Buy to let mortgages for landlords have sunk to the lowest ever interest rate as lenders try to lure borrowers to their brands.
Deal tracker Moneyfacts has counted 2.968 available loan packages for landlords – more than 70 more than when the COVID-19 pandemic started and the most to choose from since the global financial crisis of 2007.
Lenders are bringing out new buy to let mortgage deals or easing the terms nearly every day as they battle to grab market share.
Nationwide property investment lending arm The Mortgage Works and the Co-Operative Bank lead the way with the first sub-1 per cent rates.
Both are offering loans to buy and remortgage at 0.99 per cent.
Cheapest fixed rate mortgages for landlords
Although the cheap headline rates will catch the attention of landlords, both deals come with demanding terms and conditions.
To apply for the TMW two-year fix, borrowers must have at least a 35 per cent deposit and pay a 2 per cent arrangement fee. In addition, the lender sets rent cover at 125 per cent.
The Co-Op follows TMW’s lead with a 0.99 per cent two-year fix offered on the bank’s Platform buy to let lending arm.
To keep risk to a minimum, the Co-O wants a 40 per cent deposit. The arrangement fee is £2,450; borrowers can have no more than three rented homes and a household income of at least £60,000 a year.
For landlords looking for a longer fix, the best rates are:
- A three-year fix at 1.34 per cent from Virgin Money. Maximum LTV is 60 per cent, and the arrangement fee is £1,995
- TMW has a five-year 1.48 per cent fix – other terms are the same as the two-year 0.99 per cent fix.
- For landlords who want certainty for a decade, the TSB has a 10-year fix at 2.09 until December 31, 2031.
For corporate borrowers, Molo has a five-year fix for limited companies at 3.1 per cent at 65 per cent with a 1 per cent arrangement fee. The deal comes with a 21-year-old minimum age threshold and a £20,000 a year minimum income requirement.
Why are buy to let rates so cheap?
Lenders are hard-nosed money men, and you can bet with certainty that buy to let mortgage rates are not low for any other than commercial reasons.
The COVID-19 pandemic and stamp duty holiday have had the biggest impact on buy to let mortgage rates.
Lender coffers are overflowing after lockdown because no one has had anything to spend money on, so spare cash has gone into savings accounts.
Due to the stamp duty bonanza, lenders have advanced billions of pounds to homebuyers at a high loan-to-value and need to balance their portfolios with lower risk lending at 60 to 70 per cent loan to value.
Add the current 0.1 per cent official bank rate making money cheap to borrow for banks, and landlords present a ripe opportunity for lenders looking to advance cheap funds to gain a larger share of the market.
How to compare mortgage deals
Let’s face it; interest rates are almost at rock bottom, but mortgage deals are not always what they seem.
Take comparing the TMW 0.99 per cent two-year fix with Virgin Money’s 1.34 per cent three-year fix.
Most landlords would plump for the TMW loan as the cheapest – but is it?
The rate is undoubtedly lower, but so is the discount period, and the fees are higher.
The only way to sort out the most cost-effective mortgage is to work the fees and repayments for both out over 36 months.
Undoubtedly, TMW is cheaper for the first two years and could remain cheaper for the third year if you can remortgage for less than the Virgin 1.34 per cent rate.
But as it stands today, the TMW package for a £150,000 interest-only mortgage would cost £5,970 over 24 months and £16,086 for 36 months.
Virgin loses out for the first two years, piling up repayments and the arrangement fee for £6,015 – just £45 more than TMW.
But for the third year, the Virgin deal costs an extra £2,010, which is a massive £5,106 less than TMW for the third year.
In total, the TMW mortgage costs £16,086 over three years, compared with £10,020 for Virgin – a difference of £6,066 in favour of Virgin Money.
Buy to let mortgages terminology
Here’s a guide to what some of the buy to let mortgage technical terms means:
- Loan-to-value (LTV) – the percentage of a home’s value a lender will advance
Example: If a house is worth £250,000, 60 per cent LTV is calculated as £250,000 (House price) divided by 100 multiplied by 60 (the LTV value), which is £150,000
- Fixed-rate – A fixed-rate mortgage’s interest rate stays at the same level for a fixed term, generally between one and ten years
Example: If a mortgage I fixed for two years, the interest rate remains the same for 24 months regardless of how the lender’s interest rates move.
- Rent cover – The amount of rent a lender wants to see the tenants pay to ensure a landlord can afford to pay the mortgage on the property
Example: Rent cover of 125 per cent at a 5 per cent interest rate on a mortgage of £150,000 means the lender expects a property to earn £781 a month rent.
- Arrangement fee – The fee charged by a lender to cover the cost of underwriting and approving a mortgage. The arrangement fee is generally added to the loan.
- Official bank rate – The interest rate set by the Bank of England, not necessarily charged by mortgage lenders who can set their own interest rates
Guild subscribers can contact Commercial Expert via our website about buy-to-let finance including for HMOs.