Shrinking buy-to-let market triggers mortgage rate war
The rapidly shrinking buy-to-let market is driving lenders to a mortgage price war as they compete for dwindling demand from borrowers.
The Post Office is the latest lender to cut rates on a swathe of deals. Its new two-year fixed rate of 1.33pc is the lowest ever offered, according to Moneyfacts, the comparison site.
The lender now has the lowest interest rate in four of Moneyfacts seven categories and the joint lowest in another.
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It follows similar moves by other lenders, including Nationwide Building Society, to sharply reduce rates.
Punitive tax relief and stamp duty measures introduced by former chancellor George Osborne have made the buy-to-let market less lucrative for landlords and levels of borrowing are falling. Industry figures reveal buy-to-let lending fell by 23pc over the past months, although some lenders, such as Nationwide, reported falls of more than 50pc year on year.
Some landlords are considering abandoning the market altogether, with one in five planning to sell up within the next five years, according to the Residential Landlord Association.
Buy-to-let tax changes | Mortgage interest relief
- From 2020, landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when they calculate the tax due
- So tax will be paid on turnover rather than profit, meaning tax could be due on non-existent income
- For higher-rate taxpayers, mortgage costs above 75pc of rental income will make their BTL investments loss-making
- Mortgage interest relief will be restricted to 20pc, meaning that higher and additional-rate taxpayers will be particularly affected
A spokesman for Moneyfacts said the 1.33pc offered by the Post Office on a two-year fixed-rate mortgage is the lowest fixed rate ever seen. To qualify for that rate borrowers need to have at least 40pc equity or deposit (see table, below, for other current best-buys).
“Post Office Money is making its mark on the buy-to-let market with the launch of its new deals, many of which are heading straight to the top of the market,” she said.
“As a result it is likely these will be popular option for landlords however, with a sizeable fee borrowers will need to ensure they do the maths to ensure this is the most cost-effective option for them.”
Buy-to-let mortgages | The best on the market
The slump in buy-to-let lending following changes to landlords’ tax relief and second-home stamp duty has prompted lenders to reduce interest rates.
Here are some of the best deals:
Two-year fixed rate at 60pc equity
|Post Office Money||1.33pc||£1,495|
|Post Office Money||1.41pc||£1,495|
Three-year fixed rate at 75pc equity
|Post Office Money||2.38pc||£1,495|
Five-year fixed rate at 70pc equity
|Post Office Money||2.73pc||£1,495|
In terms of two-year fixed-rate loans where a borrower has 40pc equity, the Post Office now has the lowest rate at 1.33pc. This is lower than lender Platform’s similar offer which comes with a rate of 1.34pc – although the Post Office’s arrangement fee is £1,495 compared to Platform’s £1,999.
The Post Office also has the best offer for those with 25pc equity, with a rate of 1.68pc and an arrangement fee of £2,495. This replaces the Skipton Building Society best-buy deal of 1.69pc with an arrangement fee of £2,495.
Skipton continues to have the best offering at 70pc LTV.
For three-year deals, the Post Office now has the joint lowest rate on the market for a 60pc LTV mortgage and the lowest at 75pc LTV. The lender is tied with Virgin Money at 60pc, offering rates of 1.99pc – although the arrangement fee of £1,295 is lower than Virgin’s £1,995.
Skipton Building Society still offers the lowest rates on the market for a five-year fixed-rate deal at 2.69pc.