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Why focusing on the headline rate could be costing you £xxx’s

1.39% (5.6% APR)* - This headline rate looks impressive doesn't it? There's no denying that for some, this rate would work well. Calum Obbard-Banham, Consultant Mortgage Broker explains why a great headline rate doesn't mean the cheapest rate.

Headline rates are certainly eye-catching and sometimes they are as good as they look but mostly, you’ll find that there is more to the mortgage than meets the eye.

You could use the APR to give you an idea of how much the mortgage might cost you but his figure looks at the loan across the entire term and fails to recognise the effect on borrowing costs should you choose to remortgage once the introductory period has expired.

And let’s face it, most savvy landlords look to remortgage as soon as introductory period ends because that’s when the Early Repayment Charges expire which means landlords are free to find a better deal. It’s rarely makes sense to remain voluntarily on a lender’s reversion rate.

But I digress, the headline rate is not necessarily the cheapest. Let me explain…

Example:
You are a private investor looking to borrow £180k (60% LTV) on a standard buy to let property valued at £300k which generates rent of £1,200pcm.

You're interested in two-year rates on an interest-only basis. The headline rate above, looks attractive but over the initial two years, is it the cheapest deal? No as the table demonstrates…

Rate

Type

Cost over 2 years

1.39% (5.6% APR)*

Fixed

£7,179

1.49% (4.8% APR)**

Tracker

£7,227

1.54% (4.7% APR)***

Fixed

£6,444


Based on the scenario described, the cheapest deal over two years is a different two year fixed rate – in this instance, one from Virgin.

If you took the 1.54% 2 year fixed instead of the 1.39% 2 year fixed, you would actually make an overall saving of £735 – equivalent to a weekend away! In this case it’s because the 1.54% product comes with a lower arrangement fee and an extra £250 cash back.

Here at Mortgages for Business we track the real costs of taking out a buy to let mortgage including the impact of introductory periods, fees, charges and the underlying costs of funds.

If you’re interested in exploring this topic in greater detail, take a look at our latest findings here:


Of course, choosing a product is not all about cost. Lenders and lending criteria play an enormous role, as do credit checks and turnaround times.

And remember tracker rates can go up, whereas fixed rates give you protection against rate rises.

The cheapest 5 year fixed rate buy to let mortgage

Interestingly, at present the lowest priced five year fixed rate, really is the cheapest five year fixed rate on the market:

1.99% (3.9% APR)**** 5 year fixed rate buy to let mortgage

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It’s certainly been incredibly popular with our clients and if I’m honest, I’m surprised that it’s still available. I predict it won’t be around for too much longer because, according to our data, fixed rates are rising, so if you’re interested do get in touch.

Let us compare rates for you

The above buy to let deal is only available to landlords borrowing personally but there are other strong contenders if you need a rate that works for Ltd companies. We can compare rates very quickly using our in-house buy to let sourcing system, so if you want to know which is the most suitable and/or cheapest rate for your circumstances, get in touch and I'll find the best options for you. Remember, we have access to the whole market!

Each week we compile a list of our Top 10 Buy to Let Mortgage Rates. These rates are not necessarily the cheapest, some have been picked because of their specific lending criteria. If any appeal do get in touch.

We also offer a free property portfolio review service. Simply send us your property portfolio spreadsheet (or use ours) and we will tell you if we can make you a saving by switching any of your mortgages! That’s all you need to do!

I work on the buy to let desk here at Mortgages for Business, but this also applies to those looking to refinance or purchase a home. Instead of taking the cheapest rate from your high street bank, why not give us a call first on 0345 345 6788 to make sure it really is the best rate for you!

We can even help you to switch products with your existing lender – this is often the most cost-effective route for both landlords and home-owners.

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I look forward to talking to you.

 

 

*1.39% 2 Year Fixed 
Fixed at 1.39% for 2 years (until 31/5/2020) reverting to Lenders Standard Variable Rate(currently 4.84%, variable). Purchase applications only. Early Repayment Charge: 2% of the amount being repaid by 31/05/2019, then 1% until 31/05/2020. Overall Cost for Comparison: 4.6% APR. Loan to Value: 60% loan to value to £500,000. Lender Arrangement Fee: £1,995. Broker Fee: Our standard broker fee is due on receipt of an Agreement in Principle from the lender, charged at £497 for personal applications and £597 for applications made by limited companies. We will keep any commission payments made by the lender. Alternatively, we will rebate to you any commission paid by the lender to us and charge you a broker fee of typically 1% of the total loan amount (exact percentage will depend upon the size and complexity of the mortgage application). Repayment Options: Interest only or repayment. Rent to Interest Cover: 145% @ 5.50%.

**1.49% 2 Year Tracker
Fixed at 1.49% for 2 years reverting to Lenders Standard Variable Rate + 4.50% (currently 5.00%, variable). Remortgage applications only. Early Repayment Charge: 2% of the amount being repaid for the first year, then 1% until the end of year 2. Overall Cost for Comparison: 4.8% APR. Loan to Value: 60% loan to value to £350,000. Lender Arrangement Fee: £1,999. Broker Fee: Our standard broker fee is due on receipt of an Agreement in Principle from the lender, charged at £497 for personal applications and £597 for applications made by limited companies. We will keep any commission payments made by the lender. Alternatively, we will rebate to you any commission paid by the lender to us and charge you a broker fee of typically 1% of the total loan amount (exact percentage will depend upon the size and complexity of the mortgage application). Repayment Options: Interest only or repayment. Rent to Interest Cover: 145% @ 5.50%.

***1.54% 2 Year Fixed  
Fixed at 1.54% for 2 years reverting to Lenders Standard Variable Rate(currently 4.99%, variable). Purchase & Remortgage applications. Early Repayment Charge: 1.5% of outstanding loan amount until 01/06/2020. Overall Cost for Comparison: 4.7% APR. Loan to Value: 60% loan to value to £1,000,000. Lender Arrangement Fee: £995. Broker Fee: Our standard broker fee is due on receipt of an Agreement in Principle from the lender, charged at £497 for personal applications and £597 for applications made by limited companies. We will keep any commission payments made by the lender. Alternatively, we will rebate to you any commission paid by the lender to us and charge you a broker fee of typically 1% of the total loan amount (exact percentage will depend upon the size and complexity of the mortgage application). Repayment Options: Interest only or repayment. Rent to Interest Cover: 145% @ 5.50%.

****1.99% 5 Year Fixed
Fixed at 1.99% for 5 years (to 31/05/2023) reverting to Lenders Standard Variable Rate(currently, 4.49%, variable). Purchase, remortgage & further advance applications. Early Repayment Charge: 6% of the amount being repaid until 31/05/2019, then 5% until 31/05/2020, then 4% until 31/05/2021, then 3% until 31/05/2022, then 2% until 31/05/2023. Overall Cost for Comparison: 3.9% APR. Loan to Value: 50% loan to value to £1,500,000. Lender Arrangement Fee: £1,995. Broker Fee: Our standard broker fee is due on receipt of an Agreement in Principle from the lender, charged at £497 for personal applications and £597 for applications made by limited companies. We will keep any commission payments made by the lender. Alternatively, we will rebate to you any commission paid by the lender to us and charge you a broker fee of typically 1% of the total loan amount (exact percentage will depend upon the size and complexity of the mortgage application). Repayment Options: Interest only or repayment. Rent to Interest Cover: Basic Rate tax payer - 125% @ 4.99% Higher rate tax payer - 145% @ 4.99%.

 

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