Why the Lowest Buy to Let Mortgages Rates Could be Costing You £££’s!

1.69% (4.8% APR)* - This headline rate looks impressive, doesn't it? There's no denying that for some, this rate would work well. Charlie Potter, Consultant Buy to Let Mortgage Broker, explains why a low headline rate doesn't always mean the cheapest in the long run…

Super low headline rates are always eye-catching, and sometimes they truly are as good as they look! However, as ever with mortgages, there’s always more to consider than simply the rate.

The APR % is there to give you an idea of how much the mortgage will cost you across the entire term, however, this doesn’t take into consideration that most landlords are savvy enough to remortgage when the initial fixed term has expired. Once the Early Repayment Charges (ERCs) period is out of the way, you’ll likely be able to move onto a more competitive rate rather than remaining on the lender’s reversion rate.

How much money could you save by not choosing the lowest rate? This does depend completely on the rates you’re deciding between, so here’s an example…

An investor is looking to borrow £225,000 at 75% Loan to Value (LTV) through their personal name. Their buy to let property is valued at £300,000 and generates £1,200 of rent per calendar month.

They’re interested in 2-year fixed rates, on an interest-only basis. Let’s compare…

Rate	Type	Cost over 2 years
1.69% (4.8% APR)*	Fixed	£9,604
1.77% (4.9% APR)**	Fixed	£8,960

In this example, the cheapest rate over the two-year initial term is actually the 1.77% rate, with a saving of £644 – not an insignificant amount of money! This is because the 1.77% rate has a lower product fee, £995 rather than £1999, free valuation and cashback options.

Is this the same when borrowing through an SPV Limited Company?

Taking a similar scenario, a landlord looking to purchase a standard buy to let property at the value of £300,000 but this time through an SPV Limited Company, at a 75% LTV on a 5-year fixed. Let’s look at how the cheapest rate compares to another option…

Rate	Type	Cost over 5 years
3.19% (4.9% APR)***	Fixed	£41,105
3.44%% (5.4% APR)****	Fixed	£39,866

Again, you can see here that the higher rate costs £1,239 less over the 5 years than the lowest initial rate. Just as with the personal name rates before, this is because the higher rate has incentives such as a free valuation and a low fixed arrangement fee.

A lot of the time lender criteria is the deciding factor when choosing a buy to let mortgage, rather than simply the rate. The benefit of using a broker such as ourselves is that we will always explain to you the benefits and real costs of the different rates so that you can make an informed choice most suited for your investment needs.

Of course, rates change all the time and lenders bring out new products almost every week and sometime the lowest rate will be the cheapest option in the long run! So it’s always worth checking the extra fees and not taking the rate at face value, in order to get the best out of your buy to let mortgage.

If you’d like to know more about fees, charges and underlying costs of buy to let property finance, you can see our helpful guide here.

We also compile an online list of our Top 10 Buy to Let Mortgage Rates – These are not necessarily just the cheapest rates (because we know that’s not always best!), they take into account specific lending criteria and incentives which we think could be of interest to landlords looking for finance.

If you’d like to discuss any rates or options for your buy to let investments, do not hesitate to contact me, Charlie Potter, on 01732 471648 or 07814072193

Alternatively, you can email me cpotter@mortgageforbusiness.co.uk.

 

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Small Print
Rates correct as at 10/12/2019.

*Fixed at 1.69% for 2 years reverting to 4.99% (SVR). Overall Cost for Comparison: 4.8% APRC. Maximum Loan to Value: 75%. Maximum Loan: £750,000. Typical Rent to Interest: 145% at 5.50%. Early Repayment Charges: 2% of the amount being repaid until the end of year 1, 1% of the amount being repaid until the end of year 2 from drawdown. Overpayments: Up to 10% per year. Income Requirement: No minimum requirement. Lender Arrangement Fee: £1,999 added to loan. Standard Valuation Fee: Free. Legal fees: Free (remortgage only). Individuals only. [126964]

**Fixed at 1.77% for 2 years reverting to 5.19% (SVR). Overall Cost for Comparison: 4.9% APRC. Maximum Loan to Value: 75%. Maximum Loan: £1m. Typical Rent to Interest: 145% at 5.50%. Early Repayment Charges: 1.5% of the amount being repaid until the end of year 2 from drawdown. Overpayments: Up to 10% per year. Income Requirement: £25,000. Cashback: £500 (purchases) or £300 (remortgages). Lender Arrangement Fee: £995 due on completion. Standard Valuation Fee: Free (remortgage only). Legal fees: Free (remortgage only). Individuals only. [126545]

***Fixed at 3.19% for 5 years reverting to 5.99% (BBR + 5.24%). Overall Cost for Comparison: 5.4% APRC. Maximum Loan to Value: 75%. Maximum Loan: £750,000. Typical Rent to Interest: 125% at 3.19%. Early Repayment Charges: 4% of the amount being repaid until the end of year 2, 3% of the amount being repaid until the end of year 4, 2% of the amount being repaid until the end of year 5 from drawdown. Income Requirement: No minimum requirement. Lender Arrangement Fee: 2% of the loan amount added to loan. Standard Valuation Fee: Apply. Legal fees: Apply. Ltd Co only. [126831]

****Fixed at 3.44% for 5 years reverting to 5.24% (SVR + 0.75%). Overall Cost for Comparison: 4.9% APRC. Maximum Loan to Value: 75%. Maximum Loan: £500,000. Typical Rent to Interest: 125% at 4.50%. Early Repayment Charges: 6% of the amount being repaid until the end of year 1, 5% of the amount being repaid until the end of year 2, 4% of the amount being repaid until the end of year 3, 3% of the amount being repaid until the end of year 4, 2% of the amount being repaid until the end of year 5 from drawdown. Overpayments: Up to 10% per year. Income Requirement: No minimum requirement. Lender Arrangement Fee: £995 added to loan. Standard Valuation Fee: Free. Legal fees: Apply. Ltd Co only. [126831]

For more information on our Broker Fee, please click here.

 

6th March 2018