Buy-to-let looks tempting as rates tumble

http://www.theguardian.com/money/2015/apr/25/buy-to-let-pension-freedom-mortgage-rates-invest

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Buy-to-let mortgage rates are tumbling – which is great news for older people thinking about spending some of their newly liberated pension pot on an investment property, but less so for struggling first-time buyers competing with landlords for a home.

Data issued this week by Moneyfacts revealed there has been a dramatic rise in the number of buy-to-let mortgage deals available, and an equally dramatic fall in rates.

Two years ago there were just five two-year fixed-rate buy-to-let deals priced below 3%, but today the figure has rocketed to 83. This week landlords can pick up a two-year fix for as little as 2.09%, or a five-year loan at a rate of 3.29%.

The Moneyfacts data coincides with a separate report claiming that average rents are soaring: up more than 15% since the last general election in May 2010, and by 3.7% over the past 12 months alone. Earlier this month, meanwhile, it emerged that investor landlords have hit the jackpot by earning returns of almost 1,400% since 1996, with a study claiming that a typical £1,000 invested in a buy-to-let asset that year was worth £14,897 by the end of 2014.

Those sorts of headlines, combined with the pension freedoms that came in on 6 April, will have left thousands of older people wondering whether they should use some of their retirement cash to put down a deposit on a property.

Lower buy-to-let mortgage rates, and higher rents, will help make the maths stack up for would-be landlords but will, of course, make for depressing reading for tenants.

Furthermore, many financial experts have urged pension-holders to think very carefully before raiding their pension pot in order to buy an investment property, not least because withdrawing a sizeable sum could result in a hefty tax bill.

Some of the buy-to-let mortgage deals with the lowest interest rates come with large fees – 2% or 2.5% of the loan is not that uncommon – though there are deals with relatively low charges (ie, below £1,000), and some are fee free. And some deals come with perks such as a free valuation or cashback.

David Hollingworth, at mortgage broker London & Country, says two-year fixed-rate deals remain popular, because they are cheaper.

Lender BM Solutions (part of Lloyds Banking Group) has a two-year fix through brokers where the rate is 2.09%. The maximum loan (LTV) is 60% of the property’s value, and the fee is a chunky 2% of the loan.

Meanwhile, Principality building society has a two-year fix with a rate of 2.3% and a fee of £994, says Hollingworth. Again, the maximum LTV on this deal is 60%.

In terms of five-year fixed rates, if you are prepared to stump up a very big fee – 2.5% of the loan – Santander will let you take out a loan at 3.29%. That is for a maximum of 60%; at the 75% LTV level, Santander’s five-year rate rises to 3.99% (with a £1,995 fee).

TSB recently revealed it is rolling out its buy-to-let mortgage range through London & Country ahead of a planned a wider launch.

Older borrowers may come up against age restrictions at some lenders – often, the maximum age a customer can be at the end of their mortgage is 70 or 75.

However, a year ago, The Mortgage Works – the specialist lending arm of Nationwide building society – changed its rules, and introduced a maximum age at which borrowers can apply for a buy-to-let mortgage, of 70. Not only that, the lender will go up to a maximum mortgage term of 35 years – so, in theory at least, you could still have a home loan when you were nudging 105.

And earlier this month it emerged that the Financial Ombudsman Service had found HSBC guilty of age discrimination after it refused a couple’s mortgage application on the grounds that the husband would be over 65 at the end of the term.

That ruling could make it more likely that other lenders will start taking a more lenient view when it comes to older mortgage borrowers.