What's happening to buy-to-let mortgage rates?

Buy-to-let mortgage rates are retreating from their peak, but landlords are continuing to face high interest and hefty fees.

Landlords looking to expand their portfolio or remortgage have been left feeling the squeeze due to sky-high rates, and while these have been gradually trickling down this winter, the market remains volatile.

Here, we explain why mortgage rates rocketed last year, what's happening now and highlight the best deals on the market.

Why did buy-to-let mortgage rates rise so steeply?

Rates for buy-to-let properties had already been climbing throughout past year, but rose sharply following the government's mini-budget in September.

Some of the announcements resulted in a dramatic drop in the value of the pound, which in turn sparked fears that the cost of borrowing would increase more steeply than expected. As a result, many mortgage lenders pulled their deals and those that remained had inflated interest rates.

As the situation stabilised, deals gradually began returning to the market and we have since seen BTL mortgage rates slip. However, rates are still far higher than this time last year.

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What is happening to buy-to-let mortgages?

There have been three consecutive month-on-month falls from a peak of 6.76% in November, but the figure remains high compared to 12 months ago, when the average rate stood at 3.2%.

The graph below shows what's happened to average buy-to-let mortgage rates over the past year.

Will buy-to-let rates get cheaper?

Experts predict the average BTL mortgage rate will continue on its downward trajectory but it's hard to know how far they could fall.

Despite another rise in the pipeline, lenders are likely to have taken future base rate rises into account with their current offers, so further hikes aren't anticipated to have a significant knock-on effect on fixed-term rates.

But that's not to say landlords won't feel a big pinch when they come to remortgage. Those with expiring fixed-rate deals secured when rates were much lower, could be in for a financial shock when securing a new deal over the next few months. 

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Best rates on buy-to-let mortgages

Landlords currently have 1,689 mortgage deals to choose from, with a number of smaller deposit deals - up to 80% loan-to-value (LTV) - now on the market.

Looking at average rates gives us a general idea of what's happening in the market, but when you're taking out a mortgage you'll want to get the cheapest deal you can.

While deals can look cheap compared to a few months ago, the best deals all come with substantial upfront fees, which can cost thousands of pounds. The Mortgage Works, for instance, offers some of the best rates, but charges at least 3% of the mortgage amount, rather than a flat upfront fee.

This is an example of why it's important to look at the overall cost of the mortgage rather than focusing solely on the initial rate when comparing deals.

Two-year fixes

Five-year fixes

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Are landlords selling up or staying in the game?

Landlords sold 35,000 more properties than they bought in 2022, with the rental sector losing an average of 66 properties a day last year, according to analysis by agents Hamptons.

Looking ahead for this year, this trend may not continue. Research by mortgage firm Landbay reveals that seven out of 10 buy-to-let landlords do not intend to sell any of their properties in 2023.

Despite high mortgage rates, the demand for rental properties remains high, so landlords have a continued appetite to remain in the market.  

Paul Brett, Landbay’s managing director of intermediaries, said: 'Rather than a ‘mass exodus’, this latest data shows a real statement of intent among landlords to not only maintain their existing portfolios, but to expand. 

'This is hugely encouraging given the myriad of challenges facing landlords and the wider buy-to-let sector. Landlords will be encouraged by the news of rates trickling down recently.'

Landbay's survey data also shows that, of those intending to sell up, almost half of landlords said their decision was down to interest rates, while one in five said the rent they receive doesn’t cover their mortgage costs. 

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Mortgage rates aren't the only hot topic...

As well as high mortgage rates, BTL landlords are facing some tricky legislation changes.

Despite a seemingly bleak outlook, buy-to-let landlords may be encouraged by the continual rise in rental costs. Data from Hamptons shows rental growth in January was the sixth-strongest month for annual growth since the estate agent began its Monthly Lettings Index in 2014.  

Rents rose by an average of 8.3% in the past 12 months, with every region recording hikes. The Midlands and North of England reported the highest rent rises, at 11.2% and 11% respectively.

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Advice on becoming a landlord

source https://www.which.co.uk/news/article/whats-happening-to-buy-to-let-mortgage-rates-aPCwx0Y6FH3h