Low Cost BTL Finance
One of the good things about the improving buy-to-let finance market is the return of some low cost or no cost buy-to-let mortgages.
A feature of BTL finance in the recent years has been the arrival of ridiculously high set up and application fees. These have been advantageous to lenders both to tie borrowers in and also ensure that they were safeguarded against defaults and a sudden rise in interest rates.
Paying these very high fees feels very much like paying out a lot for nothing for many frustrated landlords. Seriuosly, how much does it actually cost to process a mortgage application? Surely not the thousands of pounds that some of these fees indicate!
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The recovery in the buy-to-let finance and increasing competition between lenders has thankfully led again to the arrival of the no cost and incentive mortgages that were last seen during the noughties finance boom.
No cost buy-to-let mortgages
One of the UK’s biggest buy-to-let lenders the Mortgage Works has been one of the first of the mortgage providers to offer these types of deals. They have recently launched two fee free products, both accompanied with a free valuation. Both mortgages come with an interest rate fixed until February 2013. Rates differ because of the maximum loan to value (LTV) that the lender is prepared to advance. The 5.94% fixed rate mortgage is available up to a 60% LTV; whilst if a landlord can only put down a maximum of a 25% deposit the rate rises to 6.24%.
Another fixed rate buy-to-let mortgage available up to February 2013 is with the nationalised lender Northern Rock. This product again offers a fee free mortgage with an LTV this time of 70%. The interest rate charged on this mortgage is 6.39%. The lender also offers landlords a Rapid Mortgage Legal service from £250.
The other major costs faced by landlords when they take out a BTL mortgage are the valuation and legal fees. Godiva, the specialist lending arm of Coventry Building Society is offering free valuations and legal fees for buy-to-let mortgages on its 4.75% term tracker mortgage. The LTV on this mortgage is limited to 60%, so it wouldn’t be suitable for those landlords with only a small deposit to put down. It also comes with an application fee of £800 plus a booking fee of £250. However, one thing to note about the Godiva product is that at 5.0%; it has the lowest APR or Annual Percentage Rate of all the no fee products. This compares against 5.4% for the Mortgage Works buy-to-let mortgage.
The importance of APR
Any landlord looking at their long term buy-to-let finance costs should pay particular attention to the APR. This measures the annual cost of finance taking into account of fees and incentives.
Andy Young, chief executive at Property Hawk Mortgages comments: ‘As the number of lenders and products has gradually grown over recent months, there is now increased competition in the buy-to-let mortgage market. Many lenders are pricing their products more keenly or trying to attract landlords with no fee deals and other incentives, such as a free valuation or free legal costs. However, for property investors looking to pay the minimum upfront for a buy-to-let mortgage, it is advisable to also look at the cost of the mortgage over the medium to long term as some products with higher fees are cheaper overall. It is also worth bearing in mind that many buy-to-let lenders allow the completion fee to be added to the loan so you can avoid paying it upfront.’
Low APR products
Landlords looking at keeping their costs low over the lifetime of the mortgage should focus on the Annual Percentage Rate (APR) as a key factor in deciding which mortgage to go for.
One of the lowest APR products available at the moment according to Property Hawk Mortgages is the Woolwich 5.29% fixed until March 2013. The mortgage has a low LTV at 60% and an application fee of 1.5%. The APR for this buy-to-let mortgage is only 3.7%.
The reason the APR is so low is because of the low reversion rate on this product; at only 2.49% above the base rate for the term of the loan. Landlords when choosing their buy-to-let mortgage should pay close attention to the reversion rate to ensure that the long term finance costs being offered by their lender is competitive.
Other low APR options available are with the Mortgage Works which is offering a buy-to-let mortgage with an APR of 4.5%. This 3.89% tracker buy-to-let mortgage is available up to 70% LTV and is on a rate fixed at 3.39% above base until 29/2/12. The downside is the completion fee of 3.5% of the loans value.
These latest buy-to-let mortgages prove that there are affordable deals out there for landlords; especially if they have a reasonable deposit to put down.
In the current climate of falling property prices,and strong tenant demand bringing rising rents we are seeing opportunities to purchase rental properties that are achieving a gross yield of above 8%.
Even where the property is purchased with mortgage finance; properties purchased on these types of yield will generate significant rental profits. I’m again starting to look at rental opportunities. It may not be quite a time to fill your boots with property as economic uncertainty is still rife, but that said will landlords look back in a few years at these mortgage rates and say? “That was the time to buy!”
If you are looking for mortgage finance to assist your investment then do try the Property Hawk Mortgages search facility…….it’s a free whole market search facility backed up by expert advice and updated automatically as each new product arrives on the market.
If you have any comments on the service so that we can continue to evolve and improve it.
Remember; our buy-to-let mortgages are all available without a brokers’ fee; so you won’t be paying for advice on top of any application costs.
One word of warning, the fast moving pace of the buy-to-let mortgage market; means that often the best deals don’t stay around for long so it’s probably best to check with our advisors to make sure rates are available and book them before the rates are changed or mortgage products removed.
Get BTL Mortgage Advice – TEL 029 2069 5446