Buy to Let Mortgage Rates Fall Again

With the housing market static and banks requiring large deposits many people are turning to renting a property so the market for the buy to let investor is again ramping up.

As the demand for rental property continues to increase so does the demand for landlords buying new properties to rent out. Rents have increased across the board in recent months especially in London where people simply can’t afford the large deposits required to buy their home and are waiting still to see how house prices move in the longer term.

And this trend hasn’t gone unnoticed by the banks where the average price of a buy to let mortgage has increased both in terms of the interest rate but also the large fees charged by lenders for the pleasure of lending you the money in the first place.

The average price of a five year fixed mortgage for a buy to let property is now 5.69% which although is nearly double that of a regular mortgage is much lower than a year ago. The fees are still high with the average being around £2,000 again much higher than a standard residential mortgage.

So is this time for new landlords to enter the market ? Probably not. But possibly so.

In the boom years investors could rely on the increase in equity of the price of the property to increase substantially so that the return would not only directly be on the rental income but on the property value. Unfortunately today house prices are flat and are unlikely to increase at the levels previously experienced and the long term forecasts are for virtually flat values over the coming years. However there are ways in which experienced landlords are making money in these times.

Most tend to purchase houses that are undervalued and need work and refurbishment undertaken to bring their value up. Additionally of course there is the rental income and with rents increasing the figures could make good reading.

In recent years rental income for the buy to let landlord have hovered around the 4%-5% mark but these are also increasing so a return of 7% or more are not uncommon. However before jumping into this industry you will also need to factor in additional costs that might not be in this data when you read articles online. All landlords probably use a letting agency to find tenants and even if you negotiate on the fees you will be paying between 8% and 10% to the agency.

Once you also factor in the legal fees in acquring any property, the mortgage fees of around £2,000 and any tax implications if you then go on and sell the property then they will not be so high. Of course this is a better investment than purely putting your money into a “savings” account with the bank and of course house prices are increasing albeit at low levels then you might want to take a longer term view.

But if you are able to invest say £200,000 into a property via a mortgage you might make a 5% return each year together with the equity increase and with rents rising overall it might not seem quite a bad idea. You should always seek professional advice on any investment you are thinking of undertaking.