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29 Apr 2019

Buy-to-let remortgaging: should landlords choose a fee-free or cashback mortgage?

Which? explains whether buy-to-let mortgage incentives could save you money
Row of terraced houses

Mortgage lenders are seeking to entice landlords with fee-free and cashback offers on remortgaging deals, but is the promise of free money too good to be true?

Here, we assess the remortgaging market for buy-to-let investors and offer advice on whether you should be drawn in by the incentives offered by banks.

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Remortgaging options for landlords

If you're thinking of refinancing your portfolio this year, you're sure to find plenty of options available, with more than 30 lenders offering buy-to-let remortgaging deals.

Right now, there are more than 1,500 remortgaging products available to landlords, with the vast majority of deals offered on a fixed-rate basis.

Type of mortgageNumber of dealsPercentage of deals
Fixed rate1,43484%
Discount1157%
Tracker1569%

Of those 1,434 fixed-rate deals, two and five-year fixes are by far the most common, though three-year products make up nearly a 10th of the market.

These figures reflect the trend of five-year fixes becoming more popular in the residential market as a whole, as borrowers look to tie in their rates for longer during a time of economic uncertainty.

Fixed termNumber of dealsPercentage of deals
Two-year63444%
Three-year1229%
Five-year67347%
10-year3<1%

Source: Moneyfacts. 24 April.

Fee-free and cashback remortgaging deals

In the past year there's been a growth in the number of buy-to-let products offering incentives, as lenders look to cut the up-front cost of switching your mortgage at a time when landlord profits are being squeezed.

The chart below shows the proportion of remortgaging deals available without fees or with a cashback incentive.

Fee-free buy-to-let mortgages

Buy-to-let mortgages tend to come with higher fees than owner-occupier deals, especially on products for investors who purchase through companies rather than as individuals.

Fees are generally structured in three ways:

  • Flat up-front fee (£1,995)
  • Small up-front fee plus a percentage of the loan amount (£199 plus 1%)
  • A percentage of the loan amount (2.5%)

Right now, 292 of the 1,434 buy-to-let fixes come without up-front fees - that's a little more than one in five deals.

TermNumber of fee-free dealsPercentage of fee-free dealsHighest up-front feeMax percentage fee
Two-year11418%£7,4992.5%
Three-year4436%£3,1951.7%
Five-year13420%£2,4502%
10-year00%£1,995N/A

Cashback buy-to-let mortgages

Cashback deals make for good headlines, especially with incentives of up to £1,000 on offer, but they're not always what they seem.

That's because some deals that come with cashback also have large up-front fees.

It's not possible to subtract the cashback from the fee, either, as cashback payments are generally made within a month of the mortgage being commenced, rather than when it's first granted.

Currently, 354 of the 1,434 buy-to-let fixes come with cashback - that's just under one in four.

TermNumber of cashback dealsPercentage of cashback dealsHighest cashback paymentMax percentage cashback
Two-year15024%£1,0001%
Three-year4638%£5001.7%
Five-year15523%£1,0001%
10-year3100%£250N/A

How do fee-free and cashback deals compare?

We've looked at how many deals offer incentives, but how do these products compare with the market leading rates?

Below, we've outlined the cheapest initial rates on two and five-year fixes at three popular loan-to-value levels, and compared them with the best rates on offer on fee-free and cashback deals.

Two-year fix

Max loan-to-valueBest initial rate (overall)Best initial rate (no fees)Best initial rate (cashback)
60%1.48% (Post Office - fee of £1,495)1.84% (Hanley Economic)1.50% (Barclays - £500)
75%1.67% (Sainsbury's - fee of £1,995)2.30% (Platform)1.67% (Sainsbury's - £250)
80%2.95% (Ipswich - fee of £199 + 0.5%)3.83% (Virgin Money)3.24% (The Mortgage Works - £250)

Five-year fix

Max loan-to-valueBest initial rate (overall)Best initial rate (no fees)Best initial rate (cashback)
60%2.04% (Santander - fee of £1,499)2.29% (Platform)2.04% (Santander - £250)
75%2.35% (Post Office - fee of £1,495)2.69% (Bank of Ireland)2.39% (Santander - £250)
80%3.09% (Loughborough - fee of £1,499)3.95% (Paragon)3.58% (Virgin Money - £300)

Source: Moneyfacts. 24 April.

Are fee-free and cashback mortgages worthwhile?

As you can see in the charts above, the best rates on fee-free mortgages can be considerably higher than the market-leading deals.

Lenders, it seems, are much more willing to offer cashback of £250 to £500 alongside a good initial rate than they are prepared to take the hit of up to a couple of thousand pounds in up-front fees. If you're considering an incentive-based deal, follow these tips:

  • Fee-free deals:up-front fees on buy-to-let mortgages can be very expensive, but you'll take a significant hit on your rate by opting for a fee-free deal. You should be able to offset the up-front fees you'll pay when remortgaging against your profits when filling in your tax return.
  • Cashback deals:as we've outlined, it's possible to get a good rate on a cashback mortgage, but with low-rate deals offering a maximum of £500 cashback, you're better off considering this as a 'nice to have' rather than a reason to choose a product.

Advice on your mortgage options

Of the 1,434 fixed-rate remortgaging deals we've looked at above, only 427 of them are available direct from lenders. That's less than a third of the market.

In the buy-to-let market, the vast majority of deals are available through mortgage brokers rather than to customers applying themselves.

With this in mind, speaking to a whole-of-market mortgage broker about your remortgaging options can help you get the right deal.