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The buy-to-let (BTL) market has been hit from all sides recently with tougher affordability rules and key regulatory changes, and now to make matters worse, our latest data shows that the average BTL mortgage rate is on the rise.
As you can see from the table below, since 1 October the average two-year fixed BTL mortgage rate has increased by 0.05% to reach 2.84%, and is on target to get back to the rate seen in September, before the latest set of regulatory changes came into effect. It's a similar story in the five-year sector, as although not quite as dramatic, the average rate has already edged up by 0.01% so far this month, as the run of record lows appears to be coming to an end.
|Average BTL Rate||Sep-17||Oct-17||Today|
"It has been a turbulent time for the BTL market of late thanks to multiple rule changes, and there's no sign of calmer waters as rates are starting to creep up from their record lows," said Charlotte Nelson, finance expert at moneyfacts.co.uk. "While a 0.05% increase appears insignificant, it marks a clear turnaround in the BTL sector, so landlords are now faced with not only more hoops to jump through but higher rates as well."
But why have rates been rising? Well, as in the residential market, much of it could be due to mounting base rate speculation, which is causing SWAP rates – the rate banks charge for lending to each other – to rise significantly. Mortgage rates are often determined by these wholesale costs, which means lenders have had little choice but to increase their rates, with 18 providers having upped theirs since the start of September.
However, much of it could also be due to the new rules that are now in play, as Charlotte explains: "The beginning of this month marked another significant change in the BTL mortgage market, as lenders are now required to apply stricter underwriting criteria to portfolio landlords. This has seen the BTL mortgage market shift away from landlords who have three or fewer properties, with a 13% drop in the number of products available to this group since the start of October.
"This portfolio change may have had a more practical effect on rates as well, with lenders not just being a little more cautious; some lenders may have had to change their process behind the scenes to accommodate the new rules, and this extra cost may be impacting these providers' pricing activity."
Unfortunately, with all the changes impacting the market and now the extra blow of rising buy-to-let mortgage rates, it's going to be more difficult for individual landlords to make a profit, particularly one that is worth their efforts. "Landlords will have to weigh up the costs to figure out what their best possible option may now be," said Charlotte, "and anyone who is unsure should seek the advice of a financial adviser."
Rates may be rising, but there are still some good deals to be found – check out the best buy-to-let mortgage rates before they get a chance to rise even more.
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