Buy-to-let mortgage rates are continuing to fall, according to new data.
As the graph below shows, average rates for both fixed-rate and variable-rate mortgages are at a five-year low, according to data from Moneyfacts
This represents good news for landlords, in a year where many are likely to be stung by tax changes and more stringent lending criteria.
Buy-to-let mortgage rates fall, but so do deals
While landlords will benefit from falling rates, the range of mortgages available to them is declining, the Moneyfacts data suggests. Some 74 buy-to-let (BTL) mortgage deals were withdrawn from the market in December 2016.
The majority of these deals were in the 75% loan-to-value (LTV) sector, which is typically the highest LTV that lenders will offer on buy-to-let mortgages. That requires landlords to put down a 25% deposit before they can get a loan.
Below, we highlight some of the best available buy-to-let mortgage deals that appear in the Which? Money Compare buy-to-let mortgage comparison tables.
For each deal, we’ve included a link to the tables where you can find out more information.
|Best buy-to-let mortgage deals|
|Deal||Lender – Initial rate||Initial monthly payments||Reverts to||Revert monthly payments||Arrangement fee||Total cost during deal||Cost over full term||APRC|
|2 year fixed||Platform – 2.64%||£570 x 22 monthsa||5.50%||£753.99 x 278 months||£90||£13,776||£222,396.26||5.10%|
|5 year fixed||HSBC – 3.09%||£599 x 60 monthsa||4.75%||£691.90 x 240 months||£349||£36,297||£202,495.64||4.20%|
|2 year tracker||Platform – 2.14%||£538 x 24 monthsa||5.5%||£538.38 x 276 months||£1,089||£14,025||£221,093.06||5.10%|
Stricter lending criteria may hamper buy-to-let landlords
Since January 1, mortgage lenders have subjected landlords to stricter lending criteria, imposed by the Prudential Regulation Authority, which oversees this market.
Affordability tests for buy-to-let mortgages are now based on a hypothetical mortgage rate of 5.5%, which may hamper many landlords’ opportunities to take advantage of these new low rates.
David Blake, of Which? Mortgage Advisers, said: ‘Buy-to-let investors will be able to borrow less than they could have previously. That said, it is not all doom and gloom. Buy-to-let interest rates are as competitive as they have ever been, with many lenders relaxing their stress tests if the borrower opts for a five-year fixed rate.’
Mortgage interest tax relief is changing
Although mortgage rates remain low, the amount of tax that landlords will have to pay on mortgage interest could soon rise.
From April 2017, the amount of tax relief they can claim will be gradually reduced until 2020, when costs will only be deductible at the basic rate of tax (20%).
The table below details how significantly this could impact a landlord who pays tax at the higher rate of 40%.
|Mortgage interest relief changes for higher-rate taxpayers|
|Year||Rental income||Mortgage interest||Initial profit||Tax||Overall profita|
Notes: Example based on a rental income of £20,000 a year and mortgage interest payments of £13,000. In 2016,
you pay 40% tax on your profit (40% of £7,000 = £2,800), while in 2020, you pay 40% tax on the overall income
(40% of £20,000 = £8,000) minus the 20% allowance (20% of £13,000 = £2,600), equalling a total tax payment of
£5,400 (£8,000-£2,600). a Does not take into account other costs, such as wear-and-tear costs etc.
We explain all you need to know about buy-to-let mortgages