Or, as some of my clients put it:
“Lenders are all as bad as each other, charging astronomical fees that aren’t justifiable in any way.”
While the internal pricing models and algorithms used by lenders are highly complex and confidential, let’s break down—in simple terms—why arrangement fees can now be as high as 9.99% of the mortgage amount.
A Look Back: Pre-‘Trussonomics’ Lending Climate
Let’s rewind to early 2022:
-
SWAP rates were below 1%
-
Bank of England Base Rate: 0.25%
-
A typical 5-year fixed Buy-to-Let mortgage at 75% LTV for a limited company came with:
-
~3.5% interest rate
-
~2% arrangement fee
-
Some residential mortgage rates even dropped below 1%
-
In short: borrowing was cheap, and fees were modest.
Today’s Market – A Very Different Story
Fast forward to January 2025:
-
SWAP rates are between 4.1%–4.35%
-
Bank of England Base Rate: 4.75%
-
Lenders are now offering:
-
~4.99% interest rates
-
With 3%+ arrangement fees
-
Some products offer rates as low as 4.5%—but they come with arrangement fees as high as 6% or more.
Why Are Fees So High Now?
At a basic level:
If it costs the lender 4.1% to borrow the money, and they lend it out at 4.99%, their margin is thin—unless they supplement it with a higher arrangement fee.
Compare this to 2022:
-
Lending cost: 1%
-
Lending out at: 3.5%
-
Add a 2% fee, and it’s a solid return.
In today’s market, higher arrangement fees are often the only way for lenders to maintain profitability—without pushing interest rates even higher, which would in turn make rental stress testing unworkable.
Fee vs Rate: The Balancing Act
Many lenders now offer a range of mortgage options to suit different borrower needs:
-
Low rate, high fee:
e.g. 4.50% interest with a 6% fee
✅ Passes stress test
✅ Lower monthly repayments
❌ Higher upfront cost -
Higher rate, low fee:
e.g. 5.59% interest with £1,495 fee
✅ Lower upfront cost
❌ May fail stress test
❌ Higher long-term payments
Why Your Broker’s Input Matters
Understanding whether to go with a high-fee or high-rate product depends entirely on your investment strategy, cash flow, and stress test thresholds.
A good broker will:
-
Assess your borrowing potential
-
Review your portfolio goals
-
Match you with the right lender and product structure
Final Thoughts
Yes, lender arrangement fees in 2025 can feel excessive, but they exist for a reason.
They allow lenders to continue offering competitive products in a high-cost borrowing environment and give landlords the flexibility to choose what works best for their short-term and long-term plans.
Or as some clients put it, ‘lenders are all as bad as each other, charging astronomical fees which aren’t justifiable in anyway’.
Whilst the intricacies and algorithms lenders would use when deciding how to price themselves is too far reaching and extremely complex for this blog, here I look to tackle on a more simplistic basis that why, in the current climate, lender arrangement fees can go as high as 9.99% of the Mortgage amount. A figure 2 or 3 years ago would have been unthinkable and even more so perhaps would have seen the lender collared by the FCA.
So what I explain to my clients here is that, and moving back prior to the infamous ‘Trussonomics’, you had the at the start of 2022 SWAP rates (another one of my blogs details these) hovering below 1% (having been lower still in 2021) and the base rate at 0.25%.
For a Limited Company Buy to Let Mortgage at 75% LTV on a 5-year fixed product, typically the lowest cost option was an interest rate around 3.5% with a 2% lender arrangement fee. Some Residential rates even dropping below 1% at this stage!
Move forward to today (17/01/2025) and SWAP rates varying at anywhere between 4.1% to 4.35%. The Base rate being 4.75%. Using the example above, lenders are offering an interest rate of 4.99% with a 3% lender arrangement fee.
Hopefully you can see from the above, at a very basic level at least, if it cost a lender 1% to borrow money and they lend it out at 3.5% with a 2% arrangement fee, that’s a better return that if it cost a lender 4.1% to borrow the funds and they lend it at 4.99% with a 3% lender arrangement fee.
So when you have a rate of 4.50% with a 6% lender arrangement fee, you can see from the above the lender arrangement fee is there to cover the shortfall in profit from lending the funds back out at a similar rate to what it cost them.
I’d also highlight that lenders do have a wide range of options, for example 5.59% with a perhaps more palatable arrangement fee of £1,495.00. However with the higher rate comes the higher rental stress test which may not be able to be passed, hence reverting to the lower rate but higher fee option.
So there are wide variety of rates available from each lender, there to cater for those who are looking for a lower interest rate and between return, alongside those who are happy with a higher rate but lower arrangement fee. This being subject to the usual underwriting.
As always it crucial a broker understands your requirements and preferences in full before making the appropriate recommendations for your circumstances.
