Mortgage Brain came out with new figures showing that mortgage rate reductions continue to offer benefits to a variety of property owners. BTL mortgages are attractive to people of all ages interested in investing or padding their retirement savings. The average landlord today can expect a five year fixed Buy-to-Let mortgage with a 70% Loan-to-Value ratio to be 8% lower in cost than in March 2016. At a rate of 2.80% as of 1st September 2016, property owners can save about £738 on a £150k mortgage over the course of the year. This is great news, since BTL interest rates tend to be higher than regular purchase mortgages.
Additionally, costs have fallen in both lower-rate two and three year fixed BTL mortgages with 70% LTV. A two year mortgage at 2.89% can save landlords £540, and £504 with a three year mortgage at 2.64%. The costs have reduced by 6% since March of this year. Even BTL mortgages with 60% LTV have shown cost reductions. Borrowers of BTL loans are generally seen as higher-risk even with good LTV, and face more limitations than non-landlords.
However, the Mortgage Brain data also shows that some two-year variable-rate Tracker BTL mortgages have become more expensive. For example, the lowest rate 80% LTV product at 2.97% has risen 14% from March 2016. The cost of a two year Tracker with a 60% LTV at 1.80% shows increases of 3%, compared to a 1% increase in 70% LTV products that are otherwise identical. It is unfortunate that even mortgages with lower LTVs that are lower-risk are experiencing increases. A tracker mortgage can result in lower interest rates overall, and landlords can use the months of lower rates as an opportunity to pay more than they need to, in order to save on interest in the long run. These costs over a few months may not matter much in the long run, but potential landlords interested in tracker mortgages may want to wait a little longer before investing.
“With further interest rate cuts predicted by the Bank of England it will be interesting to see what happens to mortgage rates and costs over the next few months”, commented Mark Lotfhouse, CEO of Mortgage Brain. “There’s no doubt though that on the whole borrowers and potential BTL investors are in a great position to take advantage of the low rates and cost reductions that we’re seeing”.
Is this a good time to invest? If you have the capital for a down payment and have analyzed the risks of bad tenants, vacancies, and repairs, BTL mortgages can be a great option. Some lenders, such as Nationwide, are changing their rental income requirements. The rent you charge has to be at least 25% higher than your mortgage costs, but Nationwide now requires a 45% buffer. Concerns that some borrowers won’t be able to pay back their mortgages have driven up down payment minimums rental income guidelines. These changes will make the market more secure in the long term. In the short term, taking advantage of these lower mortgage costs will help investors save money in the midst of rising costs.