loan arrangement fees accounting treatment

#Loan arrangement fees accounting treatment plus#

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. These days, lenders finance their mortgage products using arrangement fees of between 1-3% of the loan, as well as interest charged on the loan after drawdown. Arrangement fees … the lender’s favourite profit centre! Generally, all other fees are paid upfront or immediately on drawdown of the loan, and are fully allowable against rental profits.

#Loan arrangement fees accounting treatment plus#

Typical fees charged by lenders include: arrangement fees, application / product fees, valuation / survey fees (etc), plus mortgage broker fees.īy far the largest of these are the arrangement fees, which is the main focus of this article. (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). 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.

This article looks at whether finance fees (NOT interest – this is covered next month) are tax deductible, and how relief can be obtained. Most property investors use mortgage finance to buy their properties, and so have to pay a range of lenders fees – as well as interest – in order to do so. Are lender arrangement fees tax deductible for landlords? First Published: May 2015 | Available in: Property Articles Property Investor Newsīy specialist property accountant Stephen Fay ACA