Buy-to-let mortgages - elusive trackers

Owners of buy-to-let properties have yet to gain from the lower mortgage rates on offer from lenders.

Where do professional landlords go for their buy-to-let mortgage advice?

Although some banks and building societies have started to reprice their tracker rates and introduce lower fixed rates on residential mortgages, little has changed within the buy-to-let sector, say brokers.

Melanie Bien, director of Savills Private Finance, the independent mortgage broker, said landlords reaching the end of their mortgage contracts and hoping for cheaper trackers or fixes to remortgage on to will be disappointed. At the end of last week, lenders removed a number of buy-to-let mortgages from the market and have yet to bring out new deals.

However, Ray Boulger, technical director at the broker John Charcol, explains this is not unusual and does not mean that new, lower deals won't come out. When lenders change their mainstream mortgage rates, it usually takes a few weeks before buy-to-let rates catch up, he said.

Although there are not many tracker rate mortgages on offer to landlords, there are still a reasonable number of fixed rates available. One of the best is a two-year fix at 5.49 per cent from The Mortgage Works, a subsidiary of Nationwide Building Society. But the offer comes with a fee of 3.25 per cent and is only available for those who can provide equity or a deposit of 35 per cent.

Alternatively, landlords can fix their mortgage at 5.89 per cent for three years with NatWest, with a fee of 2.75 per cent. But, as with The Mortgage Works deal, this is limited to a maximum loan to value of 65 per cent.

So, for landlords unable to raise sufficient deposit or equity in their property the chances of finding a deal are narrowing.

Lenders will now only provide buy-to-let mortgages with a maximum loan to value of 75 per cent and borrowers are having to make up the difference from their own pockets.

Banks have also become more exacting in their demands for rental cover. NatWest, for example, will only offer its 5.89 per cent three-year fixed-rate deal to those able to cover both 125 per cent of the interest on the loan plus an interest rate excess set by the bank.

There is some good news, though. Borrowers with buy-to-let mortgages tend to revert to a mortgage linked to the Bank of England base rate when their deals come to an end, rather than one linked to the lender's standard variable rate, as those with residential mortgages do.

This means that anyone who reached the end of a deal in the summer and reverted to a rate 1 or 2 per cent above the base rate will have seen their payments cut by 2 percentage points as a result of the most recent reductions in interest rates.

Now that the Bank of England base rate is 3 per cent, some landlords could be paying mortgage rates of 4 or 5 per cent, said Bien, a better rate than buy-to-let trackers or SVR-linked mortgages on the market.

Experts predict that the base rate may fall again before Christmas, meaning these borrowers could make even more savings, Boulger said those looking for a good fixed rate would be advised to wait for a few weeks.