Mortgage lenders court landlords with raft of new deals

Lenders are backing the buy-to-let sector, with many more mortgage deals now available to landlords at higher loan-to-values, new research shows.

Moneyfacts.co.uk’s latest data reveals that the number of buy-to-let mortgage products has jumped by 222 month-on-month between December and January. This means there are now 3,528 mortgage deals for landlords to choose from, the highest number Moneyfacts has recorded since 2007. This also represents 945 more products than were available pre-pandemic.

Meanwhile there has been a sharp recovery in the number of products on offer to those borrowers with smaller deposits or levels of equity. This time last year, for example, there were no deals at all available in the 85% LTV bracket, but now there are 28 products available, the most since March 2020. As recently as November 2021, there were only four deals to choose from in this bracket.

Looking at interest rates across the BTL market, there is polarisation in the fixed-rate mortgage space. The average overall (meaning across all LTV brackets) two-year fixed rate BTL mortgage went up for the second month in a row to 2.94% in January, the highest level since September 2021. This reflects the increase in the Bank of England’s base rate which took place last month. In contrast, the average overall five-year fixed rate has stayed unmoved at 3.18%, the lowest level since August 2020.

A two-year fixed deal at 65% LTV now costs 2.73% on average, a slight uptick from the previous month. A five-year deal in the same bracket costs 3% on average, a slight fall from December.

At 75% LTV, the average two-year fix costs 2.91%, unchanged from December and a fall from January 2021. The average five-year fix in this bracket costs 3.19%, a little lower than the previous month.

At 85% LTV, you would pay an average 5.42% for a two-year fix, a jump from the 5.17% average on offer in December, and 5.52% for a two-year fix, up by a significant 0.3% month-on-month. However, it is worth remembering that this is still quite a niche lending sector which many providers consider high risk. This means it only takes a little movement or a slight change by a handful of lenders in this space to have quite a big impact on average rates.

The buy-to-let sector has become less profitable in recent years, with landlords facing a perfect storm of push factors including burdensome new regulations and an end to tax breaks. Meanwhile, a key pull factor could be the overheated property market, which might encourage landlords to sell up now while they might get a buyer to pay over asking price.

That said, there is also extremely high demand for rental properties at the moment: the latest Rental Market Report from Zoopla reveals that rental demand grew to a 13-year high in the third quarter of 2021, outstripping supply, while average UK rents went up 4.6% over the year. This could make BTL look attractive to investors in spite of its challenges.

“Despite changes to regulations, taxation and the impact of the past 18 months, BTL lenders seem keen to entice borrowers, as there are almost 1,000 more products available now than there were two years ago in January 2020, before the onset of the pandemic,” said Eleanor Williams, finance expert at Moneyfacts.co.uk.

“The level of product choice available to landlords has continued to increase for the eighth consecutive month, with the number of options across all the LTV tiers improving. The rise of 222 deals is the highest month-on-month increase in availability that we have recorded since July 2021. At 3,528 total deals on offer, this is the largest number of BTL products we have seen in more than 14 years.”