Brilliant buy-to-let mortgage deals

Buy-to-let is back on track with lending up 15%. We round up the top mortgage deals

The buy-to-let market has certainly taken a battering over the last two years, with the vast majority of products being wiped out and lenders shutting up shop left, right and centre.

So this week’s lending figures for the sector are really encouraging, because they show that, while the buy-to-let market is by no means booming, it’s pretty buoyant.

And more importantly it’s getting better.

More mortgages

The Council of Mortgage Lenders says that 24,900 buy-to-let mortgages were taken out in the second quarter of this year, a significant 15% more than 12 months ago, and also 13% up on the first quarter of 2010.

In other words the market is slowly and steadily growing.

The value of all these mortgages was a massive £2.4bn, of which £1bn was remortgaging. The trade body points out that although business is only around a quarter of its level of three years ago -- at the peak of the market -- both the number and the value of buy-to-let loans are currently at their highest level for nearly two years.

In fact, at the end of June, there were 1.26m buy-to-let mortgages outstanding, worth a total of £149bn. This accounts for a whopping 12% of all mortgages, the highest proportion since records began!

So while the market is still subdued compared to pre-crunch levels, it is in a much healthier state than it has been for some time. The fact that many people are not able to get onto the property ladder because of funding restraints has led to a surge in tenant demand -- good news for landlords.

Managing their mortgages

It’s not just lending levels that are looking rosy in the buy-to-let market.

Arrears cases have improved markedly, falling from 19,300 to 18,500 (mortgage in arrears of more than 1.5% of balance). This is now just 1.46% of all buy-to-let mortgages.

Repossessions have increased though, from 1,400 in the first quarter of the year to 1,600 in the last three months, accounting for 0.13% of all buy-to-let mortgages. This is significantly higher than the 0.08% possession rate in the wider mortgage market.

However this could be partly explained by the increased forbearance being shown to owner occupiers to help them stay in their homes, as directed by regulators and Government. The same flexibility is not always shown to borrowers when the property in question is not the roof over their head.

Finding funding

There is one big sticking point though, and that is the tight funding environment. It is still tricky for some landlords to find the finance to expand their portfolios, and sometimes to even remortgage them.

Most mortgages on offer require a 25% deposit or equity (though there’s a handful that will accept 20%). And it can be difficult to get the figures to stack up, with a minimum rental income required by most lenders of 125% of mortgage payments.

Related blog post

• John Fitzsimons writes:

  Should you go for an offset mortgage?

  Offset mortgages can shave thounsands of pounds off your mortgage, as well as cutting the eventual mortgage term, but are they worth the premium you'll pay for them?

  Read this post

In other words if your mortgage payments are £500 you must be able to show you are receiving, or can let the property for at least £625 a month. This is a problem for many landlords who may have taken out their original deal on a more generous minimum rental cover (110% used to be common), and are now struggling to remortgage.

But there is some good news. New lenders have entered the market since the credit crunch, including Bank of China, Precise Mortgages and Aldermore Mortgages, plus other existing buy-to-let lenders have returned to lending or improved their buy-to-let offering in the last six months.

Let’s not pretend that there is a mortgage picnic out there for landlords to sample -- there isn’t. But there are one or two tempting deals for those who can make the sums add up.

Of course, many of these lenders are intermediary only which means you cannot access them directly. A professional mortgage broker will be able to advise you on these deals, and the best will also tell which direct deals are available to you too.

This means you get access to the whole market, and the benefit of the expertise and experience of a qualified adviser, such as the fee-free independent brokers at lovemoney.com.

If you are looking for a new buy-to-let mortgage below are some of the best, split into two tables. The first includes deals for those with 20-25% upfront, while the second lists more competitive mortgages for landlords who can muster a 30% deposit or more.

13 top deals with 20-25% upfront 

*London Interbank Offered Rate (0.73)

13 fab deals with 30% upfront

More: Get £4,500 cashback with this mortgage | House prices drop to 2006 levels