BTL Finance Update

Any landlord who might have landed on earth after being away for a few years would not recognise the current BTL lending environment.

They would have left for their interstellar adventure in an environment where lenders were showering them with buy-to-let mortgages and they literally couldn’t move with offers of cash. Loans were generally available up to 85% loan to value.

Now if landlords are looking to access some of the best rates, the loan to values have fallen to only 60%, which is worst than they were prior to the introduction of the whole buy-to-let initiative in 1997.

With the current desert in buy-to-let lending, Property Hawk has decided to dip it’s toe into the lending market to find out what is currently available.

A market flyby…..

High LTV

The reality now is that a landlord will have to get down on bended knee to obtain a LTV of greater than 70%. They are available but a landlord is going to have to pay for the pleasure.

The best 75% rate is currently available through BM solutions which offer a 4.7% two year tracker with a £1500 arrangement fee. For those of the green persuasion who are looking at renovating a property and bringing it back into reuse the Ecology building society are prepared to offer a loan up to 80% loan to value at a pay rate of 4.9% for the term of the buy-to-let mortgage. The application fee is also a very reasonable £350.

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Fixed rate

The best fixed rate currently on offer is a 3.69% fixed rate offered by the Mortgage Works fixed for a year with a 3.5% fee. The downside with this product is that the loan is only available up to 60% LTV. A more attractive option could be the 3 year fixed being offered by Whiteaway Laidlaw. The pay rate is a reasonable 4.94% and the product comes with a 2.5% fee.

For landlords looking to minimise their exposure to any jumps in interest rate the same lender also does a five year fixed rate product at 5.99% with a £999 application fee. The buy-to-let mortgage product is available up to 70% LTV.

Variable rate

Again the leading headline rate for a variable buy-to-let mortgage is from the Mortgage Works. The product is a base rate tracker plus 3.19% to the end of September 2009 with the pay rate being 3.69%. This is only available to 60% of LTV although there is no limit on the portfolio size a landlord can have. As with many Mortgage Works products the fee is charged as a percentage of the advance, in this case 3.5%. This makes the fee pretty reasonable for a small buy-to-let loan but significant if larger sums are sought. The rate reverts to the Mortgage Works Managed rate currently 4.69% variable on expiry of the discount.

For those landlords looking at a slightly longer tie in. Birmingham Midshires Solutions is doing a 2 year tracker with a headline rate of 4.10% and a 3% plus £275 application fee. Again the LTV is pretty modest at 60%.

Cheltenham & Gloucester like Birmingham Midshires part of the Lloyds banking group will offer a more generous LTV of 75% on their 4.99% base rate tracker linked until the end of January 2013. The fee for this product is 2.5% of the advance plus £99.

The problem for many new landlords is that the best of the rates are only available to so called professional landlords and not first time buy-to-let purchasers.

Swap rates- could hold the secret

Landlords looking at reading the lending ruins as to where buy-to-let lending rates will go next should have a look at SWAP rates. These financial derivatives give an indication of where the market expects interest rates to move to over time.

Recently SWAP rates which jumped after the credit crunch have now fallen and stabilised in a way that indicates the money markets expect interest rates to stay relatively low for several years to come.

Rates currently indicate that the market expect the base rate to remain below 2% for two years, moving above 3% within a 5 year timeline.

However, landlords should not get SWAP rates confused with the pay rate they have to pay on a buy-to-let mortgage. The SWAP rate reflects the interest rate in the money market and closely mirrors the base rate. A landlord is buying a retail product and will have to pay any lender a margin. Since the credit crunch this margin has grown massively from a few tenths of one percent to typically between 3-5 % on many buy to let mortgage products. A more reasonable long-term average would be between 2-3 % meaning that in my view anything less than 6% is not a bad long-term buy-to-let mortgage rate.

Finding the best deals

A few years ago landlords looking for the best deals would almost certainly need a mortgage broker to hold their hand through the search process of evaluating thousands of buy-to-let mortgage products. Now with less than a hundred it’s possible to do it all yourself.

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Not all buy-to-let mortgages are available direct to landlords, although many are. Many buy-to-let mortgage brokers are now charging a substantial fee to find a mortgage. There are some advantages of using a mortgage broker however. Namely they will know which ones are easier to deal with and which ones will make a landlord jump through rings of fire to secure a buy-to-let mortgage.

However, with the present dirth of lending, many landlords would be forgiven for thinking that the best option might be to be beamed back aboard the mothership and going away for another five years. By which time the BTL lenders may have a few more attractive deals on the table.