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Buy-to-let mortgage choice improving for landlords: is now the time to invest in property?

Lenders launch hundreds of deals as rental demand rockets

Buy-to-let mortgage choice improving for landlords: is now the time to invest in property?

Landlords now have more mortgage options than at any point since the start of the pandemic, as the rental market kicks into life.

Property investors have seen more than 200 new deals launched in the last month, and new data shows rental demand is rising significantly.

Here, we analyse the best rates currently available on buy-to-let mortgages, and explain the factors that mean now might be a good time to invest.


Mortgage options for landlords on the rise

The pandemic had a significant effect on the number of mortgage deals available to landlords, but there are signs that things are getting back to normal.

Landlords now have 2,709 mortgages to choose from, with more than 200 new deals coming on to the market in the past month.

This influx of offers has seen average rates begin to drop. The current averages are now lower than those recorded in July 2019, meaning landlords coming to the end of two-year fixes might be able to remortgage to a cheaper rate.

The chart below shows what’s happened to buy-to-let mortgage rates since the start of the Covid-19 outbreak.

Low-deposit mortgages are finally getting cheaper

Overall, buy-to-let rates went down during the first lockdown, as lenders withdrew most of the ‘riskier’ deals (those at 75% or 80% loan-to-value).

In the past few months, however, deals at 80% loan-to-value (LTV) have started coming back, finally handing a boost to borrowers with smaller deposits.

When we last crunched the numbers in April, 80% LTV mortgages were 0.58% (two-year fix) and 0.31% (five-year fix) more expensive than before the pandemic, but the influx of new deals has seen this gap cut to just 0.38% and 0.17% respectively.

Type of mortgage Average rate (March 2020) Average rate (July 2021) Change
Two-year fix (60% loan-to-value) 1.89% 2.25% +0.36%
Five-year fix (60% loan-to-value) 2.31% 2.62% +0.31%
Two-year fix (80% loan-to-value) 3.56% 3.94% +0.38%
Five-year fix (80% loan-to-value) 3.98% 4.15% +0.17%

Best rates on buy-to-let mortgages

Looking at average rates gives us a general idea of what’s happening in the market, but when you’re taking out a mortgage you’ll want to get the cheapest deal you possibly can.

The tables below show the lowest initial rates currently available on two and five-year fixed-rate buy-to-let mortgages.

The cheapest deals all come with substantial upfront costs of at least £1,499. The Mortgage Works offers some of the best rates, but charges 2% of the mortgage advance rather than a flat upfront fee.

This is an example of why it’s important to look at the overall cost of the mortgage rather than focusing solely on the initial rate when comparing deals.

Two-year fixes

Loan-to-value Lender Initial rate Revert rate Fees
60% The Mortgage Works 1.19% 4.74% 2% of the mortgage advance
75% Santander 1.52% 3.35% £1,499
80% The Mortgage Works* 2.49% 5.54% 2% of the mortgage advance

Five-year fixes

Loan-to-value Lender Initial rate Revert rate Fees
60% The Mortgage Works 1.64% 4.74% 2% of the mortgage advance
75% Santander 1.97% 4.44% £1,499
80% The Mortgage Works* 2.99% 5.54% 2% of the mortgage advance

Source: Moneyfacts. 8 July 2021. *Available on properties with an energy performance certificate (EPC) rating of C or above. The Which? Money Podcast

Is there an appetite to invest in property?

It’s been a quiet time for buy-to-let in 2021, with the cut to stamp duty resulting in rising house prices as owner-occupiers battled it out to secure properties and make big tax savings.

With the biggest cuts no longer available, it’s likely that the market will begin to slow down, and this could be good news for property investors.

After a period of stagnation, the rental market is now on the rise again.

The estate agency trade body Propertymark says a record number of new prospective tenants registered for homes in May.

Its monthly tracker also found that just 0.9% of tenants recorded rent reductions, the lowest recorded in the month of May since records began.

Landlords should seek advice before investing

The figures above could be an indication that the buy-to-let market is very much picking up again after a difficult year – but it remains to be seen how many landlords will take the leap and invest further.

Eleanor Williams of Moneyfacts says: ‘There could still be some understandable hesitation from prospective landlords, and some existing investors could even be considering downsizing their portfolio, depending on the pandemic’s impact.

‘As house prices rise, however, demand for rental accommodation is high, and savings rates remain poor. This means investing in property could be enticing.

‘It is vital that would-be landlords and those looking to change their mortgage deal seek advice to ensure it’s the right time for them and they find the best package for their circumstances.’

What’s happening to rent prices?

New data from the estate agency Hamptons shows rental prices grew by 8.5% year-on-year in June.

The average cost of a newly let home in Great Britain rose to £1,092, led by big annual increases in the South East (16%) and South West (15%).

Unsurprisingly, London remains the most expensive place to rent a home, with average rents of £1,751.

Advice on becoming a landlord

If you’re thinking of investing in property, we’re here to help.

Our guide on becoming a landlord explains all the key things you should consider before deciding to invest.

We also have advice on getting a buy-to-let mortgage and whether you should use a letting agent to manage your investment property.

Finally, if you’ve decided to cash in your investment, check out our guide on the tax and mortgage implications of selling a buy-to-let property.

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