Landlords looking to boost their portfolio with a new property will be buoyed by news that buy-to-let mortgage rates are becoming cheaper.
The average rate for fixed-term buy-to-let deals dropped to 3.26% in April, from 3.29% last month, according to figures from financial analysis provider Moneyfacts.
Which? has analysed the market to find the cheapest deals for would-be and current landlords, some of which offer an initial rate of less than 2% over a fixed two-year period. But of course, your rate is not the only thing you should consider when applying for a mortgage.
We outline the lowest-rate offers and the potential drawbacks when buying an investment home.
Best buy-to-let mortgage rates
An aspiring property investor would need to take out a specialist buy-to-let mortgage deal. Typically, you’d need a deposit of at least 20% to 25% on the value of the home – meaning a an LTV of at least 75%.
Which? has analysed Moneyfacts data to find the best fixed-term deals for landlords at 75% loan to value (LTV) ratio.
Here are the best current buy-to-let deals at 75% LTV over a fixed period of two years and five years.
If you’re looking to expand your portfolio, you may have a little more cash available – and the larger your deposit as portion of the price, the smaller your rate tends to be.
Which? looked the best 60% LTV deals, where a landlord would require a deposit for 40% for the home.
Here are the best current buy-to-let deals at 60% LTV over a fixed period of two years and five years.
Find out more: Buy-to-let mortgages explained
Will you get the lowest buy-to-let mortgage rates?
The lowest mortgage rates aren’t necessarily going to be available to everyone. Lenders will access your application based on what you can afford, and how high-risk you are as a borrower.
The lender will also look at your interest cover ratios (ICRs), which is the minimum rental income your property must bring in as compared to your mortgage payments.
Most lenders will want to see an ICR of 145%, meaning your rental income covers your mortgage payments, plus an additional 45%. However, it may be possible to find lenders willing to accept an ICR as low as 125%, depending on the rest of your application.
Some deals will also place a limit on how many mortgaged properties you can own, or how much you have outstanding on loans overall. If you have a larger portfolio, you may need to apply to a specialist lender, many of which offer loans to owners of up to 10 properties – though the rates you pay may be higher than the cheapest on the market.
The video below shows how buy-to-let mortgage deals work.
Don’t forget to remortgage
Most mortgage rates will only apply for a limited period. When this comes to an end, you’ll move onto your lender’s standard variable rate.
This rate can increase at any time. As it’s typically far higher than your previous interest, your monthly repayments could increase significantly.
While the average buy-to-let fixed term rate is currently 3.26%, the average SVR stands at 4.89%, which could add hundreds to your monthly repayments.
To avoid this sharp increase, you should keep track of when your mortgage deal is expiring and look to remortgage to a new deal.
If your property has grown in value (or you’ve been making capital repayments), you may even be able to move onto a lower LTV, which would generally come with a lower rate. But don’t forget to factor in any fees that you’ll pay to remortgage.
Should you use a mortgage broker?
The majority of buy-to-let deals are only available through mortgage brokers or advisers, so you may be missing out on the best deal for you by going direct to your bank.
Currently, around three in five fixed-term buy-to-let mortgage deals on Moneyfacts are available only through brokers.
In comparison, just one in seven of the 1,988 deals are being sold exclusively to customers who go to the lender directly.
A mortgage broker can help you find the best deal for your circumstances and identify the lenders most likely to accept you. In some cases, a broker may be able to speed up the application by dealing with paperwork on your behalf.
However, keep in mind that some brokers will only recommend mortgages that are available from a certain panel of lenders or from their own product range, so it’s important to chose an adviser who is whole-of-market.
Find out more: Choosing a mortgage broker