Finance: Update on Buy to Let mortgages
Earlier this month, the government announced this month that the UK has officially entered a recession. On top of this, stock markets around the world could be volatile for some time, given the uncertainty over how the coronavirus pandemic is likely to progress. As a result, more investors who usually put their money in financial investments might be considering moving into property, particularly with the temporary increase in the standard stamp duty threshold.
And for existing landlords keen to expand their portfolios, economic uncertainty can often present opportunities to buy at a discount. That, together with the saving that will be made on stamp duty, means the next 6 months could be a good time to invest.
So, what’s been going on with mortgages?
In the first couple of months of the pandemic, the number of mortgages available in the market dropped by around half and most of the higher loan-to-value products were withdrawn, being naturally higher-risk.
But five months into the crisis, lenders know that there will be people looking to take advantage of the current situation and buy investment properties. In June and July, 283 more BTL products were added to lenders’ ranges, roughly half being two-year fixed deals and half five-year fixed deals. Maximum LTVs have risen slightly but are currently limited to 75% across virtually the whole of the market. That’s a reflection of the increased risk factors of tenants struggling to pay rent and capital values potentially dropping. Nevertheless, there are some attractive deals out there.
At the time of writing, most of the best two and five-year fixed BTL deals offer a maximum 60% LTV. Four such deals at the time of writing are:
Two-year fixed, 60% LTV*
|Post Office Money||1.50%||30.11.2022||4.59% variabble||£1,495|
Five-year fixed, 60% LTV*
|Virgin Money||1.79%||01.11.2025||4.54% variable||£1,995|
|Skipton BS||1.85%||31.10.2025||4.84% variabble||£995|
If you have less deposit funding available, Virgin Money is offering some of the most competitive products at the time of writing at 75% LTV, with a two-year fixed rate of 1.64% and a five-year fixed rate of 2.04%. After the initial fixed term, both revert to 4.54% variable, with a charge of £1,995 in product fees.
And for those buying their first BTL property, there are a range of good deals at between 60% and 75% LTV*, including:
|Lender||Max LTV||Initial rate||Reverts to||Fees|
|NatWest||60%||135% (2yr fixed)||4.09% variable||£995|
*Please note that lenders products and criteria are changing fast currently, so do consult a broker or the lender directly to check whether any of these offers are still available.
As always, it’s important to use an experienced Buy to Let mortgage broker that can access all products in the market. And, remember, for HMO investments you’ll need a specialist product, which will have slightly different terms and conditions.
If you’re thinking about buying and will need a mortgage, you can book a free, no-obligation initial discussion with our partner, Embrace Financial Services, via our website.
Reminder about mortgage payment ‘holidays’
If your tenant has fallen into arrears, meaning you’re having trouble affording your buy to let mortgage repayments, it might be helpful to know that the original three-month payment ‘holiday’ announced in March has been extended until the end of October.
If you’ve already been granted a payment break by your lender, you can ask for it to be extended if necessary. If you haven’t applied previously, you’ve got until 31st October to do so.
If you do take a mortgage ‘holiday’, you must be aware that interest on the outstanding borrowed amount will continue to accrue. So make sure you understand how your lender is going to reallocate this additional interest and the ‘holiday’ months.
- Some lenders will extend the length of the mortgage by the number of months
- Some will keep the term as it is and simply increase the monthly repayments to account for the extra interest accrued.
Whatever process your lender chooses, it’s important to understand that taking this payment holiday will ultimately increase the overall cost of your mortgage borrowing.