Greater buy-to-let mortgage choice but rates remain high

The number of buy-to-let mortgages in the market rebounded to levels last seen in August 2022, before the mini-budget caused the sector to contract.

Homeowners mortgage rates are also down, but still much higher than they were two years ago.

The overall availability of buy-to-let products has increased by 7% over the past month, according to new figures from financial data firm Moneyfacts.

There are now 2,400 mortgage products for homeowners, the highest level since July last year.

At the same time, average mortgage rates continued to decline for fixed two-year and five-year contracts.

However, those coming out of a fixed deal will still face mortgage shock, with current rates still around 2% higher than they were two and five years ago.

Off-market: buy-to-let products have all but dried up after the cost of borrowing skyrocketed in the wake of last year’s mini-budget

Currently, the average two-year fixed mortgage interest rate is 5.81%, regardless of deposit size. That’s down from 5.95% last month, but significantly higher than two years ago, when it was 3.05%.

And today’s rate is even higher than five years ago, when the typical homeowner’s mortgage was 2.96%.

It means a borrower with a £200,000 25-year mortgage is now paying £1,265 a month in interest, £321 more than five years ago and £311 more than two years ago .

Rachel Springall, finance expert at Moneyfacts, said: ‘As average two- and five-year fixed rates are above 5%, up from around 3% a year ago, it’s clear that homeowners are likely to see their monthly repayments much higher than they might have expected.

“Homeowners can wait for fixed mortgage rates to drop further or opt for a follow-on mortgage to give them more flexibility to potentially change their deal.

“However, interest rates are only part of the decision-making process when entering a buy-to-let investment. Whether for new or existing owners, it is always wise to seek advice on how to make sure it’s the right time to commit to a deal.

Cheaper buy-let offers exist

There are currently offers on the market with lower rates that are worth investigating.

The Mortgage Works offers a fixed purchase agreement at 3.99% over two years, up to 65% of the loan to value.

For a five-year solution, the same lender offers a 3.98% deal for up to 75% LTV.

Both offers are for those looking to remortgage rather than buy a new property. Other lenders are offering deals below 4.5%, for two- and five-year solutions, including NatWest and BM Solutions.

> You can find the best deal for you by using This is Money’s Mortgage Comparison Tool with L&C Mortgages

While rental home loan rates are falling, landlords are still facing a significant increase in costs compared to two years ago.

However, one in three homeowners struggle to remortgage after failing their lender’s affordability test.

As a result, some buy-to-let investors are forced to accept variable rates of up to 9.5%. Others sell because they can no longer repay their loans.

Riz Malik, Director of R3 Mortgages, said: “Although the number of offers available to landlords has increased, a significant proportion of rental property owners are still unable to take advantage of these opportunities.

“Many of the deals available have arrangement fees that have increased significantly since the last budget, and there is still no guarantee that these deals will result in the desired loans.”

Therefore, landlords considering refinancing this year may face unexpected challenges, which may affect their tenants.

A quarter of UK adults have seen the cost of their mortgage or rent rise in the past three months, with those aged 18 to 34 most likely to be affected.

By comparison, just under a quarter of people aged 55 to 75 expect their rental or mortgage costs to rise – perhaps because more people in this group are likely to own their own home.