Times are tough for landlords at the moment and many may be thinking of exiting the market as returns continue to be squeezed into 2019.
But selling up isn’t always as simple as it sounds. The housing market has ground to a halt in the run up to Brexit, as many homeowners stay put to see the impact it will have on house prices.
Landlords thinking of selling up but unsure whether market conditions are right just at the moment could benefit from a new buy-to-let tracker deal from TSB which doesn’t carry any early repayment charges.
This could be a good option for those who need to remortgage to save on costs and would like to sell but don’t know how long that will take or when they may do it.
TSB has released two deals which allow landlords to sell up without incurring any extra costs
Landlords with a deposit equal to 40 per cent of the value of the property can benefit from a tracker rate currently set to 2.29 per cent with a fee of £995, which can be added onto the loan.
Landlords with a deposit in the 60 to 75 per cent loan-to-value range are being offered the same deal with a rate of 2.44 per cent.
Both deals track the Bank of England’s base rate, currently 0.75 per cent, for two years before reverting to the lender’s standard variable rate.
Borrowers should be aware that this rate can change if the Bank of England cuts or raises the base rate within the two-year period.
The deals are available for loans from £25,005 up to £500,000, inclusive of the £995 product fee.
How does it compare?
There are already a few buy-to-let mortgages out there that come without early repayment charges.
Cheapest among them is a 75 per cent loan-to-value two-year discount from Hinckley and Rugby Building Society at 1.74 per cent. While the rate on this is the lowest on the market, the deal does come with a hefty £3,564 fee.
Shaun Church, director at Private Finance
Leek United has a 65 per cent loan-to-value two-year discount, currently at 1.84 per cent, with a fee of £199.
For landlords nervous about the prospect of a rise in base rate, Godiva mortgages has a two-year fixed rate deal at 65 per cent loan-to-value, fixed at 1.92 per cent. This deal comes with a £1,999 fee.
Shaun Church, director at mortgage broker Private Finance, said: ‘The TSB deal isn’t unique, but there aren’t a huge number of penalty free buy-to-let products on the market.
‘It’s therefore encouraging to see another product of this nature brought to market, injecting flexibility and greater competition as a result.
‘Accord and Coventry Building Society offer similar products, though at a slightly more competitive rate. Nevertheless, it’s a minimal difference, so this product is still reasonably priced.’
You can find the best deals out yourself by using This is Money and L&C’s mortgage finder tool by clicking here. To find out the true cost of any mortgage, you can use our mortgage calculator by clicking here, which will allow to take the cost of the fee into account.
‘By offering landlords the flexibility to sell up penalty free at any point during the mortgage, this product is well suited to landlords thinking of selling in the near future, or those who are unsure of whether they might sell their buy-to-let property within the next couple of years,’ Church added.
‘Those anticipating a large chunk of money such as pension drawdown or liquidation of other assets would also benefit from this product.’
Lenders are becoming more innovative as tough market conditions lead to a drop in demand
Why is this being offered now?
Lenders are becoming more innovative in the buy-to-let space as tough market conditions have led to a drop in demand.
For example, in the past two weeks Leeds Building Society has cut its buy-to-let rates and NatWest has relaxed its lending criteria.
Last year saw the first drop in the number of homes available to rent in 18 years as the effects of adjustments to stamp duty and mortgage interest tax relief began to force landlords out of the market.
TSB’s new deal coincides with a study from Kent Reliance which found that more than a third of landlords are looking to cut their annual spending as rising running costs and higher taxes bite.
Over a third have either already begun to cut the cost of running their portfolio or plan to do so in the near future. This is equivalent to around 900,000 landlords cutting costs.
Nearly a third of landlords surveyed hope to cut their outlay on mortgage interest payments, by an average of 23 per cent, by remortgaging in the near future.
Lenders have responded by widening their offerings and bolting on more attractive incentives.
Landlords currently have the pick of more buy-to-let mortgages than at any time since the financial crisis, according to the latest research from Moneyfacts.
However, while the choice of 2,162 buy-to-let mortgages is the most since October 2007, the seemingly heightened competition among lenders for buy-to-let business has not extended to the interest rates that are on offer.
The average two-year fixed buy-to-let mortgage rate has increased by 0.20 per cent to 3.12 per cent since September 2018 and the average five-year fixed rate has increased by 0.15 per cent to 3.61 per cent, a stark contrast to the residential mortgage market where rates have recently been falling.