If you are a newcomer to the buy to let market; it’s easy to feel that everybody’s speaking a foreign language. Follow our straight-talking guide for a jargon-free look at UK buy to let mortgage rates:
Standard Variable Rate Buy to Let Mortgages: The interest on a SVR mortgage is set by the lender and can rise or fall at their discretion. Fluctuations generally mirror changes in the Bank of England’s base rate, although lenders aren’t obliged to match the changes. Consequently interest rate rises tend to be passed on to borrowers much more quickly than cuts. Because SVR mortgages tend to reflect the base rate; performance depends to some degree on the state of the economy.
Base Tracker Buy to Let Mortgage: Tracker mortgages are tied to the base rate and rise and fall accordingly. Traditionally lenders have only offered tracker mortgages for a limited period of time, although a growing number will now arrange tracker rates for the entire mortgage term.
Fixed Rate Buy to Let Mortgages: Fixed rate mortgages generally appeal to property investors who like to keep a close eye on their monthly expenditure. Fixed rates can be set for the entire term of the mortgage or a limited period - whereupon interest commonly switches to SVR. Because the rate is ‘fixed’ mortgage repayments aren’t affected by the performance of the economy. Of course this is something of a double-edged sword; you will be protected from base rate rises, but won’t benefit form interest cuts.
Capped Buy to Let Mortgage: For many buy to let investors a capped mortgage rate offers the best of both worlds. Interest repayments are set at the SVR with the advantage of having an upper limit above which the rate can’t rise. Hence, if the economy is buoyant investors can reap the rewards of low interest rates; while any rises in interest rates have limited impact.
Discounted Buy to Let Mortgage: Lenders often try to win new business by offering incentives such as ‘discounted rates’ or ‘cash-back’ to potential customers. Bearing in mind the old adage that ‘there’s no such thing as a free lunch’ it’s important to work through all the figures carefully before committing to such a deal. In many circumstances they make keen financial sense (for example: if you need extra funds to redecorate a property before letting) although they may not be the cheapest option in the long-run. The interest on a discounted mortgage is charged at a lower rate for a fixed period, usually 18-24 months, before changing to the SVR.
Mike Stepney is part of The Money Centre team. Click for more on buy to let mortgage rates
