Buy-to-let lenders continue to cut their lending rates according to reports in the FT at the weekend.
BTL lenders increasingly see landlords as a good credit risk compared to other potential borrowers as demand for rental property continues to outstrip supply and rents rise.
Last week two lenders moved to reduce rates. Both Natwest and the Coventry Building Society introduced competitively based rates with 2 year fixed rate buy-to-let mortgages under 4%.
A recent survey indicated that almost a fifth of all landlords were looking to expand their residential portfolios in the 3rd quarter of this year. So what are the options for financing further investment in buy-to-let property?
Gearing up your property investments
Many landlords including myself looked to gear up their property investments by maxing out on the loan to value (LTV). In the good old days BTL lenders were happy to oblige and the marginal costs of loaning more were relatively small. Post credit crunch things are very different. Even though thankfully it is now possible to obtain 85% loan to value buy-to-let mortgage. However the downside is that landlords will pay for this extra leverage with higher interest charges and larger booking and completion fees. Currently the best 85% LTV mortgages command APRs of around 7% upwards. The APR or Annual Percentage Rate is the measure of the true cost of the buy-to-let mortgage across the life of the mortgage. The best 85% LTV currently available according to Property Hawk Mortgages are with the Kent Reliance Building Society.
Both have an APR of 6.9%. Fees are relatively high with a booking fee of £130 and then a completion fee of 2.5% of the loan once approved. Pay rates for the 2 year deal is 5.49% and for the 3 year mortgage is 5.69%.
High APRs in themselves are not a deal breaker. If a landlord anticipates that they might remortgage their property after a few years, then putting up with high initial rates could be acceptable. Things to look out for are any early redemption charges. This strategy is good if your investment capital is limited and you want to be able to recycle it to expand your portfolio. However, in the short term it will inevitably depress your rental profits. Remember though that interest paid on your buy-to-let loans can be off set against rental profits so the differential in the interest rate on a profitable rental business is not as great as it may first appear. All this depends on your individual tax position.
Low cost buy-to-let mortgages
Landlords that have an eye on minimising their costs and maximising rental profits will be looking for mortgages with the lowest APR. One of the lowest rates according to Property Hawk Mortgages is the lifetime tracker mortgage with the Woolwich. The APR on this buy-to-let mortgage is a meagre 4.2%. There is no booking fee but the completion fee is high at £1999. The big downside is that the loan to value on this mortgage is only 60%
This mortgages APR is almost 3% below those of the 85% loan to value products but landlords looking at these buy-to-let mortgages will need a full 25% more deposit in order to be able to access this low rate buy-to-let mortgage.
As you can see, selecting the right buy-to-let finance for each landlord’s purpose is a fine balance. A good overall product that balances low fees , high LTV and a competitive interest rate is the 4.84% base rate tracker from BM Solutions. This buy-to-let mortgage is fixed until end of October 2014 and has a very low completion fee of £995 and a low APR of 5.2% but with a reasonably high LTV of 75%.
With interest rates expected to stay low for some considerable time it appears that the buy-to-let mortgage market is ‘hotting’ up. Andy Young at Property Hawk Mortgages comments:
“The buy-to-let mortgage market in the UK has expanded considerably over the last two years with more lenders and products available for landlords to choose from. Inevitably, with an increase in the number of lenders in the market there will be more competition, and those targeting similar customers may start to compete on price. With increasing rental yields and falling buy-to-let mortgage rates, now could be an excellent time to purchase an investment property.”
For a full range of the latest buy-to-let mortgages sign up for Property Hawk Mortgages to search the whole market.