The 5% product fee, and the sum worth doing

Buy-to-let lenders routinely offer the same product at two or three fee levels. A flat fee of around £2,000 with the highest rate; 3% with a lower one; 5% or 7% with a headline rate that looks like a misprint.

The fee is added to the loan rather than paid up front, so the monthly payment on the high-fee version is genuinely lower. That is the whole design. Whether it costs you less depends on the loan size and how long you keep it.

The calculation, on a real loan

Take a £200,000 interest-only loan on a two-year fix. Product A: 5.79%, £1,999 fee. Product B: 4.99%, 5% fee — £10,000, added to the loan.

Product A costs £11,580 of interest a year, so £23,160 over two years, plus the £1,999 fee. Total: £25,159.

Product B costs 4.99% on £210,000, which is £10,479 a year, or £20,958 over two years. Add the £10,000 fee and the total is £30,958.

Product B is £5,799 more expensive over the fixed period, and it leaves you owing £10,000 more at the end of it. The lower monthly payment cost you nearly six thousand pounds.

Where it flips

Two things change the answer. The first is time. Over a five-year fix, the annual saving compounds: Product A costs £57,900 of interest plus the fee, Product B costs £52,395 plus £10,000. Now the gap has narrowed to about £1,500 in Product A's favour — and on a larger rate differential, or a larger loan, it can tip the other way entirely.

The second is loan size. The fee is a percentage, so it scales with the loan, but so does the rate saving. What does not scale is a flat fee — which is why flat-fee products tend to win on large loans and lose on small ones. On a £90,000 loan, a £1,999 flat fee is 2.2%; on a £500,000 loan it is 0.4%.

The part that gets forgotten

Adding the fee to the loan means you pay interest on the fee for the whole term, not just the fixed period, unless you clear it. Ten thousand pounds added to a twenty-five year loan at 5% is roughly £8,700 of extra interest across the term if it is never repaid separately.

It also raises your loan to value. A 75% LTV purchase with a 5% fee added lands closer to 78%, which can push you out of the bracket you were borrowing in and change the rate you were shown.

And it lifts the balance you refinance from. On a portfolio where every property has carried a 5% fee across two remortgages, the debt has grown by 10% without a penny reaching your account.

What to ask for

The total cost over the fixed period, including the fee, alongside the balance at the end of it. Not the monthly payment. Any broker can produce that comparison in a few minutes, and if a recommendation is only ever defended on the monthly figure, ask why.

For a two-year fix, the flat or lower-fee product wins more often than not. For a five-year fix on a larger loan, the percentage fee frequently does. There is no rule that holds across both — which is precisely why the sum is worth doing on your actual numbers rather than taking anyone's general advice, including this.