Real Estate

Mortgage rate war reaches buy-to-let landlords

Mortgage lenders are cutting interest rates for Britain’s buy-to-let investors as ferocious competition on low-price deals spreads beyond the mainstream market of residential owner-occupiers.

The Mortgage Works, the buy-to-let arm of Nationwide building society, last week launched a 0.99 per cent two-year fixed-rate deal for individual buy-to-let borrowers, not available to those who own through a limited company.

Borrowers are charged a 2 per cent arrangement fee, rather than the more usual flat rate, favouring those seeking lower levels of funding.

Platform, the arm of the Co-operative Bank that lends through mortgage brokers, launched a 1 per cent two-year deal for landlords at the end of September for those with a deposit of at least 40 per cent, and a fee of £2,495.

Gatehouse Bank, which offers sharia-compliant mortgages, this week reduced its rates, known as rental rates rather than interest rates, by up to 0.45 percentage points on fixed-rate deals up to five years.

“The interest charged on buy-to-let mortgages is falling, with the average overall two- and five-year fixed rates dropping by 0.03 per cent and 0.04 per cent this month,” said Eleanor Williams, finance expert at Moneyfacts. The sector had recovered rapidly from the pandemic, she said, with the number of buy-to-let mortgage deals now exceeding those available in March 2020.

Buy-to-let rates are historically higher than those charged on residential mortgages, but the difference has narrowed over the past few years, as more lenders entered the market and competed on rates.

Dan Clinton, head of The Mortgage Works (TMW), said the buy-to-let market had fragmented under tax and regulatory changes that favoured the growth of a specialist segment of portfolio or professional landlords, who typically owned their properties through a limited company.

Rates charged to these professional landlords are higher — the lowest offered by TMW is 3.09 per cent — because lenders face a more complicated task in assessing the loan as part of a portfolio of properties.

But Clinton anticipated increased competition in this area as high street lenders scrap for business. “I’d expect some of those lenders to enter that market. It’s inevitable at some stage.”

The most significant long-term tax change was the four-year phased removal of landlords’ ability to deduct mortgage interest from rental income, which completed this year. This prompted landlords to move to limited company ownership, which allows for such deductibility.

Chris Sykes, mortgage consultant with broker Private Finance, said that when the policy change came in most limited company buy-to-let mortgages had interest rates at around 3.5 per cent. “There are now several options at sub 3 per cent, with even some of the more specialist limited company lenders having rates in the low 3 per cent range . . . Lenders have become more flexible as they compete for this business.”

Sales in the investment market have been muted over the course of the recent stamp duty holiday in England and Northern Ireland, which prompted a “race for space” among owner-occupier purchasers.

Aneisha Beveridge, research director at estate agent Hamptons International, said investors were registering their interest in buying with a greater frequency than those in the wider market over the past four months. “[But] they’re getting priced out of the market by movers who are prepared to pay more for their new home due to pandemic-induced lifestyle changes,” she said.

The average price paid by investors on the agent’s books had risen by only 1 per cent over the stamp duty holiday, compared with a rise of 10 per cent in average house prices over the period. “Overpaying really eats into [landlords’] yields,” she said.

Clinton of TMW said landlords had been forced to absorb a host of regulatory changes in recent years but the market had remained resilient because interest rates had remained low. That situation could change.

“If you look at how buy-to-let rates have fallen over the last four years in most cases it has offset the impact of the tax relief changes . . . Clearly, it would be problematic if and when rates do rise. That’s a risk going forward.” 


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