B2L RATES EQUAL RESIDENTIAL
‘Times are a changin’
The Financial Times this weekend reported that borrowing rates available to landlords for the first time were as cheap as main stream residential mortgages. This is in response to banks and building societies increasingly viewing buy-to-let as low risk lending.
For many years financial institutions held the view that because landlords did not hold an investment property as their own home, they were more likely to default on its’ mortgage.
The result was; as recently as 10 years ago banks would charge a premium rate of between 2-3% above that for a domestic property. Not only that but a landlord would probably only be able to borrow a maximum of 75% of the properties value. This contrasts with the 100% available to home owners. This Loan To Value (LTV) ratio has increase some what in the last few years and now stands at a maximum of 90%.
Here at Property Hawk we have been saying for years that the logic behind this charging policy was crazy. Let’s face it; who is more likely to struggle with their mortgage payments. A homeowner who has to pay the entire cost out of their wages; or an investor that in most cases has a large part if not all of the mortgage paid for by the rent. This view is backed up by the statistics. In the second half of 2006 arrears on buy-to-let according to the Council of Mortgage Lenders were just 0.59% of total buy to let loans compared to 0.89% in the wider market.
Good news for landlords
This apparent ‘reality check’ by lenders and an increasingly competitive lending market is all good news for landlords. “The market has become hugely more competitive” comments David Hollingworth of broker London & Country, adding that dozens of lenders were now chasing buy-to-let mortgage customers. The result according to Ray Boulger of mortgage brokers John Charcol is that “the cheapest buy-to-let deals are now in line with the mainstream market”
The latest rates on Property Hawks BTL Mortgage search show that it is now possible to obtain a two year discount rate for less than 5%.
This is way below the standard variable rate for a standard residential mortgage of between 7.25 & 7.4% and even below the current Bank of England Base Rate of 5.25%. The draw back with discount schemes is that there is normally a ‘lock in’ that requires the borrower to pay a penalty if they move lenders within a specified time after taking out the loan. A way of avoiding these fees, but still obtaining a discounted rate is the Lifetime Tracker. One is currently available through our FREE BTL Mortgage search with a very attractive rate of 5.8% or 0.55% above the current base rate. The advantage with this particular product is that there is no ‘lock in’. This gives landlords complete flexibility to sell their property or remortgage should their circumstances change.