As the Lower Rates Disappear, What is the Answer for Buy to Let Investors?

Since the credit crunch, there has been a record high of buy-to-let properties available. However, the interest rates at the low end of the scale are vanishing. Thanks to renters reaching their budget limits and the Government removing the beneficial tax breaks, the last few years have been hard for property investors.

According to industry data released by Moneyfacts, there is a greater selection of loans to choose from for landlords. In fact, there are 2,162 deals for B2L loans available right now – a significant increase on the 1,765 that were available in March of last year.  Furthermore, this has been the highest since there were 3,305 available in October 2007.

Although the amount of choice is increasing, lenders have discontinued many of the best deals. The average rate for B2L mortgages has risen steadily over the last 18 months. For example, a two-year B2L mortgage comes with the average interest rate of 3.12%, compared to the 2.86% it was in September 2017.

According to a spokesperson for Moneyfacts, while the choice of mortgages might be greater for B2L investors in the last 12 or so years, this increased competition hasn’t caused the interest rates to fall in a similar way to what happened with residential mortgage premiums.

Darren Cook stated that financial companies have a negative and pessimistic view of the market and that’s why they are not prepared to lower the B2L interest rates.

From the adviser network, Legal & General Mortgage Club, Kevin Roberts countered that these fears were not justified. He stated that while the buy-to-let market has faced some challenges over the years, due to taxation and regulation adjustments, it’s not as bad as people tend to think it is and there are still opportunities for lower rates than are currently available.

There are some financial organisations that are trying to target new customers by offering better terms and lower rates. For example, NatWest removed their restrictions on providing landlords with mortgages who took on tenants receiving housing benefit and Barclays had lowered their buy-to-let re-mortgage and purchase rates.

Looking Beyond Small Properties and Flats

Mr Roberts has said that, in addition to benefiting from the lower rates while they’re available, landlords have also been looking to other investment opportunities beyond the standard small houses and flats.

In line with this, there have been a high number of landlords who have added different types of properties to their portfolios, with an increase in the multiple occupancy market and holiday B2L sectors of the market.

It’s not just the type of properties though, it’s where they are located that landlords have been looking outside the norm for, with South Eastern and London-based landlords looking beyond the capital for better profits. This is unsurprising as they suffered the most in reduced yields.

Many are selling London-based property and then using the profits to invest in several properties in other areas. North of the country is where landlords are experiencing a lot of the best returns on investments. The existing desire for buy-to-let investments has been met by the increased demand for rental properties, from professionals and young families.

Mr Roberts also noted that many landlords have been taking the opportunity to benefit from the situation to buy new properties elsewhere for less.