Cashing in on buy-to-let loans

Few people outside of the financial services industry see a copy of mortgage advisers' bible, Moneyfacts. Its pink pages are full of every possible detail on every type of mortgage and it sits on nearly all advisers' desks. And like the used car price guides that were once the sole preserve of salespeople, it reveals some of the darker facts about an otherwise squeaky clean business.

The section on buy-to-let mortgages has burgeoned in recent months, with full-page adverts from some of the biggest players pushing this market hard despite the widespread concern from many commentators. Our latest research reveals that only investors with (misplaced) optimism that house price rises will continue at their frenetic pace should jump in now.

What Moneyfacts shows is the cash that advisers are earning from pushing buy-to-let loans. Cheltenham & Gloucester will give intermediaries up to £1,000 for arranging a buy-to-let loan. Future Mortgages promises up to £2,500. Paragon says it will pay advisers a "generous fee" of up to 0.5% of the total value of the mortgage.

It's not difficult to guess where these payments come from. The same tables list the odious "arrangement" or "reservation" fees that buyers are expected to pay, which typically range from £150 to £500. As another of our investigations reveals, lenders squirm uncomfortably when asked exactly what these fees are for, or why they vary so much. Are these adminstration fees in reality just financing the "procuration" fees lining advisers' pockets? More honesty would be welcome, but we'll have to wait until 2004, when FSA mortgage regulation begins, to be sure.