BTL mortgage market remains competitive despite rates rising

Landlords looking to lock into a new fixed buy-to-let (BTL) mortgage deal may want to consider acting quickly as, during the first two weeks of 2021, the average rates on two and five year fixed deals across all loan-to-value (LTVs) have increased.

Our research has found that during this period, the average two year fixed BTL rate on all LTVs has increased by 0.03%, from 2.89% on the 1 January 2021 to 2.92% on the 15 January 2021. The average five year fixed BTL rate on all LTVs increased by 0.02% during this period, from 3.27% to 2.29%. At the same time, the number of fixed and variable rate BTL deals fell by 27 during the first two weeks of January, from 2,003 available on the 1 January 2021 to 1,976 available on the 15 January 2021.

Although 2021 has seen average two and five year fixed rates increase, there are still some highly competitive rates available in the charts, with BTL mortgage rates still available from as low as 1.19% in the two year fixed BTL chart and 1.64% available in the five year fixed BTL chart. The fall in product numbers this year, along with the rise in average rates, however, shows how volatile the market is at the moment and, as a result: “Those considering exploring a new BTL mortgage could do well to secure the knowledge and advice of a qualified adviser, to ensure they keep abreast of any relevant changes,” said Eleanor Williams, finance expert at Moneyfacts.co.uk.

Research carried out by Hamptons found that during 2020 there was a 23% increase in the number of BTL companies being formed compared to 2019 and in total, last year saw 41,700 new BTL companies.

Hampton suggests that the increase in new BTL companies could be due to landlords looking to benefit from the tax incentive of being a limited company, especially as 2016 saw the proportion of mortgage interest deductible from tax on BTLs held in personal names starting to be phased out.

Commenting on the research, Aneisha Beveridge, head of research at Hamptons, said: “Despite growth in the private rented sector slowing in recent years, an increasing proportion of BTL purchases are now being held in limited companies. We estimate that around half of all rental properties bought today are being put into a company, up from close to one in five during 2016. While most of this growth has been driven by larger landlords, smaller landlords, particularly those who are higher rate taxpayers, have also reaped the tax-saving benefits from incorporating.

“As the company BTL market has matured, more mortgage lenders have entered the space. Back in 2016 there were just a handful of lenders who offered company BTL mortgages, often at a greater premium than today. But with more high street names entering the limited company space in recent years, competition has driven down interest rates to within a percentage point of similar products designed for landlords purchasing in their own name.”