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Buy to let mortgages – not all about the rate

3 June 2014

Buy to let landlords need to look beyond headline mortgage rates and at the real costs of borrowing.

While banks and building societies compete for landlord loan business, many are screaming low rates on two-year fixed rate deals – but the interest rate is only part of the story.

But while deals make look tempting, some of the cheapest rates add up as more expensive once expensive arrangement fees are added in.

Banks and building societies massage the loan packages by adjusting the variables to make them look more attractive to landlords.

The variables include interest rates and those arrangement fees. They can also be cash backs, no early redemption fees or other benefits.

Most two-year fixes are sold on rate – with the NatWest 2.65% fixed rate at 60% loan-to-value (LTV) coming with a £1,995 arrangement fee among the cheapest.

Over the 24-month discount period, the total cost including fees is £9,945.
 

Comparing two-year fixed rates


Compare that with the next cheapest - Skipton Building Society’s 70% LTV at 3.38% costing £11,130.

The rate is more, but the fee is less - £990 compared with £1,995.

So by reducing the fee but increasing the rate, Skipton has the second cheapest mortgage overall despite having the fourth most expensive rate.

Another point to watch is loan to value. Lenders like low LTV because it represents low risk and they reward that with a better interest rate.

However some lenders are offering higher LTV with lowish interest rates – like Skipton and NatWest.

For an extra £50 a month over the fixed rate period, Skipton offers 10% extra LTV than the best NatWest deal.

Here’s a list of some of the cheapest two-year fixed rate buy to let mortgages sorted by cost over 24 months, sorted low to high:

Lender LTV Rate Monthly payment Total cost
NatWest 60% 2.65% £311.25 £9,945.00
Skipton BS 70% 3.38% £422.50 £11,130.00
NatWest 75% 3.15% £393.75 £11,445.00
HSBC 65% 3.79% £473.75 £11,469.00
Post Office 60% 3.39% £423.75 £11,665.00
Coventry BS 75% 3.55% £443.75 £11,899.00
Virgin 60% 3.35% £418.75 £12,045.00
Skipton BS 70% 3.80% £475.00 £12,390.00
Virgin 70% 3.59% £448.75 £12,765.00
Halifax 75% 4.39% £548.75 £14,430.00