HomeBusinessBuy-to-let lenders hike mortgage rates on cheapest fixed deals

Buy-to-let lenders hike mortgage rates on cheapest fixed deals


Annual mortgage costs for buy-to-let landlords have increased by almost £500 in as little as three months, new research has shown.

Since the start of December the average two-year fixed deal for a landlord with 40 per cent deposit or equity has increased by 0.3 per cent, going from 1.76 per cent to 2.06 per cent.

The rate rises are fueled in part by the Bank of England’s decision to up the base rate, first in December from 0.1 per cent to 0.25 per cent, and then last month from 0.25 per cent to 0.5 per cent.

Landlords face increases of up to £41 a month as the cost of buy-to-let fixed rate mortgages jumps following the two recent base rate moves.

The Bank’s Monetary Policy Committee is set to meet again on Thursday and could decide to increase the base rate further, with landlords being warned to expect further rate rises.

Buy-to-let mortgage broker Property Master’s latest buy-to-let tracker analysed 30 lenders, making up around 75 per cent of total buy-to-let mortgage lending.

It said that the 0.3 per cent increase in two-year fixed rates would add an extra £41 per month or £492 per year to mortgage payments, for a landlord with a £160,000 mortgage on an interest-only deal.  

The increase has been less severe for those opting for five-year fixed rate deals. 

A typical five-year fixed rate buy-to-let mortgage covering 60 per cent of a property’s value has risen by 0.25 per cent, from 1.98 per cent to 2.23 per cent, according to Property Master.

For someone paying interest only on a £160,000 mortgage, this would equate to an additional £33 per month. 

The cost of a buy-to-let Standard Variable Rate (SVR) mortgage now stands at an average of 4.99 per cent, also up 0.25 per cent since the Bank of England first increased the base rate in December. 

Angus Stewart, chief executive of Property Master, said: ‘Our team have just had one of the busiest weeks ever making sure our search systems are up to speed with all the recent activity in this marketplace.

‘Whole product ranges have been withdrawn, and then relaunched, by several lenders, but the outcome has usually been to increase the cost to landlords.’

And things are expected to get worse for landlords before they get better.  

‘We are now in a rising interest rate environment and most commentators expect another rate rise next week when the Bank of England meets again on Thursday,’ added Stewart.

‘With inflation continuing to increase, exacerbated by global events, we foresee additional base rate increases over recent months.

‘We can already see lenders preparing to raise rates again, tightening the squeeze further on consumers and landlords alike.’

Landlords urged to plan ahead and fix their next deal

Landlords coming up to the end of their fixed rate deal, or on a variable rate or tracker mortgage, are being encouraged to remortgage as soon as possible to limit the damage.

Mortgage offers are typically valid for three to six months, so landlords on a fixed rate can organise their renewal and lock in a rate at today’s rates ahead of their current deal expiring.

Despite averages creeping upwards, best-buy rates are still relatively low. 

With further base rate rises expected, it is expected that buy-to-let interest rates will continue to rise.

With further base rate rises expected, it is expected that buy-to-let interest rates will continue to rise.

The lowest rate for a buy-to-let two year fixed deal for a mortgage covering 60 per cent of the property’s value is currently 1.09 per cent offered by The Mortgage Works.

Although its rate might be enticing, it also comes with a hefty £4,239 of additional fees. 

Someone with a £160,000 mortgage paying interest only could expect to pay £150 each month if they add the the fee to the mortgage. 

However, it would mean they had added an extra £4,239 to their existing mortgage amount which would eventually need to be paid off. 

Landlords may be able to find a higher rate with a lower fee, or no fee, which would work out cheaper overall. 

> Compare rates and fees using This is Money’s mortgage calculator  

Chris Sykes, a mortgage consultant at Private Finance said: ‘Lenders tend to price in rate rises before the base rate rise itself occurs, hence why we have seen consistently increasing rates in the last few weeks. 

‘We suspect the base interest rate will continue to rise given the dramatic rates of inflation, and this will continue to have an upward impact on mortgage rates across the board. 

‘That said, there are some unbelievably good rates in the market at present. However, the best available rates charge a 2 per cent arrangement fee and thus may not actually be the best rate for potential borrowers, so always take the additional fees into account when deciding.’

For anyone with a remortgage due this year the advice is to get hunting for a new deal as soon as possible.

Mark Harris, chief executive of mortgage broker SPF Private Clients said: ‘Most landlords are on fixed rates, so any payment shock will come once those deals expire, when they will find that it will cost them more to remortgage onto another product.

‘Landlords due to remortgage this year should plan six months ahead. Make a note of when your existing deal ends and then start shopping around for a new deal up to six months before that, as many lenders will let you book a rate up to six months before you need it. 

‘Anyone with maturing rates in September and earlier should be looking now, preferably consulting a broker.’

Should I pay an early repayment charge and remortgage now?

With mortgage products only lasting a matter of days in some cases, borrowers are bound to be worried about missing out on the best fixed deals if rates continue to climb.  

Knowing exactly when your current deal ends is vital, because leaving a fixed mortgage too early can result in early repayment charges of up to 5 per cent of the total amount. 

It may not be as simple as being exactly two or five years from when the mortgage started.

Some lenders, such as Nationwide, will fix for a number of years from the start date of the mortgage – also known as the completion date.

However, many fixed rate deals are fixed to a certain date, so it might be that you find you have either more or less time than you initially thought you had left to run on your mortgage.

You’ll be able to find this date on your mortgage offer letter or by contacting your lender. A mortgage broker should also be able to advise you on this.

Once you know this you can plan to apply up to 6 months ahead of your current deal expiring. 

However, if you are currently on a fixed rate mortgage and the deal doesn’t end for another year, you may be considering switching anyway. 

The issue here is that you may be hit by an early repayment charge.

Most fixed-rate deals come with early repayment charges, which often range between one and five per cent of the outstanding mortgage amount.

In some cases the amount reduces as the mortgage deal gets closer to finishing. 

For example whilst in the first year of a five year mortgage deal you may be slammed with a 5 per cent charge, however, if you are in your final year, you may only be subjected to a 1 per cent charge.

Whether or not it is financially prudent to absorb an early repayment charge to take advantage of current rates depends on your circumstances.

For example, how much the early repayment charge would be, your thoughts on interest rates in the medium and long term, and ow long you plan to own the property for etc.  

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