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17 Apr 2021

Buy-to-let mortgage numbers soar: the best rates for landlords

Lenders launched 200 new deals in March but rates remain high for some
To let sign on building

Landlords now have more mortgages to choose from than at any time in the last 12 months - but some borrowers still struggle to get a cheap deal.

Buy-to-let investors looking to remortgage or expand their portfolios have been handed a boost, with lenders launching more than 200 new mortgage deals last month.

Here, Which? offers advice on how to get a good rate on your buy-to-let mortgage, and explain whether the recent landlord exodus could now be coming to an end.

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Buy-to-let mortgage numbers increase

The Covid-19 pandemic had a significant effect on the number of mortgage deals available to landlords, but a year on, things have started to improve.

Data from Moneyfacts shows the number of buy-to-let deals on the market increased by more than 200 in March, to reach a total of 2,333.

This means that overall deal numbers are now only 20% down on last March.

It's not all good news, however. Average rates have dropped slightly, but they remain much higher than before the pandemic.

The chart below shows how the average cost of a fixed-rate buy-to-let mortgage has changed in the last 12 months.

Who has benefited from lower mortgage rates?

When we look more closely at the data, there are some clear winners and losers.

First of all, shorter-term deals have risen in cost at a faster rate. The average two-year fix has increased by 0.28% in the last 12 months, while the average five-year fix is just 0.17% more expensive than a year ago.

Borrowers with bigger deposits have been the biggest beneficiaries of late, with two-year fixes at 60% loan to-value (LTV) dropping by 0.38% since February.

The table below shows how landlords borrowing at 80% LTV have fared worse than those borrowing at 60% LTV since the start of the pandemic.

Type of mortgageAverage rate (March 2020)Average rate (March 2021)Change
Two-year fix (60% loan-to-value)1.89%2.14%+0.26%
Five-year fix (60% loan-to-value)2.31%2.52%+0.19%
Two-year fix (80% loan-to-value)3.56%4.14%+0.58%
Five-year fix (80% loan-to-value)3.98%4.29%+0.31%

Best rates on buy-to-let mortgages

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

As you can see, there's a big leap in cost between 75% and 80% mortgages. The cheapest deals also come with substantial up-front costs, with The Mortgage Works charging 2% of the mortgage advance rather than a flat fee.

Two-year fixes

Loan-to-valueLenderInitial rateRevert rateFees
60%The Mortgage Works1.19%4.74%2% of mortgage advance
75%The Mortgage Works1.59%5.24%2% of mortgage advance

Five-year fixes

Loan-to-valueLenderInitial rateRevert rateFees
60%The Mortgage Works1.64%4.74%2% of mortgage advance

Source: Moneyfacts. 15 April 2021.

What's happened to buy-to-let incentives?

Banks have long looked to entice customers by offering them incentives to take out a mortgage, such as cutting up-front fees, offering cashback or providing free valuations or legal work.

The chart below shows how lenders have cut back on incentives over the last year, with the notable exception of cashback, which is now available on a quarter of deals.

Is cashback worth it?

Cashback may seem like a big advantage when comparing mortgages, but it's best to consider it a 'nice to have' rather than a deal breaker.

This is because the vast majority of mortgage deals only offer cashback of between £250 and £500.

There are some providers that offer higher amounts, but they don't currently feature among the cheapest rates.

How much could you make if you sold your buy-to-let property?

Many landlords will be looking to switch mortgage deal this year to get the most out of their portfolio, but it seems the buy-to-let exodus we've seen in the last few years has slowed down.

New research by the estate agency Hamptons found 131,900 landlords in England and Wales sold properties in 2020, the lowest number recorded since 2013.

Those who sold up made an average profit of £82,450. Perhaps unsurprisingly, landlords in London made the largest gains, with average profits of £302,200 - or 71% of the price they originally paid. The smallest gains were in the North East, where investors turned profits of £11,310, or 16% of the original purchase price.

As the table below shows, landlords who sold up in 2020 had owned their properties for an average of eight to 10 years.

RegionAverage profit (£)Average profit (%)Average length of ownership (years)
South East£102,20045%9.2
East of England£90,59048%8.9
South West£68,25040%8.6
West Midlands£50,24042%9.0
East Midlands£44,56041%9.1

Source: Hamptons, Land Registry.

What's happening to rent prices?

With house prices having risen significantly in light of the current stamp duty cut, landlords expanding their portfolios now may not be able to rely on significant growth in property values over the next few years.

With this in mind, it's important to focus on what's happening to the rental market. Hampton's data shows that rents are rising everywhere in Great Britain except for London.

The average rent outside of London is currently £889, a rise of 7% year-on-year. Once we add London in, the average rises to £1,026 - an increase of just 4% compared to last year.

The chart below shows what's happened to average rents around the country in the last 12 months.