Marketing No Comments

Cost of BTL products dips

The average price of a buy-to-let mortgage has dropped over the past three months in a further sign that demand was drying up.

Latest data from Mortgage Brain’s quarterly analysis of the market showed the average cost of both tracker and fixed-rate buy-to-let products dropped and some experts have put the reduction down to providers trying to entice landlords in a difficult market.

For example, the analysis showed the cost of a 60 per cent loan-to-value two-year tracker mortgage dropped 3 per cent in Q2, while the same product at 70 per cent LTV now costs 2 per cent less than it did in March.

Landlords looking for fixed rates have also seen a decline in cost as the data showed a 2 per cent reduction in the cost of five-year fixed products.

The findings also showed a fall in cost of about 1 per cent for 60 per cent and 70 per cent LTV three year-fixed buy-to-let mortgages.

Although seemingly marginal, Mortgage Brain stated that a 3 per cent drop for a £150,000 mortgage at 60 per cent LTV could save a borrower upwards of £230 a year in a market where margins are slim.

Mark Lofthouse, chief executive of Mortgage Brain, said: “With new regulations, tax changes, and the potential for base rate rises coming into play, the buy-to-let landscape remains as complex as ever.

“While the mortgage cost movement over the past three months has been minimal, the majority of the movement has been favourable and with specialist advice and support from brokers, buy-to-let investors and potential landlords can continue to make the most of the low rates and costs in the buy-to-let market.”

Landlords have been subject to a number of regulatory changes in recent years, with the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016 shortly followed by cuts to mortgage interest tax relief.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority’s tightened underwriting rules and the government has proposed abolishing the so-called ‘no fault’ Section 21 notices which give landlords the power to evict tenants at the end of their tenancy without a reason.

Back in January, the Intermediary Mortgage Lenders Association warned this year’s tax return would be the first time many landlords would see the effects of the changes on their earnings.

The data from Mortgage Brain also showed the difference in cost between residential and buy-to-let products, demonstrating the variation in risk between the two strands of mortgages.

The latest figures showed the cost of an 80 per cent five-year fixed product was 19 per cent higher than for its residential equivalent, while tracker products cost about 7 per cent more in the buy-to-let sphere.

Nick Morrey, product technical manager at John Charcol, said: “The difference between buy-to-let and residential products is interesting as it highlights the risk difference between the two.

“It would appear that the difference is highest for five-year fixed rates, which is a reflection of the need for them for landlords whose properties do not meet the affordability stress tests on other products and therefore effectively find themselves being able to only consider five-year fixed rates.”

According to Mr Morrey, this has created a “captive market” where lenders can levy a higher rate on five-year fixes and still sell the product as for some landlords it is the only option.

Mr Morrey added that the drop in costs for buy-to-let lending in general was not unexpected given the high level of competition in the area and the fact the market had seen some signs of declining demand due to changes to tax and regulation.

He said: “To grow or even maintain market share, lenders are shaving down their rates as much as they can and looking to tweak their criteria to cast a slightly wider net.”

By Imogen Tew

Source: FT Adviser