The mortgage price war has brought some much-needed good news for landlords, who like residential homeowners have been hit with steeper mortgage costs over the past year. More than 20 lenders, including Metro Bank, Paragon Bank, HSBC and Coventry Building Society, have announced reductions to their Buy to Let fixed mortgage rates, with the cheapest five year fixed rate deals now below 4%, albeit with some hefty arrangement fees. Rates are reducing because lenders base their fixed rate mortgage pricing on expectations of where the Bank of England base rate is headed. Many commentators expect the base rate to be cut in coming months, although latest inflation numbers have made it less likely that this will happen imminently. Landlords have had to contend with a series of tax changes in recent years which have bumped up their costs, along with rising rates. These changes include a 3% surcharge on stamp duty rates introduced in 2016 for those buying investment properties or second homes, and a reduction in mortgage interest tax relief. Falling Buy to Let mortgage rates therefore are especially welcome for landlords looking to keep costs down.
Which type of mortgage should landlords choose?
If you haven’t reviewed your Buy to Let mortgage options recently, or your current Buy to Let deal is coming to an end in the next few months, the current price war means that it’s well worth exploring your options sooner rather than later. A good starting point is to ask your current lender what sort of remortgage deals they might be able to offer you. You can then compare these against remortgage deals from other lenders to see whether better rates are available elsewhere. You can do this using our Buy-to-let mortgage finder tool. If you’re worried that rates could rise again, especially following the surprise increase in inflation, you may want to consider locking into a fixed rate Buy to Let mortgage.
This can provide valuable peace of mind that monthly mortgage payments will remain the same even if interest rates go up. Five-year fixed rates offer longer-term stability and typically use lower stress rates, so can work better for affordability. If you think rates are likely to come down in the foreseeable future, a two year deal will allow you to keep an eye on the changing market and then remortgage in a couple of years to a potentially more favourable rate. Landlords who are comfortable with their payments fluctuating may instead prefer to go for a tracker rate mortgage, which tracks the Bank of England base rate plus a set percentage.
The main advantage of this type of deal is that if the base rate is cut, you’ll be able to benefit from lower payments straight away. However, the reverse is also true, so if the base rate rises, your payments will increase too. Remember that whichever type of Buy to Let mortgage you’re considering, it’s vital to factor in the overall cost of any deal including any arrangement fees, as these can sometimes amount to a considerable sum.
