Top 5 landlord questions on mortgages answered

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In December 2021, the Bank of England put up its base interest rate for the first time since the start of the pandemic, when it was dropped to a historic low of 0.1%. This year it has been increased several more times and this is expected to continue.

When the base rate rises – and particularly when inflation is high as it is currently – mortgage interest rates usually follow suit, to ensure that lenders can continue to cover their own increased costs.

As a landlord, here are 5 questions you might be asking right now:

What kind of buy-to-let rates are available at the moment?

Generally speaking, most landlords go for fixed, interest-only deals. While there are other factors to consider – including fees, early redemption penalties, and the standard variable rate when the fixed term ends – here are some headline figures for deals available as at the end of July 2022:

Are mortgage rates likely to go up further?

Unfortunately, yes – it currently sits at 1.75%. Experts are suggesting it could eventually reach 3% or even higher if inflation continues to rise in the UK.

Is now a good time to switch mortgages?

We’d suggest that unless you moved onto a new 5-year fixed deal within the last couple of years, it’s definitely worth trying to lock in current rates before they go up again.

Do I need to use a mortgage broker or can I go direct to a lender?

Although you may be able to secure a good deal for a standard residential mortgage by going direct to a lender – especially if it’s your own bank – that’s not generally true with buy-to-let mortgages. That’s because around two-thirds of BTL products are only available through brokers, so you won’t even find them on comparison sites. If you’re looking for a fixed-rate deal or a LTV of 80% or more, around 75% of those types of mortgages are broker-only.

It’s a good idea to review your mortgage every six months, with a broker like Mortgage Scout, as lenders tend to change their deals and may introduce new ones.

Is it better to own investment properties with cash or a mortgage?

Owning your home outright can be hugely beneficial. You don’t have the cost of monthly mortgage payments and the equity gives you a great deal of financial security and options for the future. However, with buy-to-let, you should be considering the financial return on your investment and leveraging the bank’s money via a mortgage can boost your capital returns significantly.

Here’s a simplified example:

• You own a BTL property worth £200,000 outright. If the market rises by 10%, you’ve made £20,000 – a 10% return on your £200,000 capital invested.
• If you owned the same property with a 75% mortgage, that £20,000 rise in value is a 40% return on your £50,000 capital invested. You’re benefitting from the profit on not only your own money, but the bank’s money as well!

You do have to consider the monthly mortgage payments which will reduce your ongoing rental profits, but the rise in the capital value of the property over time should more than compensate. That’s why buy-to-let is most successful when it’s treated as a long-term investment strategy.

There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage.

Your property may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.

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