Arrangement Fee
The lender's fee for setting up a mortgage, charged flat or as a percentage of the loan. On BTL products percentage fees can reach 3% or more and materially change the true cost of a deal.
Arrangement fees (also called product or completion fees) are how BTL lenders shift cost from the headline rate to the fine print. Products with the lowest advertised rates often carry the highest fees, because low rates top the comparison tables.
Why the headline rate misleads
Take a £200,000 interest-only loan on a two-year fix:
- Option A: 4.50% with a 3% fee (£6,000). Interest £18,000 + £6,000 = £24,000 over the term.
- Option B: 5.20% with a £995 fee. Interest £20,800 + £995 = £21,795 over the term.
The "cheaper" rate costs £2,205 more. The shorter the fixed period and the larger the fee, the stronger this effect.
How to compare properly
Work out the total cost over the product term: interest plus all fees, including valuation and legal costs where not included. Adding the fee to the loan avoids the upfront hit but incurs interest on it and raises your LTV. Percentage fees are most common on limited company and HMO products, so run the total-cost comparison every time rather than trusting the table order.