Buy-to-let mortgage market update: cheap rates are still available
With Brexit and further interest rate rises on the horizon, is now still a good time for investors to pick up a buy-to-let mortgage bargain?
As the buy-to-let market has continued to expand in recent years, so has the specialist buy-to-let mortgage sector. It’s estimated that over 50% of landlords have a buy-to-let mortgage and it’s therefore no wonder lenders continue to reduce rates and launch new products to cater for rising demand. Figures from Mortgage Brain show that the number of buy-to-let mortgage products rose by 28% over the 12 months to December 2018, reaching a record high of 3,652. It’s been well-documented that this increased competition between lenders, combined with record low interest rates, have made the last few years a great period in which to take out a buy-to-let mortgage. But will these favourable conditions continue in 2019 and are there still deals to be had for savvy investors?
Mortgage market overview
Throughout last year and now in the early stages of 2019, the buy-to-let mortgage market appears to have continued to favour property investors with low rates and an increasing range of free products. According to analysis by Property Master, the typical rates of two, three and five-year fixed-rate buy-to-let mortgages for an interest-only loan of £150,000 have fallen consistently over the last year. The online mortgage broker reports that year-on-year savings for some landlords could be worth up to £350 on an average £150,000 interest-only buy-to-let mortgage. Due to market uncertainty and ongoing Brexit issues, many landlords are opting for five-year fixed deals to protect themselves against unexpected or significant rate rises.
Interestingly, Property Master’s research shows that the average rates for these mortgages have been falling most consistently. In January, the average five-year fixed-rate offers for 50%, 65% and 75% Loan-to-Value (LTV) mortgages offered monthly savings of £8, £29 and £21 respectively. Meanwhile, Mortgage Brain analysis found that the costs of 70% LTV two and three-year fixed mortgages and 80% LTV five-year fixes all came down by 2% over the final quarter of 2018.
Lenders continue to cut rates
So far already this year, a number of high-profile lenders have announced rate cuts to their buy-to-let mortgage products. NatWest has cut its remortgage rates on two and five-year fixed-rate deals. It has also reduced rates and fees on selected 60%, 70% and 75% LTV deals. Leeds Building Society, meanwhile, has doubled the cashback incentives available on selected two and five-year fixed-rate buy-to-let mortgages from £500 to £1,000. On top of this, in early January Barclays Mortgages announced that it had made a number of rate reductions across its range of buy-to-let mortgage products. The rates for the lender's fee-free 75% LTV purchase and remortgage products have been cut to 2.66% for a two-year fix and 2.99% for a three-year fix.
How long will cheap rates last?
Rates have remained competitive in recent years predominantly thanks to the Bank of England's base interest rate hovering at record low levels. The current base rate is 0.75%, following 0.25% increases in November 2017 and August 2018. Experts believe that while many lenders were able to absorb two small, incremental interest rate rises in a year (and in some cases offer lower rates), if the base rate continues to move upwards, lenders' buy-to-let mortgage rates may well follow suit.
"The bumpy road of Brexit may see the base rate brought down slightly, once things settle, but I think it is unlikely and, in any event, there is not too much scope for reduction," says Andrew Turner, chief executive of specialist buy-to-let firm Commercial Trust Limited.
"My view is that the overall picture for the next decade is a gradual upward trend in rates."
He says that landlords who are concerned about long-term rental market conditions should fix now at a competitive low rate in order to give themselves a significant level of security through 'turbulent times'.
Turner says that while increased competition has pushed the costs of buy-to-let mortgage products downwards, the headline discounts on rates and free incentives do not always offer the 'full picture'. He adds that the huge increase in available products has made the market more complex for investors to navigate. As we move through 2019, it does however remain a beneficial time to take out a buy-to-let mortgage or remortgage any existing deals. Industry experts are still advising investors to take advantage of low rates on long-term fixes while they can as further interest rate rises in the next few years are inevitable. Before committing to any mortgage deal, it's important to assess all the options available and do your research on every aspect of the deal from its upfront and monthly fees to its overall term and cost.