Landlords are currently enjoying an unprecedented level of choice as the number of buy-to-let mortgage deals has reached a new record high, according to recent data.
Moneyfacts, a financial data provider, reports that there are now 4,144 different buy-to-let mortgage products available across the market. This is the highest figure since the company began monitoring the sector back in November 2011.
Compared to a year ago, the number of deals has surged significantly. In June 2023, there were just over 2,900 products available. Since then, the market has seen nearly a doubling of options, with a 42 per cent increase in the past 12 months alone.
Alongside this growing competition among lenders, interest rates have been falling steadily. According to Moneyfacts, the average rate for a two-year fixed buy-to-let mortgage has now dipped below 5 per cent — the first time this has happened since September 2022.
Landlords purchasing or remortgaging with a 25 per cent deposit or equity share can now expect to secure a two-year fixed deal at an average rate of 4.96 per cent. A year ago, the average was significantly higher at 5.59 per cent. This means monthly payments on a £200,000 interest-only mortgage have dropped from £932 to £826.
For those with a 40 per cent deposit or equivalent equity, the average rate has declined from 5.25 per cent to 4.46 per cent over the past year. This equates to monthly repayments falling from £875 to £743 on the same loan amount.
The trend is also evident among five-year fixed deals, though the reductions are not quite as sharp. Currently, landlords with a 40 per cent deposit can access five-year fixes at an average of 4.51 per cent, down from 4.93 per cent this time last year.
Rachel Springall, finance expert at Moneyfacts, believes landlords stand to gain from this surge in choice. She noted that both two- and five-year fixed rates have decreased for four months in a row, suggesting a broader shift in the market.
While the average five-year rate has reached its lowest point in over half a year, it hasn’t fallen as quickly as two-year fixes. Springall explained that lenders keep a close eye on swap rates, which influence future expectations around interest rates. A drop in swap rates typically prompts lenders to reduce their mortgage pricing.
Although lower rates could boost confidence among both new and existing landlords, Springall cautioned that many will still face challenges in ensuring their investments remain profitable. Despite better rates, broader pressures in the rental market may continue to impact long-term returns.
What are the best rates?
Some of the most competitive buy-to-let mortgage rates currently available come with surprisingly high fees. In certain cases, these charges can reach as much as 10 per cent of the total loan amount.
To put that into perspective, a £200,000 mortgage could come with fees of up to £20,000 – a substantial cost that landlords must factor in.
Because of this, it’s crucial for investors to consider the full cost of a mortgage deal, not just the interest rate. Looking solely at the headline rate could be misleading if the associated fees are disproportionately high.
Although average buy-to-let rates have improved since last year, many landlords can now access deals under 4.5 per cent without being stung by steep product fees.
For instance, landlords with at least 40 per cent equity in their property can currently secure a five-year fixed rate at 4.28 per cent from NatWest, with a fee of just £59. Alternatively, HSBC is offering a similar deal at 4.29 per cent – and it comes with no fee at all.
A £200,000 interest-only mortgage at a 4.29 per cent fixed rate would equate to monthly repayments of around £716.
While two-year fixed deals tend to be slightly more expensive than five-year options, the difference is minimal in many cases.
Interestingly, there’s not much of a gap between the best rates offered to those with 25 per cent deposits and those with 40 per cent equity. This is a slight anomaly in the market, as larger deposits typically unlock significantly better rates.
As an example, HSBC is currently offering a five-year fix at 3.94 per cent for borrowers remortgaging at 75 per cent loan-to-value. However, the deal comes with a hefty £3,999 fee. For those looking to avoid such a large upfront cost, the bank also offers an alternative at 4.19 per cent with a reduced fee of £1,999.
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