Competition heats up for buy-to-let lenders

Competition between buy-to-let lenders is hotting up says Mortgages for Business, one of the country’s leading buy-to-let mortgage brokerages, and this means there a deals to be had for the canny investor. 

For the first time since the first buy-to-let products began to appear back in 1992, the cost of a buy-to-let mortgage now competes with a standard residential mortgage product, moving them even further from their commercial property roots – a situation that for many years was considered laughable.

“For over 10 years buy-to-let mortgages have been more highly priced when compared against residential products.  However in the first half of 2005 we are finding an increasing number of buy-to-let products that are cheaper than their residential counterparts,” says Jonathan Moore, marketing manager at Mortgages for Business.  “Changing market dynamics and fierce competition between lenders are driving down prices and this can only be good news for investors facing ever tightening margins.”

Mortgages for Business is currently offering investors, amongst others, one product at 4.99% fixed for five years and another at 4.89% fixed for three years.

There are a number of reasons behind this shift in pricing as Moore explains: “In 2004 a number of niche lenders, such as Mortgage Trust and The Mortgage Platform, entered the market with extremely competitive pricing.  It has only been within the past four or five months that the more established and less agile lenders have reacted.”

“The decline in buy-to-let towards the end of 2004 has also left many lenders short of their targets,” says Moore.  “Most lenders will have a set lending pool for the year and they need to sell their money to hit their targets and many have found the only way to attract additional demand is to offer a lower rate.”

The rent to interest cover calculation has also limited the buy-to-let investor’s ability to make new purchases and to remortgage current properties (as a rule rental income generally needs to be 30% higher than the monthly mortgage payment).   “However lenders have made it much easier for investors by lowering the mortgage headline rate and using this rather than a notional separate rate for the basis for the rent to interest cover calculation,” says Moore.

Wider market conditions have also played a role in lowering rates, particularly on fixed rate products, with the swap market rates – the basis for fixed rate pricing - continuing to fall allowing lenders to reprice more competitively.  “There is also an increasing expectation that the bank base rate is more likely to fall than rise, largely due to the performance of the retail sector, meaning tracker mortgages will once again begin to again look more favourable,” says Moore.

Moore does however sound a note of caution to buy-to-let investors: “Rates in the buy-to-let market may look more on a par with residential mortgages, but fees will soon bring investors back into the realm of the commercial mortgage sector.  Investors should expect to pay up to a 1.5% arrangement fee on many of the low priced fixed rate products and although they can be added to the loan, it is important to take this in account when doing your calculations.   Even with these fees added the mortgages are still incredibly well priced”.

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Mortgages for Business

Mortgages for Business are independent experts in buy-to-let and commercial mortgages managing single and multi-let property portfolios for thousands of UK investors.  Its brokers have access to a large portfolio of fixed and variable interest rate mortgages from a panel of over 30 lenders and offer truly independent advice that is appropriate to investors.

Case studies

Mortgages for Business has a number of case studies of investors in residential and commercial property.  For more information please contact Matt Baldwin on the number below.

For further information contact:

Matt Baldwin, Coast Communications

Tel: 01233 721597 or 07930 439739

Email: matt@coastcommunications.co.uk

Jonathan Moore, Mortgages for Business

Tel: 01732 471619

Email: jonathanm@mortgagesforbusiness.co.uk