UK Markets closed

Buy-to-let lenders sweeten deals as landlord tax changes hit demand

Sam Barker
Property investors have been hit by extra stamp duty and tighter rules on tax relief - Gregory Davies / Alamy
Property investors have been hit by extra stamp duty and tighter rules on tax relief - Gregory Davies / Alamy

Buy-to-let landlords are benefiting from low mortgage rates as lenders attempt to keep them interested.

The average interest rate for a buy-to-let mortgage fixed for two years is 2.91pc, according to Moneyfacts, a data service. It was 2.94pc in January.

For five-year fixed deals the current average is 3.45pc, the same as in January.

The current average rates are not quite the lowest this year. The records are 2.88pc for a two-year deal and 3.43pc for five years, both in June.

But since then the Bank of England has raised the official cost of borrowing by a quarter of a percentage point.

Rather than pass this increase on, the figures show that lenders have swallowed the cost to remain as competitive as possible.

Chris Sykes, of mortgage broker Private Finance, said lenders knew that landlords were being discouraged by the stamp duty surcharge on second homes and were slowly losing the ability to offset mortgage interest against profits.

He said: “In a bid to galvanise the market, lenders are modifying products to make them a more attractive deal to borrowers.”

TSB recently cut rates by up to 0.3 percentage points across its buy-to-let range.

Jonathan Clark, of mortgage broker Chadney Bulgin, said lenders were also keen to do more buy-to-let deals as rates were typically higher than on residential mortgages. Lenders are offering other ways to sweeten these deals, too.

Mr Clark said: “Recent buy-to-let purchase numbers are down as a result of the higher rate of stamp duty now levied on landlords, as well as the harsher tax treatment, so many lenders are looking to tempt customers away from their existing lenders by offering to meet the legal and survey costs usually associated with such a transaction, meaning landlords could have very little or, in some cases, no switching costs.”

Low rates will not last forever. Rachel Springall of Moneyfacts said: “It is largely expected that interest rates will rise in the near future. This could also affect the value of properties on the market.”

Simon Cox, of estate agent Your Move, agreed that buy-to-let rates were currently very low. But he said landlords should also consider follow-on rates, which could be higher, and also how their taxes might be affected.

Mr Cox said: “Looking at rates in isolation is probably not the right way to jump into the market.”