Can I still get a good interest rate on a buy to let mortgage?
For some investors buy to let mortgages have been the success story of the 2000’s, anyone with a small deposit and good credit history was able to arrange a mortgage from welcoming lenders with few restrictions attached to the deal.
Buy to let mortgages are still widely available and the credit crunch has done little to affect the availability although they may now be slightly more expensive and a larger deposit will probably be required. However, this is true for the whole lending market – including residential mortgages, so it is unsurprising that banks and building societies have introduced tighter lending criteria for investment properties.
With the Bank of England Base rate still low and, according to some commentators likely to stay that way, mortgage interest rates are also generally remaining lower than expected. Of course the economic outlook is still uncertain in the short term and economic analysts are divided about what the future may hold in the medium term but generally most will agree that the current situation is much better than was initially predicted.
Despite the huge cuts in public spending and other drastic measures, it would appear that the coalition government is being allowed time by the media to implement new policies and prove that new approaches and theories can work to get the economy back on track. So far, depending upon which paper you read or TV station you watch the assessment may be wary or optimistic but rarely negative.
There are a range of buy to Let mortgages available including, fixed, tracker and variable rate, the amount that you are able to borrow will of course depend upon your personal circumstances but there are still good rates to be found. Most lenders now have specialist departments to approve these types of loans and assess each application individually.
Watch out for headline rates that may advertise a product that is unsuitable for you – for example the deposit required on the best advertised rates for buy to let mortgages can be as much as 40%. Leek United Building Society currently has a 2 year fixed rate deal at just 4.58% but it will require a 40% deposit. The Mortgage Works have a 4.99% offer on a 2 year fixed rate but only require a 30% deposit.
Also look out for the arrangement charges or product fees, these may be fixed or based on a percentage of the loan amount, sometimes up to 3%. The Mortgage Works have a two year tracker product at 3.89% that requires an arrangement fee of 3.5% of the loan amount. Nat west have a two year tracker at 4.99% and charges a fixed arrangement fee of £995. Obviously you need to do the sums to work out the real difference between the two products. It can be complicated to work out the overall cost and a good mortgage advisor will go through the various options that are available whilst taking into account your personal circumstances as well as your opinion of the economic outlook.
If you believe that interest rates are likely to rise in the near future then you may decide that a fixed rate deal would be the best option. If you hold the opinion that interest rates will remain low for the foreseeable future than a variable rate may be the best option for you. If you are unsure about which way the Bank of England decision will go then you may want to make sure that you are using a product that allows early repayment with no fees so that you can swap your mortgage product if the current situation changes. All of these considerations will affect the amount that you pay over the longer term for any buy to let mortgage product.
Recent reports from the Association of Residential Letting Agents indicate that the rental sector has continued to grow over the last twelve months. Over 70% of members reported that they had more potential tenants registered than they had property available. There is little doubt that in the most popular areas there continues to be a shortage of rental properties. This may be due to first time buyers being nervous about their job security and the housing market in general or it could be because there are fewer lenders offering special deals for this group of buyers.
Whatever the reasons behind the increase in demand within the home rental sector, if you have capital available and are looking at a long term investment then property will probably play an important part in your investment strategy and buy to let mortgages continue to be promoted and offered with good rates by most large banks and many smaller building societies.