 | £1,199.64 | £236,448.59 |
| 6.24% | 4% | £230,000 | £1,196.00 | £221,153.84 |
| 6.74% | 2% | £230,000 | £1,196.35 | £208,823.52 |
The fees can sometimes frighten you away from a product but when you look deeper into the product and what it can achieve in terms of capital raise it could outweight the costs.