Brilliant buy-to-let mortgages at under 5%

Things may be on the up for those investing in property.

Buy-to-let landlords were one of the big scapegoats of the financial crisis, the so-called get-rich-quick merchants who inflated house prices, blinded by their own greed. And while many will have had their fingers burnt, for those professional landlords who viewed their investment as a long-term deal, things are looking pretty rosy.

Indeed, in the words of the Royal Institution of Chartered Surveyors, the lettings market is currently ‘buoyant’.

Rising rents

According to the latest survey from the trade body, 27% more surveyors reported a rise in rents than a fall in July, while tenant demand was reported to have increased in every region, most significantly in London and the East of England.

It’s not just increased demand that is contributing to the rising rents – supply is also steadily decreasing, having now fallen for four consecutive quarters. And the outlook is pretty positive according to the surveyors, with 33% more surveyors expecting rents to rise still further in the next quarter rather than fall.

Falling voids

There’s further good news for landlords on the issue of rental voids, the amount of time a rental property is unoccupied. According to the Association of Residential Letting Agents, the average void period has fallen to just 3.2 weeks per year, the lowest level in eight years!

It’s another very clear indicator of just how strong demand is for rental property.

The amateur rivals

Related blog post

• John Fitzsimons writes:

  Should you pay a fee for a decent mortgage?

  Some of the best mortgages in the market carry huge product fees. Is it worth paying a high fee in order to secure a competitive mortgage rate?

  Read this post

However, professional landlords are increasingly facing the threat of amateurs. Spareroom.co.uk, a site advertising, you guessed it, spare rooms to potential tenants reported a record number of homeowners advertising for lodgers in August.

With an increasing number of homeowners looking to ramp up their income ahead of the economic bumps we are likely to face as a nation in the coming months, almost 10% more landlords advertised a room in August than July. Indeed, the figure was up by 32% from last August!

And there’s an obvious attraction to living under the same roof as your landlord – at least you know you won’t constantly be fobbed off if the heating is down, or there’s a foot-shaped hole in your door!

Money’s too tight to mention

For some time now, the one constraint to landlords expanding their portfolios has been the cost of refinancing. Indeed, the most recent survey of landlords by the lender Paragon Mortgages found that more than half (52%) of those landlords who attempted to access mortgage funding in the last quarter reported it a more difficult process than previously.

Similarly, 45% of respondents said the expansion of available mortgage finance would be the top factor in encouraging further landlord investment.

And progress in this area has been slow. While some new lenders have entered the market, like Aldermore and Precise Mortgages, many of their products have fallen short of topping best-buy tables. However, there has been a big boost this week, with the news that Paragon Mortgages, previously one of the big boys of buy-to-let lending, would be returning to the market, having arranged new funding. It may take time before they are back offering market-leading deals, but another returning face is very much welcome.

A question of fees

However, it’s not just been the lack of lenders competing in the buy-to-let marketplace that has made things tough for landlords, but the astronomical product fees many charge.

As you can see from my tables below, paying a product fee of 3.5% is far from unusual. On a mortgage of £150,000, that’s £5,250 that you either have to stump up straight away, or else add to the mortgage and therefore pay interest on it.

Hardly ideal.

Thankfully however, a number of lenders have started offering some decent products with no product fee at all.

For example, just this week Godiva Mortgages has launched a three-year fixed rate mortgage at 4.49% with no product fee, a deal sure to attract the interest of those landlords with 50% equity already sorted out.

But unfortunately, the fact is, you are likely to have to pay a higher rate if you don't want to pay a large product fee. But that's not necessarily the end of the world. The important thing is to work out the total cost of the deal, including fees, or to get a broker to do it for you -  and then you can be sure it's the cheapest.

15 tremendous BTL fixed rates

10 terrific BTL trackers

More: Pay 5% on your mortgage for a decade | You'd be mad to ignore 2.19% tracker mortgages!

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.