Buy-to-let mortgage rates tumble to a six year low

so is now a good time for landlords to invest or remortgage?

29 January 2013

Buy-to-let fixed mortgage rates have tumbled to levels last seen in 2007, as the Funding for Lending Scheme continues to boost landlords.

The average buy-to-let fixed mortgage rate is now 4.69 per cent.

One year ago it was 5.04 per cent and three years ago it was 5.77 per cent.

And just five months ago, as the £80billion Government scheme launched, the average was 5.09 per cent, according to data from comparison website Moneyfacts.

It added the average rate across the top ten lowest rates for two-year fixed deals is 3.35 per cent compared to 3.69 per cent a year ago.

Landlords had a tough time obtaining mortgages after the market peak in 2007, as lenders rapidly withdrew from the market. In fact, even with the current mini-boom, lending to landlords is about half of what it was six years ago.

But momentum is building, with buy-to-let mortgage lending growing at 20 per cent a year, which is similar to the rise in tenant demand in some regions, notably London and the South East.

A knock-on effect of the mortgage drought that followed the banking crisis of 2008 was that fewer people could borrow to buy and had to rent instead.

This increased tenant demand and has pushed up rents. According to the latest Census figures, the proportion of British households renting has increased in the past decade from 31 per cent to 36 per cent.

The average monthly rental price has risen from £660 to £734 in three years, according to LSL Property Services and have risen even higher in the South East. At the same time house prices have remained steady. This is resulting in the potential for 'golden' yields.

Banks and building societies that initially pulled away from 'riskier' buy-to-let lending in the wake of the credit crunch, have shifted back into it and are keen to lend to landlords, who tend to have big deposits to put down and rental income that can be checked up on. Lenders have also been encouraged by buy-to-let repossessions and arrears being lower than expected.

Landlords typically need a 25 per cent deposit, making the business less risky for lenders, they will also be required to have rental income of at least 125 per cent of monthly mortgage payments.

Buy-to-let rates, despite Funding for Lending falls, remain far higher than for owner-occupier mortgages - delivering a chunkier margin to lenders.

As a result, National Landlords Association (NLA), the biggest trade body for professional landlords, is lobbying for lenders to improve their deals further.

David Cox, its policy adviser, said: ‘Our research shows on third of landlords have been unable to expand due to difficulties accessing finance. Greater competition and innovation from lenders is needed.’

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Source: Mail Online

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