Buy to Let Mortgage Rates are Reducing

A recent article in the financial times (9th March 2007) indicated that lenders for buy-to-let mortgages are now beginning to offer terms which are much closer to those rates being offered in the main stream mortgage and remortgage market. This is seen as a real sign that banks and building societies continue to compete for business.

In the past lenders always wanted a higher rate which could be in the region of 3 points above the rates available to the main stream market. However that is now changing, and whilst a difference in rates will still exist the margin has substantially dropped. Shopping around and a competitive market could bring the rates even closer.

Some lenders are now allowing would be buy-to-let borrowers to borrow a higher percentage value of their home and in doing so reducing the amount that must be put down as a deposit. This is an indication of lenders continued confidence in house prices although we have seen that house price rises have varied from area to area. Maybe lenders will be selective in how they apply they apply the higher lending percentage. The higher borrowing levels may also only be available at the higher rates where the increased rate is seen as covering part of the increased risk to the lender.

Others are reducing the rental income requirements when comparing the monthly mortgage payment with the rental income.

Most lenders in the buy-to-let market usually require borrowers to buy property which would have a rental income which was well in excess of the monthly mortgage cost. This allowed for other costs which the buy-to-let landlord may have to face and also allow for months when the property might be empty. Keeping your monthly mortgage cost to below two thirds of the monthly rental value was seen as being prudent. Now some lenders are reducing these requirements and a few, it has been suggested, will accept a monthly rental income that matches or just exceeds the monthly mortgage cost. Whether this is in the ‘would be’ landlord’s interest is another matter. From an investment point of view it makes sense that the rental income is sufficient to cover all renting costs including those months for which the property remains vacant. However with increasing house prices some people may see the investment in rising house prices as sufficient on its own as long as the rental income covers the mortgage costs.

Better terms may even entice some buy-to-let landlord’s to remortgage so that they obtain better terms.

The buy-to-let market is seen as a rising market with the number of buy-to-let mortgage properties expected to be close to the one million mark. Property values have faired well over the last few years and for some people renting is the only option. Arrears in the buy-to-let market have also dropped and that must be a sign that will attract lenders to compete more favourably for business.