Buy-to-let landlords in the UK are currently grappling with a challenging environment, marked by rapidly increasing interest rates, soaring costs, and a less accommodating tax regime. These changes have significantly escalated the expenses for many landlords, paralleling the concerns of homeowners and first-time buyers.

Since the beginning of the year, a fierce competition among lenders has resulted in over 40 of them slashing their rates. While residential rates have been in the spotlight, buy-to-let rates have also been on a downward trend.

Key Considerations for New Mortgages

Current Rate Trends

• Coventry Building Society has recently reduced its rates, now offering five-year fixed rates starting at 4.44%, with a fee of £1,995.
• Other significant players like Santander, Paragon Bank, and Accord Mortgages have also cut their rates.

Impact on Landlords

• The UK has over 2 million mortgaged buy-to-let properties.
• Many landlords are feeling the pinch due to higher mortgage rates, especially those using interest-only mortgages.
• Average rates: The two-year fixed rate is about 5.78%, and the five-year rate is at 5.75%.

Costs Example

• A landlord with a £200,000 interest-only mortgage on a five-year fix currently faces monthly costs of £958.
• Additional expenses include property vacancies, repairs, agent fees, compliance checks, insurance, and service charges.

Finding Better Deals

• Many landlords can secure rates below the market average by using comparison sites or mortgage brokers.
• For instance, a £200,000 mortgage at HSBC’s 4.39% five-year fix would cost £732 per month.
• However, the lowest rates often come with substantial fees, which should be factored into the overall cost.

Expert Advice

Howard Levy, a buy-to-let specialist, notes that while rents have increased, they haven’t kept pace with mortgage rate hikes. He advises caution regarding deals with high fees.

Market Dynamics

• Fixed-rate mortgages are influenced by market predictions for the Bank of England’s base rate.
• Recent forecasts suggest a peak at 5.25%, with multiple cuts expected in 2024.
• Swap rates (predicting future interest rates) indicate a downward trend.

To Fix or to Track?

The Argument for Five-Year Fixes

• Currently, five-year fixes offer the most economical deals.
• They provide payment stability and potentially higher borrowing capacity due to more lenient lender affordability tests.

The Two-Year Fix Appeal

• A two-year fix might appeal to those anticipating a rate drop in the near future.
• Some opt for these short-term fixes with plans to switch to a longer fix later.

Considering Tracker Mortgages

• Trackers follow the Bank of England’s base rate plus a set percentage.
• They offer flexibility but come with the risk of rate fluctuations.
• No early repayment charges allow for switching to a fixed deal if rates drop.

Expert Insights

• Mark Harris, CEO of SPF Private Clients, suggests trackers for those who can handle rate changes.
• Howard Levy emphasises the variable nature of trackers and the risks involved.

Best Deals for Landlords

40% Deposit Mortgages

• HSBC: Five-year fix at 4.14%, fee £1,999.
• Coventry BS: Five-year fix at 4.44%, fee £1,995.
• HSBC: Two-year fix at 5.24%, zero fee.
• Santander: Two-year fix at 5.28%, zero fees.

25% Deposit Mortgages

• HSBC: Five-year fix at 4.39%, fee £1,999.
• Santander: Five-year fix at 4.5%, zero fees.
• Santander: Two-year fix at 4.74%, fee £1,749.
• HSBC: Two-year fix at 5.34%, fee £1,099.

Best Two-Year Trackers (No Early Repayment Charges)

• TSB: Two-year tracker at 5.74%, fee £999 (60% LTV).
• Leeds BS: Two-year tracker at 5.9%, fee £999 (60% LTV).

25% Deposit Tracker Options

• Skipton BS: Two-year tracker at 5.94%, fee £995 (75% LTV).
• HSBC: Two-year tracker at 6.44%, no fees (75% LTV).

Conclusion

Landlords face a crucial decision-making moment in today’s fluctuating market. With interest rates and costs on the rise, it’s essential to weigh the options carefully:

1. Five-year fixes offer stability and potentially better borrowing terms, suitable for those seeking long-term predictability.
2. Two-year fixes might be appealing for landlords betting on a decrease in interest rates, offering a chance to refinance at lower rates in the near future.
3. Tracker mortgages suit those willing to take a gamble on falling rates. They offer flexibility and the opportunity to switch without penalty, but they also carry the risk of rate increases.

The best choice depends on individual circumstances, including financial stability, risk tolerance, and future market expectations. Consulting with a mortgage broker can provide tailored advice and access to a wider range of options, ensuring landlords make an informed decision that aligns with their investment strategies and financial goals.