Landlords have seen the number of buy-to-let mortgages slide by almost a third over the past year and rates on offer rise, data shows.
The buy-to-let mortgage crunch has seen 800 of the 2,592 deals for landlords on offer in November 2019 vanish, a drop of 31 per cent, according to data from Moneyfacts.
Meanwhile, average rates have risen since the coronavirus pandemic hit, by about 0.5 per cent for a five-year fix for those with big deposits.
For landlords facing higher costs a new online mortgage tool using artificial intelligence has been launched that could help them tweak their applications to save money – perhaps by adding in a bit extra on their equity or borrowing a bit less.
The buy-to-let mortgage crunch has seen 800 of the 2,592 deals for landlords on offer in November 2019 vanish
Buy-to-let mortgage broker firm Property Master has spent several years mapping mortgage lenders’ lending criteria and product details to create a comprehensive database.
Now it has launched a calculator allowing landlords to find the cheapest buy-to-let rates on offer, but with the added benefit of being able to specify whether they need to borrow through a limited company structure.
The really helpful aspect of the calculator, though, is that it highlights how landlords can tweak their application to qualify for a better deal. The firm claims this approach can cut monthly mortgage payments in half in some cases.
Angus Stewart, chief executive at Property Master, said: ‘This is a game changer for landlords as the calculator’s use of artificial intelligence enables landlords to play the system and navigate the ever-complex lending and affordability criteria found in the buy-to-let mortgage market.
‘Unlike other website calculators that just use a simple formula the Property Master calculator actually performs a full whole of market product search and uses real affordability rules from each lender.’
The cost and loan amount are based on real products available to Property Master, which Steward said provides ‘peace of mind to landlords knowing they could actually get the prices shown there’.
He added: ‘The only equivalent way to get this today is to go on price comparison websites where, however, landlords are typically shown a laundry list of actual products to choose from, which typically are too many and ranked in very biased ways, so that it is impossible to know what the truly “best” deal is.’
Rival broker Andrew Montlake of national mortgage adviser firm Coreco dubbed the tool ‘smart’ and suggested results should be ‘used as a useful guide’.
‘The buy-to-let market is one where advice is paramount and while tools like this are helpful, there is no substitute to spending time with a professional adviser experienced in this market,’ he said.
‘They will be able to talk through all the calculations in any case and the various nuances between each lender. It is also imperative to obtain independent tax advice before plunging into a buy-to-let property.’
Online buy-to-let lender Molo also gave the calculator a road test with chief executive Francesca Carlesi saying: ‘On balance this calculator is quite good compared to what’s existing out there now and what landlords typically are looking for.
‘It provides not only the answer to the ‘how much can I borrow?’ question, but also the available cost for different loan amounts and, most of all, it doesn’t focus only on interest cost but on monthly cost, which is what most landlords really care about.
‘Having all three variables together in the output allows landlords to strike the right trade-off between amount to borrow and cost, depending on their own preferences.
‘Most of the other industry calculators just focus on the amount, so this is quite a substantial improvement.’
David Hollingworth, of broker L&C Mortgages, echoed Carlesi, saying the cutting back of tax relief available on mortgage interest has meant that landlords ‘should keep an even closer eye on their mortgage than ever’.
He added: ‘Lender criteria has also been adapting to tougher rules, so landlords are now faced with a broader and more complex range of criteria in determining how much they can borrow.
‘Lenders have rapidly sought to improve their flexibility of approach but that does lead to a more individual approach to the amount of borrowing that could be available.
‘Ultimately most buy-to-let mortgages will be provided through brokers and the more complicated approach to rental requirements will mean that advice on the individual circumstances will be even more important.’
Fewer, more expensive buy-to-let mortgages
The tool’s launch comes as Moneyfacts data showed the number of buy-to-let mortgage deals fell by more than 800 over the past 12 months to 1,792 in November, restricting landlords’ options significantly.
At the same time, rates have risen. The average two-year fixed rate for all loan-to-value brackets is now at 2.90 per cent, 0.13 per cent higher than in March, before the coronavirus pandemic lockdown.
At 60 per cent LTV, the average two-year fixed rate is now 2.5 per cent and the equivalent five-year rate is 2.86 per cent, some 0.67 per cent and 0.55 per cent above where they were in March respectively.
At 80 per cent LTV the equivalent rates have increased by 0.60 per cent and 0.36 per cent respectively over the same time period and now sit at 4.16 per cent and 4.34 per cent.
Moneyfacts’ Eleanor Williams warned lenders had pulled 25 buy-to-let deals from the market since the start of November with 74 now on offer, resulting in less choice for those landlords with lower levels of equity or deposit.
But this clampdown on lending comes as demand for finance from landlords hit a record high in the third quarter of the year, according to Molo’s Carlesi.
‘From July through to September demand was at the highest level ever in the buy-to-let market and at least five times higher than the usual peak of January, driven by house purchases taking advantage of the stamp duty holiday introduced by the government,’ she said.
‘While this is definitely good news for us at Molo, for more traditional lenders this has put a lot of excess operational pressure on the overall industry value chain, leading to significant delays for landlords.’
Carlesi said the drop in product numbers and rise in average rates was a direct result of some lenders being forced to curb the number of applications they received to allow them to process approvals.
Montlake added: ‘We have seen an increase in the number of enquiries from buy-to-let landlords in the past few months from a wide variety of clients.
‘Some are looking to take advantage of the stamp duty holiday to purchase a second property or holiday home, whilst others are reassessing their portfolios to release cash whilst rates are low to be in a position to expand their portfolios.’
Buy-to-let mortgages and other ways to invest in property
This is Money has partnered with L&C Mortgages, a firm of independent mortgage brokers who specialise in finding the best buy-to-let mortgage rates and the right deal for you.
>> Compare best buy-to-let mortgage deals
If you’re interested in investing in buy-to-let but don’t want the hassle of managing a property yourself, check out what Bricklane has to offer.
