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Homeowners have enjoyed sub 1% mortgages since April (since dropping to as low as 0.81%), but now landlords can get in on the action as buy-to-let mortgage rates drop below 1% for the first time. Whilst the headline figure is certainly attractive, read on to understand why it might not be the cheapest option overall.
Other lenders are sure to follow, but it is The Mortgage Works that have become the first lender to offer landlords an interest rate below 1%, having introduced a two-year fixed rate product with an interest rate of 0.99%. A deposit of at least 35% is required, but the real sting in the tail is that it comes with a 2% product fee of the loan amount. Factor that in to the equation and you’ll pay more in fees over the two-year period than you will interest!
Weighing up the interest rate versus product fee will largely depend on the size of mortgage you are taking out. It is also why a mortgage broker can be invaluable in guiding you towards the right product. As an example though, a £300,000 property with a 35% deposit (£105,000) will mean taking out a mortgage of £195,000.
Over the two-year term of The Mortgage Work’s headline grabbing product, you would pay £3,861 interest alongside a £3,900 fee. There is also a £340 arrangement fee and £20 banking fee to be paid, equating to a cost of £8,121 over two years.
Instead of this, consider that Platform’s two-year fixed-rate mortgage may have an interest rate of 1.65%, but it comes with no fees. That means all you’ll pay over the same two-year period is £6,435 in interest; a saving of £1,686!
Personally, I prefer taking out five-year fixed-rate mortgages. Using the same example £195,000 mortgage as above, the cheapest five-year buy-to-let mortgage comes via Virgin Money. Their 1.67% interest rate and £895 product fee means paying £6,871 by the time the previous products’ two-year fixed rates will have ended. For me, that isn’t much of a premium to pay to provide the assurance of what my monthly payment will be for a five-year period, along with not having to deal with the admin of re-mortgaging again.
And whilst rates could of course fall further, meaning taking a further mortgage in two-years’ time could see you even better off in years three, four and five, bear in mind the time and energy this takes, as well as potentially the cost of instructing mortgage brokers and solicitors again.
As ever though, you need to consider your own circumstances when dealing with such matters. For instance, if you’re thinking of selling or wanting to re-finance sooner, you wouldn’t want to tie yourself in for a long period (which normally comes with exit penalties). Different lenders have different criteria too, so you’ll need to navigate this to match the best overall package for you.
All of the above is why it’s typically a good idea to consult with the professionals for independent financial advice, as a headline grabbing figure isn’t always as good as it first sounds.
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2 bed house in Chichester,
£230,000, 5.7% yield
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Summary:
2 bed house in Chichester
Listed for sale on 04/10/21 @ £230,000*
Rent = £1,100pcm
Yield = 5.7%
*It will sell for more than this, as it goes to 'best and final offers'
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In the past month I've moved a couple
of sets of tenants into their new
homes... but now I have tenants looking and nothing to let!
So, if you're looking to let your property, please get in touch with the 'Best Letting Agent in Chichester 2020'
(as awarded by allAgents)
and I'll be happy to help.
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Why are banks giving money away so cheaply?
Pretty simple really, it's even cheaper for them to borrow it in the first place! The bank base rate is 0.1% and the very best easy-access savings account offers 0.65%. Even with such paltry returns being offered, banks are said to be awash with cash as savers stashed significant amounts away during lockdown.
They are also competing during a booming housing market, keen to attract the low-risk lending that comes from a landlord stumping up a chunky deposit, which helps balance out their 90-95% mortgage deals on offer to first-time buyers.
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| CLIVE JANES |
| Owner |
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| t: |
01243 624599 |
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Voted 'Best Letting Agent in Chichester 2020'
with a 5/5 average rating from 174 customer reviews |
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