Mortgage rate war hits rental owners

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Mortgage lenders are slashing interest rates for buy-to-let UK investors as fierce competition for low-cost deals spreads beyond the main homeowner market.

The Mortgage Works, the rental arm of Nationwide construction company, last week launched a two-year 0.99% fixed rate deal for individual rental borrowers, not available to those who own through a mortgage. limited liability company.

Borrowers are charged a 2 percent arrangement fee, rather than the more usual flat rate, favoring those seeking lower funding levels.

Platform, the branch of the Co-operative Bank that lends through mortgage brokers, launched a two-year 1% agreement at the end of September for homeowners for those with at least 40% down payment and fee of £ 2,495. .

Gatehouse Bank, which offers Sharia-compliant mortgages, this week cut rates, called rental rates rather than interest rates, to 0.45 percentage points on fixed-rate deals up to five. years.

“Interest charged on purchase mortgages is down, with average two- and five-year aggregate fixed rates declining 0.03% and 0.04% this month,” said Eleanor Williams, financial expert at Moneyfacts. The industry recovered quickly from the pandemic, she said, with the number of offers for mortgages for rent now exceeding those available in March 2020.

Both purchase and lease rates are historically higher than those applied to residential mortgages, but the difference has narrowed in recent years as more lenders have entered the market and competed on rates.

Dan Clinton, director of The Mortgage Works (TMW), said the buy-to-lease market has fragmented due to tax and regulatory changes that have fostered the growth of a specialized segment of portfolio or owners professionals, who usually owned their properties through a limited liability company. .

The rates charged to these professional owners are higher – the lowest offered by TMW is 3.09% – as lenders face a more complicated task of appraising the loan as part of a portfolio of properties.

But Clinton predicted increased competition in this arena as high street lenders exit operations. “I would expect some of these lenders to enter this market. It is inevitable at some point.

The most significant long-term tax change was the four-year phase-out of the ability for homeowners to deduct mortgage interest from rental income, which ended this year. This prompted the owners to switch ownership to a limited liability company, which allows for such deductibility.

Chris Sykes, mortgage consultant with brokerage Private Finance, said when the policy change came in, most limited liability company rental mortgages had interest rates of around 3.5%. “There are now several options below 3%, with even some of the more specialized limited company lenders having rates in the lower 3% range. . . Lenders have become more flexible as they compete for this business.

Sales in the investment market were subdued during the recent stamp duty holiday in England and Northern Ireland, triggering a “space race” among homeowner buyers.

Aneisha Beveridge, research director at real estate agent Hamptons International, said investors were showing interest in buying more frequently than those in the broad market over the past four months. “[But] they are being pulled from the market by movers who are willing to pay more for their new home due to the lifestyle changes brought on by the pandemic, ”she said.

The average price paid by investors on the agent’s books had increased only 1 percent during the stamp duty holiday, compared with a 10 percent increase in the average house price during the period. “Overpaying them really corrodes [landlords’] returns, ”she said.

Clinton of TMW said homeowners have been forced to absorb a host of regulatory changes in recent years, but the market has remained resilient as interest rates have remained low. This situation could change.

“If you look at how buying and leasing rates have come down over the past four years, in most cases that has offset the impact of tax relief changes. . . Obviously, it would be problematic if and when the rates increased. It is a risk for the future.


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