landlord property investment

Falling rates buoy buy-to-let mortgage market for landlords

Brokers are expecting the buy-to-let market to become even more competitive this year, with one in five lenders expecting to introduce more buy-to-let business during 2020.

The buy-to-let sector (BTL) has been buoyed in recent months with falling mortgage rates, and the competition between lenders shows no sign of abating, according to a study by Paragon Bank. Further research by has found that the average rates charged on two- and five-year fixed rate BTL mortgages have fallen by more than a 0.25% year on year since 2015.

In February 2015, the average five-year fixed rate was 4.39%, while today it sits at 3.20%. Likewise, the average two-year fixed rate has fallen from 3.5% to 2.75%.

Rachel Springall, finance expert at Moneyfacts, said: “It’s encouraging to see that, despite economic pressures, the buy-to-let market is expected to grow in 2020.”

Changing property investment landscape

Lenders are expecting landlords to be looking to reduce their monthly loan repayments as a result of the phasing out of the mortgage interest tax relief by April this year. Landlords will no longer be able to deduct mortgage expenses from rental income to reduce their tax bill, which for many means less rental income and a bigger tax bill at the end of the year.

With squeezed profit margins, landlords will be looking to make savings wherever they can, and lenders are continuing to work hard to entice landlords to their books.

Significant savings for landlords

According to Moneyfacts, a landlord looking to switch deals could make a good saving on their monthly payments. A landlord coming to the end of a five-year fixed term this year will find that the average rate has dropped by a significant 1.19%, saving them a considerable amount. This would equate to a difference of £1,947 a year in monthly repayments if a landlord were to take a loan of £250,000 on a 25-year term compared to back in 2015 for the same amount and term.

Springall adds that “…optimism for 2020 appears resilient and lenders are clearly working hard to entice prospective borrowers”.

Today, landlords with a maximum 65% loan-to-value (LTV) could secure a five-year fixed rate from The Mortgage Works for just 1.59%, with a 2% product fee, or at 75% LTV a rate of 1.89% plus 2% fee.

In fact, the evidence suggests that landlords are already taking advantage of the competitive market place. Paragon Bank found that 61% of buy-to-let landlords that took part in their research had obtained a new deal by remortgaging during the last quarter of 2019 to secure a better rate.

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