Buy-to-let lenders raise mortgage rates on cheapest fixed deals
Annual mortgage costs for buy-to-let owners have risen by nearly £500 in as little as three months, new research shows.
Since early December, the average two-year fixed contract for an owner with 40% deposit or capital has increased by 0.3%, from 1.76% to 2.06%.
The rate hikes are fueled in part by the Bank of England’s decision to hike the base rate, first in December from 0.1% to 0.25%, then last month from 0.25% to 0.5%.
Homeowners are facing increases of up to £41 a month as the cost of buy-to-let fixed rate mortgages rises following the two recent base rate changes.
The Bank’s monetary policy committee is due to meet again on Thursday and could decide to raise the base rate further, with owners warned to expect further rate hikes.
Mortgage broker Property Master’s latest buy-to-let tracker analyzed 30 lenders, representing around 75% of total rental mortgages.
He said the 0.3% increase in two-year fixed rates would add an extra £41 per month or £492 per year to mortgage payments, for a homeowner with a £160,000 mortgage on an interest-only deal .
The increase was less severe for those opting for five-year fixed rate contracts.
According to Property Master, a typical five-year fixed rate rental mortgage covering 60% of a property’s value increased by 0.25%, from 1.98% to 2.23%.
For someone only paying interest on a £160,000 mortgage, that would equate to an extra £33 a month.
The cost of a standard variable rate (SVR) mortgage now stands at an average of 4.99%, also up 0.25% since the Bank of England raised the base rate for the first times in December.
Angus Stewart, Managing Director of Property Master, said: “Our team has had one of the busiest weeks ever to ensure our search systems are up to date with all the recent activity in this market. .
“Entire product lines have been pulled, then relaunched, by multiple lenders, but the result has generally been to increase the cost to owners.”
And things would have to get worse for owners before they get better.
“We are now in a rising interest rate environment and most commentators are expecting another rate hike next week when the Bank of England meets again on Thursday,” Stewart added.
“With inflation continuing to rise, exacerbated by global events, we expect further increases in base rates over the past few months.
“We can already see lenders preparing to raise rates again, further tightening the pressure on consumers and homeowners.”
Owners are encouraged to plan ahead and set their next deal
Homeowners coming to the end of their fixed rate contract, or on an adjustable rate or tracker mortgage, are encouraged to remortgage as soon as possible to limit the damage.
Mortgage deals are usually valid for three to six months, so fixed-rate homeowners can arrange to renew and lock in a rate at current rates before their current contract expires.
Despite rising averages, the best buy rates are still relatively low.
With further base rate hikes expected, buy-to-let interest rates are expected to continue to rise.
The lowest rate for a two-year fixed lease-purchase agreement for a mortgage covering 60% of the value of the property is currently 1.09% offered by The Mortgage Works.
While its pricing might be attractive, it also comes with a hefty extra charge of £4,239.
Someone with a £160,000 interest-only mortgage could expect to pay £150 every month if they add the fees to the mortgage.
However, that would mean they had added an additional £4,239 to the amount of their existing mortgage that would eventually need to be paid off.
Owners may be able to find a higher rate with a lower fee, or no fee, which would be cheaper overall.
> Compare rates and fees using the This is Money Mortgage Calculator
Chris Sykes, Mortgage Consultant at Private Finance, said: “Lenders tend to assess rate hikes before the base rate hike happens, which is why we’ve seen rates rise steadily over the over the past few weeks.”
“We suspect that the base interest rate will continue to rise given the dramatic inflation rates, and this will continue to have an upward impact on mortgage rates across the board.
“That said, there are some incredibly good rates on the market right now. However, the best available rates charge a 2% arrangement fee and therefore may not be the best rate for potential borrowers, so always consider the additional fee when making your decision.
For anyone with a mortgage due this year, the advice is to start looking for a new deal as soon as possible.
Mark Harris, managing director of mortgage broker SPF Private Clients, said: ‘Most homeowners have fixed rates, so any payment shock will come after those deals expire, when they find it will cost them more to remortgage on another product.
“Homeowners due to remortgage this year should plan six months ahead. Write down the end date of your existing deal, then start looking for a new deal up to six months before that, as many lenders will allow you to book a rate up to six months before you need it.
“Anyone whose rates mature in September and before should look now, preferably by consulting a broker.”
Do I have to pay prepayment charges and remortgage now?
With mortgage products lasting only a few days in some cases, borrowers fear they will miss out on the best fixed deals if rates continue to climb.
It’s essential to know exactly when your current contract ends, because leaving a fixed rate mortgage too soon can lead to prepayment charges of up to 5% of the total amount.
It may not be as simple as being exactly two or five years into the mortgage.
Some lenders, such as Nationwide, will fix for a number of years from the start date of the mortgage – also known as the completion date.
However, many fixed rate offers are fixed on a certain date, so you may find more or less time than you originally thought to fulfill your mortgage.
You can find this date on your mortgage offer letter or by contacting your lender. A mortgage broker should also be able to advise you on this.
Once you know this, you can plan to apply up to 6 months before your current contract expires.
However, if you’re currently on a fixed-rate mortgage and the deal doesn’t end for a year, you might be considering switching anyway.
The problem here is that you might be hit with prepayment charges.
Most fixed rate transactions come with a prepayment charge, which often ranges from 1-5% of the outstanding mortgage amount.
In some cases, the amount decreases as the mortgage transaction nears completion.
For example, while in the first year of a five-year mortgage contract, you may be slammed with a 5% charge, however, if you are in your final year, you may only be subject to a 5% charge. 1%.
Whether or not it’s financially prudent to absorb a prepayment charge to take advantage of current rates depends on your situation.
For example, how much would the prepayment charge be, your thoughts on medium and long-term interest rates, and how long you expect to own the property, etc.
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