Landlords seeking to grow their portfolio with a brand new property is going to be buoyed by news that buy-to-let mortgage rates are becoming cheaper.
The average rate for fixed-term buy-to-let deals dropped to three.26% in April, from 3.29% recently, according to figures from financial analysis provider Moneyfacts.
Which? has analysed the marketplace to obtain the cheapest deals for would-be and current landlords, most of which offer an initial rate of under 2% on the fixed two-year period. But of course, your rates are not the only thing you should think about when trying to get a mortgage.
We outline the lowest-rate offers and the potential drawbacks when purchasing an investment home.
Best buy-to-let mortgage rates
An aspiring property investor will have to take out a professional buy-to-let mortgage deal. Typically, you’d require a deposit with a minimum of 20% to 25% around the worth of the house – meaning a an LTV of at least 75%.
Which? has analysed Moneyfacts data to find the best fixed-term deals for landlords at 75% ltv (LTV) ratio.
Here are the most useful current buy-to-let deals at 75% LTV over a fixed period of two years and five years.
If you’re seeking to expand your portfolio, you may have a bit more cash available – and also the larger your deposit as area of the price, small your rate tends to be.
Which? looked the best 60% LTV deals, in which a landlord would need a deposit for 40% for the home.
Here are the best current buy-to-let deals at 60% LTV over a fixed period of two years and 5 years.
Will you receive the lowest buy-to-let mortgage rates?
The lowest mortgage rates aren’t necessarily going to be available to everyone. Lenders will access the application according to what you could afford, and how high-risk you're like a borrower.
The lender will even look at your interest cover ratios (ICRs), which is the minimum rental income your home must generate as compared to your mortgage payments.
Most lenders may wish to see an ICR of 145%, meaning your rental income covers your mortgage payments, plus an additional 45%. However, it may be easy to find lenders prepared to accept an ICR as low as 125%, depending on the rest of the application.
Some deals will even place a limit how many mortgaged properties you can own, or how much you've outstanding on loans overall. If you have a bigger portfolio, you may need to apply to a specialist lender, a few of which offer loans to owners of as much as 10 properties – although the rates you have to pay may be higher than the cheapest available on the market.
The video below shows how buy-to-let mortgage deals work.
Don’t forget to remortgage
Most mortgage rates will only apply for a limited period. When this concludes, you’ll move onto your lender’s standard variable rate.
This rate can increase at any time. As it’s typically far greater than your previous interest, your monthly repayments could increase significantly.
While the average buy-to-let fixed term rates are currently 3.26%, the typical SVR stands at 4.89%, that could add hundreds for your monthly repayments.
To avoid this sharp increase, you should keep an eye on whenever your mortgage deal is expiring and look to remortgage to a different deal.
If your home has grown in value (or you’ve been making capital repayments), you may also be able to start a lesser LTV, which would generally have a lower rate. But don’t forget to element in any fees that you’ll pay to remortgage.
Should you use a mortgage broker?
The majority of buy-to-let deals are only available through mortgage brokers or advisers, so you may be passing up on the best offer for you personally by going direct for your bank.
Currently, around three in five fixed-term buy-to-let mortgage deals on Moneyfacts are available only through brokers.
In comparison, just one in seven of the 1,988 deals are now being sold exclusively to customers who go to the lender directly.
A large financial company can help you find the best deal for your circumstances and identify the lenders most likely to simply accept you. In some instances, an agent might be able to speed up the application by dealing with paperwork for you.
However, remember that some brokers is only going to recommend mortgages that are offered from the certain panel of lenders or from their own range of products, so it’s important to chose an adviser who's whole-of-market.
