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Buy-to-let mortgage rates hit record low

Posted 15 March 2017 by Keith Osborne

Landlords have received some positive news - a rarity! - as mortgage rates in the buy-to-let sector have reached a record low, accofrding to official figures...

It's been a tough few months to be a landlord. Changes to stamp duty, tax rules and borrowing criteria have all hit buy-to-let investors, while changes to the way that lenders determine loan sizes has made larger mortgages harder to come by.

There was some good news for landlords this week, however, as official figures show that buy-to-let mortgage rates have hit a record low.

Average buy-to-let deal falls more than 0.5% in a year

The latest figures from the Bank of England show that the average two-year fixed-rate buy-to-let mortgage deal fell to a record low in February.

Data shows that the average rate is now 2.76%, lower than the 2.82% recorded in January. February's average is the lowest rate seen in the past year, and the lowest rate since the bank began recording rates in January 2012. A year ago, landlords were paying an average of 3.29%.

This Is Money reports that “the fall in mortgage rates offers some respite to landlords, who are about to see changes to mortgage interest tax relief eat into their profits, as after April it will begin to step down from full relief on income tax to a maximum of 20%.”

Mortgage expert Steve Olejnik, says: "While these falls do not entirely mitigate the financial impact of the regulatory changes to the sector, they do provide some breathing room."

While two-year deals have fallen to a record low, could a longer-term fixed rate be a better choice for landlords?

Would a long-term fixed rate be better for landlords?

Many landlords choose a five-year fixed-rate mortgage because it provides payment security for the medium term. However, there is also another key advantage to taking a five-year deal.

Many lenders do not apply the strict 'rental income ratios' to five-year deals. This is because Prudential Regulation Authority rules only require that lenders test an applicant's ability to meet increased mortgage payments in the next five years. The rule does not need to be applied to five-year (or longer) rates.

In addition, five-year deals mean that landlords avoid paying the high arrangement fees associated with two-year deals - particularly if they plan to remortgage regularly.

While a five-year deal may mean you can secure a larger mortgage, it could come at a price. Data from a leading broker suggests that the average five-year fixed-rate buy-to-let mortgage stood at 3.77% in February - a full 1% higher than the equivalent two-year deal.

In addition, landlords on a five-year deal will face early repayment charges for the full period, meaning that if the mortgage were to be redeemed within five years there could be significant costs.

Olejnik adds: "Although cheaper rates are definitely a positive for landlords looking to grow their portfolios, the broader regulatory environment is challenging. In order to reduce their tax liabilities, landlords should always speak to a professional tax adviser."


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