An increasing number of borrowers are investing in buy-to-let due to the attractive rental yields and potential for capital growth. Most will gear up with a mortgage to help make the investment more tax efficient.
As with residential deals, buy-to-let rates have fallen but borrowers should be aware of products with large up-front fees if they are only fixing for the short term. Borrowers should look at the overall costs including initial fees and the rate over the term.
There are two-year fixed rates available from 2.24 per cent with a £1,999 fee for those with a 40 per cent deposit.
For those requiring a longer-term fix, it is possible to secure a rate of 3.29 per cent for five years, although this is only really suitable for larger mortgages as there is an arrangement fee of £2,495. The same lender offers a 3.44 per cent five-year fix with a more modest £800 arrangement fee.
The criteria for buy-to-let mortgages is still relatively relaxed with most banks requiring the borrower to have a minimum income of £25,000, plus the rental income must meet the bank’s affordability stress test. However, we are increasingly seeing banks asking more questions than they used to around overall affordability and suitability, which is partly a backlash in response to lax lending before the downturn.
Some regulation will come into force in March 2016 but only a limited number of those applying for a buy-to-let will be affected, such as ‘accidental landlords’.
For advice on buy-to-let mortgages, please get in touch