Buy-to-Let Mortgages Flood Back to the Market


According to recent figures from Moneyfacts, buy-to-let mortgages have flooded back to the market in March with over 200 new products launched. As of April 3rd, there were 2,333 mortgages available to landlords. This is the highest number since the start of the pandemic when many lenders withdrew their products, and 233 more than the previous month marking a rise for the fifth consecutive month.

However, two-year fixed rates are currently 0.28% higher than this time last year.

Buy-to-let mortgage availability has now recovered to 81% of its pre-pandemic levels. In the residential mortgage sector, we have seen a 68% recovery. According to Hamptons International, there are currently just under two million outstanding buy-to-let mortgages in the UK.

In 2016, a large number of mortgages were completed as landlords rushed to beat the 3% stamp duty rise and many of these will be looking to remortgage over the coming months as their five-year fixed deals will be coming to an end. These landlords won’t want to revert to their current lender’s standard variable rate, as it will be typically higher.

Landlords will also be looking to buy new properties and in Scotland recently took advantage of the LBTT deadline at the end of March, and across the rest of the UK will be looking to buy within the end of June stamp duty deadline.

In the final months of 2020, around 15% of property in the UK was purchased by investors, with almost half of all investor purchases funded via a mortgage. Taking advantage of the raft of new buy-to-let deals will be existing landlords looking to refinance and those considering property investment for the first time.

Against this backdrop of the rising number of deals, buy-to-let rates have continued to rise. According to Moneyfacts, the average two-year fixed rate is now 3.05%, which is 0.28% higher year-on-year and the highest average recorded since June 2019.

The average five-year fixed rate deal is currently 3.415, an increase of 0.17% compared to the same time last year.

There are signs that buy-to-let interest rates may be starting to fall for those buying with larger deposits, or those with a good amount of equity in their existing properties. For example, the average buy-to-let two-year fixed rate mortgage for those with 40% equity has fallen from 2.52% to 2.14% over the past month. Lenders have been wary of the effects of the pandemic on landlords as many tenants have been furloughed, leading to them withdrawing high loan-to-value lending.

At present, lenders require the landlord to demonstrate that their rental income will cover between 125% to 145% of the mortgage repayments.

Although mortgage rates were lower before the pandemic than they are now, they are still very low from a historical perspective and some experts feel that they are unlikely to drop further. Five-year fixed rates have been popular in recent years as there are less stringent stress tests on these deals, enabling borrowers to take out larger loans.