The average rates charged on two and five-year fixed buy-to-let (BTL) mortgages have fallen by more than a quarter of a per cent year-on-year, analysis from Moneyfacts.co.uk can reveal. Landlord optimism for 2020 to invest in buy-to-let or a desire for a cheaper deal may have led providers to cut rates to entice prospective borrowers.
Paragon Bank noted that one in five brokers were expecting to introduce more buy-to-let business during 2020 and that 61% of buy-to-let landlords had secured a new deal by remortgaging during the last quarter of 2019 to secure a better rate.
Rachel Springall, a Finance Expert at Moneyfacts.co.uk, said: “It’s encouraging to see that, despite economic pressures, the buy-to-let market is expected to grow in 2020. Lenders have cut rates on both short-term and long-term deals by around 0.30% year-on-year, so there could be borrowers looking to switch their deal. Cutting down on monthly loan payments may be at the forefront of landlord’s minds considering the mortgage tax relief changes.
“Since April 2017, mortgage interest tax relief for buy-to-let landlords – which allowed them to deduct mortgage expenses from rental income to reduce a tax bill – has slowly been phased out. Indeed, by April this year, it will be gone entirely, which means landlords could face a larger tax bill and less rental income as a result. This shake-up may deter potential landlords who feel their profit margins will be tightened, but despite this, optimism for 2020 appears resilient, and lenders are clearly working hard to entice prospective borrowers. However, it is hard to tell whether this will wane as the year progresses.
“Landlords who are looking to switch their deal could save a decent amount on loan payments each month, due to the fall in interest rates. In fact, if a landlord had a five-year fixed-rate mortgage in 2015 and was looking to refinance, the average rate has dropped by a staggering 1.19%. This would equate to a difference of £1,947 a year in monthly repayments if a landlord were to take a loan of £250,000 on a 25-year term compared to back in 2015 for the same amount and term.
“If landlords are looking at alternative ways to boost their profits, then they could look to set themselves up a limited company – as the tax relief cull applies to private landlords – but they will need to consider any stamp duty costs and the associated taxes for a business, such as corporation tax on profits.
“Whatever existing landlords or new investors decide, it could be an easier process to find the right deal by seeking independent advice and to closely monitor the market for any significant changes.”
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