Buy-to-let mortgage rates are set to fall this year for small-scale landlords with one or two properties, according to a leading mortgage broker.
Despite the expected decline in mortgage rates for small-scale landlords, loans are forecast to get more expensive for professional investors with larger portfolios, warns the broker.
With a series of tax and regulation changes set to be introduced this year, including the reduction in tax relief on mortgage interest, John Charcol predicts a buy-to-let mortgage rate war in the so-called vanilla end of the market, as high street lenders have little alternative but to drop rates for small-scale landlords, who are widely considered to be lower risk.
However, the broker warns that fierce competition for private landlords with small portfolios is unlikely to extend to professionals. In fact, it suggests that investors with more than three buy-to-let properties may even see mortgage rates on offer through high street lenders start to rise.
John Charcol’s Simon Collins explains: “I definitely believe that we may well see a bit more competition in the very vanilla section of the buy-to-let market. Whether this will lead to higher pricing in the complex end of the market is really yet to be seen, but the whole buy-to-let market is undergoing a real sea change.”
According to Collins, the widening gap on rates will emerge partly as a result of stricter lending criteria forced on lenders by the Bank of England (BoE).
Various lenders have announced greater rental stress rates for buy-to-let landlords recently, as regulators aim to cool what it considers aggressive lending practices in the sector.
Many lenders have already raised their income coverage ratio to 145% and applied a 5.5% stress rate to comply with the new Prudential Regulation Authority standards, which seek to ensure that borrowers can repay their loans if interest rates rise.
New and small-scale landlords should look to take advantage of the lower mortgage rates this year by investing in a new buy-to-let property. If you decide to invest in 2017, remember that our award-winning Landlord Insurance offers some of the widest cover available for your property: https://www.justlandlords.co.uk/landlord-insurance