There are a myriad of BTL funding options available on the market and it is sometimes difficult to see “the wood from the trees” in establishing which one is “Best”?
By saying Best, this is usually measured in terms of overall cost—how much will the total cost be over the period of the offer?
There are other factors to consider which might suit your particular needs, like not having to pay up front costs, or just an aversion to paying fees. You might also need to seek your accountants views on how best to structure funding in the most cost effective manner.
Another less measurable factor is around speed of delivery by the funders, or ease of dealing with them.
Lets look in more detail at how to consider which 5 year fixed rate deal might be assessed as the cheapest. Any one funder might offer different funding options within their range, but also different funders all together will offer different options.
– 3.75% 5 year fixed
– 0.5% Product fee
– Valuation £500
– £500 Cash Back
– 3.4% 5 year fixed
-2% Product fee
– Valuation fee £500
– £500 Cash Back
So—which one is most cost effective over 5 years.
Well actually there are two answers.
Firstly it depends on how much you want to borrow, If it’s a low amount like, £75K, then option 1 is cheaper—but as your borrowing amount increases, the cross over point is around £100k—over this amount, option 2 becomes cheaper.
The second observation is that “usually” when considering different options, but from the same lender, all the comparable options work out quite similar, with only a few £100 difference over the 5 year period.
The real differences potentially occur when comparing similar products but from different funders, when they might approach products with different offerings and bias.
Factors to consider when comparing costs of products
- Interest rate ( Can vary dependant upon LTV sought as well)
- Term of fixed rate offering available (2/3/5 years usually)
- Product fee – can vary from 0% to 2% on average—But most funders will allow fee to be added to loan—(but at the end of the day you are still paying it)
- Interest only or capital repayment
- Loan to value options—some might allow 80% LTV
- Any Application fee to pay (some make a smallish charge)
- Valuation fee—some offers might include free valuation, or often a table of charges dependant upon value of property)
- Legal fees- some offer free legals if you use their panel—if you don’t use their panel then you have to pay your own legal fees anyway)
- Early Repayment Charges (See separate Blog on Stress testing and ERCs)
In working through all these options—your Commercial Broker who offer a whole of market service should be able to advise you on the best options available to suit your needs at any one time, In these changing times, the funders are also often changing their product range and offerings.