In many ways buy-to-let owners of investment properties face more challenging business conditions than ever before. Scaling back of tax breaks such being able to deduct mortgage interest on investment properties and increases to stamp duty on second homes have contributed to finer margins when it comes to being able to realise a profit. It’s also unlikely that investment properties will see the same level of capital gains as has been the case over the past several decades and investment properties will rely more on rental income for their ROI.
But at least in one area, conditions are looking up for investment properties. For the first time ever, the best terms available on buy-to-let mortgages are more attractive than those offered for the best residential deals. The slowdown in investors acquiring new buy-to-let properties has pushed lenders into offering lower interest rates and cutting back on red tape.
Leeds Building Society has just launched a 1.14% two-year variable-rate mortgage for investment properties. It comes with a £2499 fee and buyers do need to have a 40% cash deposit to access the top rate but is representative of a growing trend. TSB now also offers a two-year fixed rate buy-to-let mortgage at 1.39%. It also requires a 40% deposit but the accompanying fee is a lower £1995.
In comparison, the best terms currently available for a 2-year variable-rate mortgage for a residential property is offered by the Yorkshire Building Society. The interest rate is 1.17% to the 1.12% for Leeds Building Society’s equivalent for investment properties. The Yorkshire Building Society residential deal does, however, come with a lower £1495 fee and requires a slightly lower 35% deposit.
Mortgage brokers comment that this is the first time they have ever seen the best buy-to-let mortgage rates undercut equivalents for residential properties. Lenders have historically considered mortgage lending on investment properties as riskier than residential equivalents but a tight market and competition is forcing a change in attitudes.
Quoted in the Telegraph newspaper, mortgage broker Aaron Strutt of Trinity Financial commeted:
“It is highly unusual for buy-to-let rates to match or even undercut the lowest residential mortgages and it shows how hard the lenders are pushing to tempt landlords to buy properties or refinance.”
So even landlords not currently in the market for new investment properties can take advantage by re-mortgaging existing buy-to-let units at more attractive terms.