Landlords seeking a new buy-to-let mortgage in October will notice another overall rate fall in the market, easing cost pressures – albeit marginally – for many.
The average two-year buy-to-let mortgage across all loan-to-value (LTV) ratios fell at the start of October to 6.40%, from 6.64% last month, according to Moneyfactscompare.co.uk, as part of a series of monthly drops across the sector. This will certainly be a welcome trend to any landlords who are set to remortgage, and indeed new investors seeking loans.
Although rates across both the buy-to-let and the standard residential market remain significantly higher than their historic lows pre-2021, the fact that rates are moving in a positive direction for borrowers is likely to increase confidence once more for property owners.
What’s more, the number of products available from lenders in the market has also been on the rise, meaning a greater range of choice and competition for landlords. The total buy-to-let mortgage product count, says Moneyfacts, is now 2,581 – up from 2,475 in September and just 988 in October 2022.
As Rachel Springall, finance expert at Moneyfactscompare.co.uk, points out, the interest rate drop as well as the boost in mortgage deals are both “encouraging signs for landlords looking to refinance who may have been concerned about rates escalating”.
What’s the best buy-to-let mortgage option?
At the moment, Moneyfacts’ research shows that the cheapest overall buy-to-let mortgage rates are for five-year fixed rates, where landlords with a 40% deposit can now obtain an average rate of 5.70%. This is down from 5.95% last month.
For those who need to borrow more to fund their property investment, rates have also improved and the average has now fallen back below 7%. For example, those seeking to lock in for five years with 80% LTV (a 20% deposit) will see average rates of 6.84% now, down from 7.09% last month.
Landlords who can stretch to an additional 5% for their deposit will see rates jump down even further for a five-year fixed product, to an average 6.36% compared with 6.57% in September.
Meanwhile, although two-year fixed products are currently the priciest when it comes to interest rates, they have also become more competitive. If you can stump up a 40% deposit, your average two-year fixed rate is now 6.09%, while those with just a 20% deposit can now get an average rate of 6.95%.
More deals, more choice
At the moment, there are significantly more buy-to-let mortgage deals for five-year fixed terms than for two-year fixed terms. Across all LTVs, there are a huge 1,136 five-year products available as of the start of October, while there are only 773 two-year fixed rate products.
This could explain why competition is higher, and therefore rates are lower, across five-year fixed rate mortgages right now. By comparison, in October 2018 – which could be considered a more ‘normal’ market – there were 696 five-year products, and 649 two-year products, so the numbers were much more evenly matched.
Regardless of the drop in rates, the buy-to-let mortgage market is of course more challenging now than it was before interest rates began to soar, with some landlords finding that rates have roughly doubled compared to what they were paying.
As Springall points out, those looking to lock into a buy-to-let mortgage for five years now with a 75% LTV will find rates to be at their lowest point now since June 2023, while product choice in this arena is at its highest level on record.
She concludes: “The enticement to invest for new landlords is prevalent, as rental growth on a newly let property hit 12% across Great Britain, according to a study by Hamptons, which also cited the long-term decline in rental stock will continue to underpin future rental growth.
“The months ahead for the buy-to-let sector are crucial, so any investor would be wise to seek advice before they commit and be conscious of any rental expectations amid rising costs. Providers will need to carefully balance supporting their existing customers and work hard to entice new business to encourage an optimistic outlook for investors in the months ahead.”
