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Are Lender Arrangement Fees Tax Deductible For Landlords? …The Definitive Answer

By specialist property accountant Stephen Fay

Most property investors use mortgage finance to buy their properties, and so have to pay a range of lender fees - as well as interest - in order to do so.

This article looks at whether finance fees (NOT interest - this is covered next month) are tax deductible and how relief can be obtained.

Which lender fees are you referring to?
In the post-credit crunch finance world mortgage lenders make their profits from a combination of interest charged on a loan, plus the various fees that are charged in connection with a loan.  (Prior to the credit crunch fees were almost an after-thought for lenders and were often fairly nominal - hence the tax treatment was less of an issue).

Typical fees charged by lenders include: arrangement fees, application / product fees, valuation / survey fees (etc), plus mortgage broker fees.

By far the largest of these are the arrangement fees, which is the main focus of this article.  Generally all other fees are paid upfront or immediately on drawdown of the loan and are fully allowable against rental profits.  

Arrangement fees … the lender's favourite profit centre!
These days lender's finance their mortgage products using arrangement fees of between 1-3% of the loan as well as interest charged on the loan after drawdown. By charging a large arrangement fee and allowing this to be added to the loan lenders can therefore promote a much lower headline interest rate. Whereas without the arrangement fee the lender would have to charge a much higher interest rate to achieve their overall profit - which might make the loan cost unattractive to landlords, meaning fewer loans and lower profits.

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