As mortgage advisers, one of the most common questions we receive from our landlord clients is how they can reduce the interest rates on their buy-to-let mortgages. It's a valid concern, especially since interest rates are a significant factor that affects the profitability of rental properties. In this blog post, we will explore some ways to reduce buy-to-let interest rates in the UK mortgage market.
Firstly, it's important to understand how interest rates work in the UK mortgage market. The interest rate on a mortgage is the amount of interest that the lender charges the borrower for borrowing the money to purchase the property. Interest rates are typically calculated as a percentage of the loan amount, and the borrower pays the interest each month, along with the principal amount of the mortgage.
One way to reduce buy-to-let interest rates in the UK is by increasing the size of the deposit you put down. The larger the deposit, the less risky the investment appears to the lender, which means they may offer you a lower interest rate. In general, lenders will require a larger deposit for buy-to-let mortgages than for residential mortgages. The standard deposit for a buy-to-let mortgage is usually around 25% of the property's value, but some lenders may require up to 40% or more.
Obtaining the correct the valuation of the subject property is vital for product selection. The value of the property will determine the product available which falls in line with loan to value tiered products. The mortgage lender will carry out a mortgage valuation when assessing the application. Talking to a local estate agent can help in this area if you aren’t sure on the correct valuation.
Another way to reduce buy-to-let interest rates is to shop around and compare mortgage rates from different lenders. Each lender will have its own lending criteria and interest rates, so it's essential to do your research to find the best deal. Some lenders may offer lower interest rates on buy-to-let mortgages than others, so it's important to compare rates and terms carefully.
Additionally, consider using a mortgage broker who can help you find the best buy-to-let mortgage deals in the UK. Mortgage brokers have access to a wide range of lenders and can help you navigate the complex mortgage market. They can also help you to understand the different types of buy-to-let mortgages available, such as fixed-rate and variable-rate mortgages and help you to find the one that's best suited to your needs.
Finally, it's worth considering refinancing your buy-to-let mortgage if you're already a landlord. Refinancing involves switching to a new mortgage with a lower interest rate, which can save you a significant amount of money in the long run. However, be aware that refinancing can also involve fees and charges, so it's essential to factor these into your calculations.
In conclusion, there are several ways to reduce buy-to-let interest rates in the UK mortgage market. Increasing the size of your deposit, shopping around for the best rates, using a mortgage broker, and refinancing your mortgage are all options worth considering. As always, it's essential to do your research and seek professional advice to find the best solution for your individual circumstances.
The Mortgage Lodge
June 2023