Buy-to-let mortgage rates are on the rise, as lenders begin to pass on the cost of four increases to the Bank of England base rate.
Average rates on two-year deals have reached the highest levels seen since September 2015, after three months of sharp increases.
Here, we explain what's happening to the buy-to-let mortgage market and offer advice on whether now is a good time to be a property investor.
Buy-to-let mortgage availability improves
Landlords have significantly more mortgage options than this time last year, according to new research by Moneyfacts.
The number of deals on the market has risen by more than 1,000 since May 2021, meaning landlords now have 3,374 mortgages to choose from.
This figure is also significantly higher than before the pandemic, when 2,897 buy-to-let mortgages were available.
- Find out more: buy-to-let mortgages explained
Mortgage rates rise amid base rate hikes
More choice often means better deals, but the bad news for landlords looking to take out new mortgages, or refinance their portfolios, is that rates are rising.
This has largely been sparked by four increases in the Bank of England base rate since December 2021. The base rate dictates the cost of borrowing for lenders, and has risen from 0.1% to 1% in the past five months.
Average mortgage rates have been rising steeply for the past three months. The average two-year fix is now priced at 3.41% - 0.51% higher than in December - while the five-year average is now 3.56%, a 0.38% rise since the first base-rate hike.
The chart below shows average two-year and five-year buy-to-let rates for the past three years.
Landlords with smaller deposits see rates fall
Deals for landlords with smaller deposits are bucking the trend. Typically, the highest level of borrowing offered to landlords is 85% loan-to-value, and rates tend to be much higher than those for investors with bigger deposits.
There are currently 79 mortgages available at 85% loan-to-value, only one fewer than last month, which saw the highest number of deals available since May 2008.
The 85% loan-to-value sector of the market is the only one where rates have fallen since December. The average two-year fixed rate has dropped from 5.17% to 4.80%, while the average five-year fixed rate has dropped from 5.22% to 4.93%.
This trend mirrors the owner-occupier mortgage market, where low-cost deals for borrowers with big deposits were the first to be affected by the base-rate hikes, while low-deposit mortgage rates remained relatively static.
The best rates for buy-to-let landlords
The cheapest rates for landlords taking out a 60% mortgage are around 2%-2.3% for a two-year fix, or 2.3%-2.6% for five-year fix.
Rates are slightly higher at 75% loan-to-value, where you can expect to find deals priced at 2.2%-2.4% on a two-year fix or 2.5%-2.8% on a five-year fix.
These rates show that while low-deposit deals at 85% loan-to-value are falling in cost, they're still around double those available for investors with bigger deposits.
Fees on buy-to-let mortgages
The above figures give an indication of the kind of rates you might be able to get on a buy-to-let mortgage, but you'll need to watch out for additional costs.
Buy-to-let mortgages tend to come with higher up-front fees than owner-occupier deals. Flat fees of £1,495 and £1,999 are common, but some lenders instead charge their fee as a percentage of the mortgage.
Right now, the top-rate 60% mortgage from The Mortgage Works (owned by Nationwide) comes with an arrangement fee of 2% of the mortgage advance. This means you'd need to pay a fee of £4,000 on a £200,000 mortgage.
Fee-free buy-to-let mortgages are uncommon, so you'll need to compare whether a higher fee outweighs a lower rate. If you're unsure, it's worth taking advice from a whole-of-market mortgage broker.
Is now a good time to be a property investor?
It's a complicated time to be a property investor, with soaring house prices, upcoming rental and energy-efficiency reforms, and the impact of the pandemic all placing pressure on profits.
Despite this, there are signs that buy-to-let investment is on an upward curve. Research by the estate agency Hamptons found that the first three months of 2022 had been the most active for landlord purchases since 2016.
In the first quarter of the year, 14% of all properties bought were buy-to-lets, up from 12% a year ago. Landlords targeted regions with cheaper property prices, such as the North East of England, where 28% of all purchases were for investment purposes.
If you are thinking of investing in buy-to-let for the first time, it's important to get your head around the rules and do plenty of research on capital growth, yields and taxation before taking the leap. As a starting point, check out our guide on becoming a landlord.
- Find out more: 11 things landlords need to know in 2022
source https://www.which.co.uk/news/article/whats-happening-to-buy-to-let-mortgages-for-landlords-aH8WH3b4ajdv