The best landlord mortgages

We round up the most outstanding fixed and variable buy-to-let deals

Being a landlord is no easy ride -- the last two years have proved that much.

Increasing legislation means the average landlord has to spend hours (and significant money) on administration and regulation, as I explained last week in Government puts the boot into landlords again.

Then there is the thorny problem of finding funding.

Mortgage lending has contracted massively in the buy-to-let market, which has frustrated landlords since other indicators are looking so positive.

There are still property bargains to be had while slowly creeping prices mean capital gains are possible. Yields look healthy at 7.6% and half of landlords think the time is ripe to expand their portfolios, according to LSL Property Services, which owns letting agents Your Move and Reeds Rains.

Tenant demand is also growing. According to Countrywide Residential Lettings the level of new enquiries for rental properties in January increased by a massive 94% compared to December. It said demand is outstripping supply with almost three tenants to every available property.

Great, so what's the problem?

Lack of deals

No matter how rosy the sector looks it's still hard for many landlords to get mortgage finance. Of those who told LSL they want to buy, just over a quarter are actually able to, and half are frustrated at not being able to secure a deal.

The problem is two-fold. Firstly the minimum deposits required are really steep at 25%, and to get a competitive rate you need 40% upfront.

The minimum rental cover required for many deals has also risen massively over the last two years. Now you need to be able to show that your expected rental income is at least 125% of your monthly mortgage repayments and frankly the figures don't stack up for many landlords. If your mortgage repayments are £1,000, you need to be able to prove you can achieve rent of at least £1,250 a month -- or no deal.

However, the last few weeks have seen new buy-to-let products launched, and while it is still estimated that 90% of new lending is currently being done by just two lenders -- BM Solutions and The Mortgage Works -- there is increasing talk of new entrants in 2010 (or rather old lenders re-entering buy-to-let).

The figures last week from the Council of Mortgage Lenders outline just how tight things have got - in 2009, there were just 93,500 buy-to-let loans advanced, a decline of a massive 58% on 2008, and the lowest total since 2001. As the Council of Mortgage Lenders noted, this is "below the level of activity which is needed to enhance a vibrant private rental sector in the UK".

Fingers crossed that much needed competition will materialise.

In the meantime there is at least some product innovation.

Niche deals for landlords

Mortgages For Business, a company which works with other brokers to secure buy-to-let products (as well as serving as an adviser itself), has launched a new mortgage aimed at investors looking to purchase or refinance properties in need of refurbishment.

Lenders have traditionally refused to take a view on a property's refurbished value so landlords are faced with going through the loan process based on an initial purchase price before going through the whole process again once the work is complete -- and paying all the associated costs and charges twice.

With the Refurbishment Mortgage the loan is based on up to 70% of the property's end value after refurbishment -- some of the funds are retained until the work is done and the maximum initial loan is 65% of initial value. Rates are set at Base Rate+5% with a 1% loading during the refurbishment phase.

This is not the first refurbishment product to launch -- The Mortgage Works introduced a similar deal in 2008 designed to help landlords upgrade their property before letting it.

Last week the same lender launched a new range of innovative stepped tracker deals, which reduce in price after one year (see tables below), and so help landlords budget against potential Base Rate increases.

Plus, it has introduced a range of let-to-buy mortgages, enabling borrowers to remortgage an existing residential property and let it out -- perhaps because they are relocating with work, or want to buy another property without having to sell their existing one.

The remortgage-only deals include a 2-year fix at 5.39% up to 70% LTV, and a 2-year tracker at 3.99% (Base + 3.49%) up to 65% LTV.

It's great to see this raft of creative new products targeting the specific needs of some landlords. For most though, there is still a demand for well-priced standard mortgages, and below are some of my favourites:

15 fab fixed rates

15 top variable deals

Get help from lovemoney.com

If you need help getting the best mortgage use our resources.

First, adopt this goal: Become a buy-to-let landlord

Then, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

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