The buy-to-let mortgage market is experiencing a surge in activity, as the number of deals available to landlords reaches its highest level since before the mini-Budget. Financial information group, Moneyfacts.co.uk, reports that a total of 2,400 different deals are available to people looking to buy a property to rent out, a level last seen in July 2022. Furthermore, the average interest rate charged on fixed-rate buy-to-let mortgages has continued to fall. The typical cost of a two-year fixed rate deal is now 5.81%, while interest on a five-year one has dropped to 5.72%.

The rise in the number of buy-to-let mortgages available is a significant improvement from the sharp decline experienced in the aftermath of the mini-Budget. Lenders pulled deals and repriced them after former Chancellor, Kwasi Kwarteng, announced a steep increase in government borrowing costs. This impacted the rates lenders pay to borrow money for fixed-rate mortgages, causing the cost of the deals available to shoot up to more than 6%. However, Chancellor Jeremy Hunt reversed most of the mini-Budget measures, helping to restore confidence and reduce government borrowing rates. As a result, lenders have gradually relaunched their mortgage ranges and reduced the interest rates they charge.

Despite the fall in interest rates, landlords who are coming off a two-year or five-year fixed-rate deal are still likely to face a significant increase in their monthly repayments. For someone borrowing 60% of their property’s value, the average two-year fixed rate mortgage was 2.14% in March 2021, compared with 5.39% now, the equivalent of £542 a month more on a £200,000 interest-only mortgage. The difference is slightly less for five-year deals, with these rising from an average of 2.74% in March 2018 to 5.22% now, which would increase monthly payments by £413 on a £200,000 interest-only loan.

Although these are only average rates, there are better deals available if landlords shop around. Rachel Springall, the finance expert at Moneyfacts.co.uk, commented that, “The drop in average buy-to-let rates appear more subdued than seen within the residential mortgage sector, but lenders have made moves to entice new business.”

It is worth noting that higher interest rates not only make a mortgage more expensive to service, but also make it more challenging to pass lenders’ affordability tests. Lenders use a different affordability test for buy-to-let mortgages compared to mortgages for the main home, known as the Interest Cover Ratio. Under this test, the rent landlords receive from the property must be the equivalent of between 125% and 145% of their monthly mortgage interest payment. If the rent is not high enough to meet this affordability test, some lenders will allow landlords to do something called ‘top slicing’, which includes some of their income in the affordability calculations.

However, the rise in average rents has also played a role in the increase in buy-to-let activity. The Zoopla Rental Index reports that the typical cost of renting a home increased by 11.5% in 2022 to stand at £1,118. London saw a 16.1% increase, while in Scotland rents rose by 12.5%.

In conclusion, the buy-to-let mortgage market is experiencing a resurgence in activity, with the number of deals available to landlords reaching its highest level since before the mini-Budget. While interest rates have fallen, landlords who are coming off fixed-rate deals will still face significant increases in their monthly repayments. However, with a wide range of deals available, there are better rates to be found if landlords shop around. The rise in average rents has also played a role in increasing buy-to-let activity, and it remains to be seen whether this trend will continue in the coming months.

It is worth noting that the buy-to-let market has been subject to regulatory changes in recent years, which have made it more challenging for landlords to secure mortgages. For example, landlords are now subject to tougher affordability checks, and there are additional stamp duty charges on second homes and buy-to-let properties.

Nonetheless, the fact that the buy-to-let mortgage market is showing signs of recovery is positive news for both landlords and the wider property market. As the economy continues to recover, it is possible that we will see further improvements in the availability of buy-to-let mortgages, as well as the rates charged on these products.

In conclusion, the current surge in activity in the buy-to-let mortgage market is a positive sign for landlords looking to invest in property. While interest rates have fallen, landlords who are coming off fixed-rate deals will still face significant increases in their monthly repayments. However, with a wide range of deals available, there are better rates to be found if landlords shop around.

It is also important to note that the buy-to-let market has become more challenging in recent years, and landlords should be aware of the regulatory changes that have been introduced. Nonetheless, the recovery in the buy-to-let mortgage market is a positive sign for the wider property market, and it will be interesting to see whether this trend continues in the coming months.

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