Buy To Let interest rates


Neil Simpson is a former Personal Finance Journalist of the Year and the author of the Buy-to-Let Investor column in Financial Mail on Sunday. He is a keen property investor and writes about buy-to-let online as well as for a variety of publications including Mail on Sunday Property and City AM.

Interest rates have gone up today – and this should be a real wake-up call to first-time or recent buy-to-let investors who haven’t yet got to grips with the true state of the mortgage market.

The Bank of England has increased base rate by 0.25 per cent to 5.5 per cent, the fourth increase a year. But when the dust settles and the big lenders decide how much to increase their own rates I’ll bet the ones chosen by the least experienced property investors actually raise their costs the most.

The problem is that first-time and small-time buy-to-let investors tend to stick to the main high street lenders for their mortgages. Many use the same bank or building society that offers them their residential mortgage and that’s just how the lenders like it. They know that they can boost profits by charging premium rates to these nervous investors.

Experienced buy-to-let investors, meanwhile, know that their business is actually worth having and that a smaller band of specialist lenders compete to offer far better rates. These investors often use the likes of BM Solutions, Mortgage Express, GMAC, Platform and Paragon, for example. They also use exclusive deals offered through independent brokers which you can’t get if you shop around on the ordinary high street.

Persuading newer property investors to follow suit hasn’t been easy when interest rates were low and buy-to-let profits seemed easy to make. Now the market is toughening I’m hoping that all property investors can be persuaded to look beyond the big profit high street names. One message I’m always trying to get across is that the less well known lenders are actually more mainstream than you might imagine. Many are actually subsidiaries of the big banks and building societies so you needn’t feel you are taking a step into the dark by doing business with them. Other specialists are part of huge international organisations with resources and business histories to match.

And the funds for the exclusive mortgage deals on offer through brokers are often provided by the same high street banks who charge so much if you approach them direct. Use the right exclusive deal and you can get a mortgage from a mainstream bank or building society at a huge discount to the normal cost. But only if you apply through the right independent expert.

I’ve been a big supporter of independent financial advice since my days as a personal finance editor back in the mid 1990s. Now I’m a property writer and investor I’m just as supportive of independent mortgage advice. What bothers me is that it tends to be the more experienced investors rather than the newer landlords who use independent brokers and enjoy all the benefits.

Hopefully today’s interest rate rise will focus all our minds on the importance of getting the right mortgage deal and persuade more people to get professional help on rates. Fortunately if you shop around you’ll find you don’t need to pay big fees to use a mortgage broker. You can even get no-obligation quotes and information from the likes of Landlord Mortgages. And with the jury still out on whether interest rates may have to rise one more time later this year it’s going to be more important than ever to make sure you’ve got the right buy-to-let mortgage.

Investing in property could seem an easy business when borrowing costs were low, property prices were rising fast and tenants were easy to find. As the climate changes the situation is getting tougher and all landlords need to take a more professional approach to the sector. The main high street banks and building societies have done a great job in persuading plenty of first-time buy-to-let investors to secure their financial futures with a second property. But they might not be the best options if you want to expand your property portfolio or cut the costs of your current investment.

So take a look at some of the lower profile deals that the big property players use. Your new investment mortgage might be from a company you hadn’t really heard of a few years ago. But it can help you take the sting out of this latest interest rate rise and keep your property investment on track.

Finally, if rate rises are making you worried about the overall health of the buy-to-let market it is worth remembering that the more mortgage costs increase the more tenants there are likely to be looking for homes to rent. A lot of hard-working prospective first-time buyers may well be forced to put off their purchases now mortgages are more expensive.

So buy-to-let can prove to be the right market to be in, even if the usual rash of newspaper headlines come out this weekend saying it’s time for the bubble to burst. Get the right mortgage, retain the right tenants and keep looking to the long term. That way you’ll ride out any interest rate storms.

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