Buy-to-let mortgage market picks up

The choice of mortgages nearly halved during the early months of the coronavirus pandemic. Find out what’s happened since.

The buy-to-let mortgage market is showing signs of recovery after the number of deals nearly halved during the early weeks of the coronavirus pandemic.

A total of 1,660 different mortgages are currently available to investment landlords, up from a low of just 1,455 deals at the beginning of May, according to financial information group Moneyfacts.

The choice of mortgages in the sector dived sharply in March and April, dropping from 2,897 products at the beginning of March, as lenders pulled deals while they re-evaluated the market.

In further good news, the average cost of two-year and five-year fixed rate mortgages have also fallen compared with March, to stand at 2.72% and 3.11% respectively, although they have edged up slightly since July.

Why is this happening?

The buy-to-let mortgage sector has been more resilient than the residential mortgage one during the past six months.

Despite initially pulling deals from the market, mortgage choice has been on a broadly upward trend since May, while the fall in average rates suggests the market remains competitive and lenders are keen to do business.

Even so, a number of mortgages have been withdrawn in August, suggesting lenders continue to re-evaluate their ranges.

Who does it affect?

The increase in deals since March is great news for people considering purchasing a buy-to-let property to take advantage of the current stamp duty holiday.

The government has raised the stamp duty threshold from £125,000 to £500,000 on all property purchases until 31 May 2021, although those buying an investment property or a second home will still have to pay the 3% stamp duty surcharge.

Anecdotal evidence suggests the tax break is leading to an increase in buy-to-let purchases after the sector had been in decline for a number of years following a raft of tax changes.

Eleanor Williams, finance expert at Moneyfacts, said: “Landlords looking to invest in the buy-to-let sector could see this as an opportune time to explore their options, especially if they think that average rates may continue the upward trajectory we have witnessed over the last two months.”

This rise in activity is good news for those who want to rent a home, as there is currently a significant mismatch between supply and demand, which has been forcing rents higher.

What’s the background?

Although average mortgage rates for buy-to-let investors have fallen since March, the drop has not been seen across the board.

Landlords looking to borrow 60% of their property’s value face the most significant price hikes, with the average cost of a two-year fixed rate mortgage rising by 0.53% during the period, while five-year fixed rate deals have risen by 0.45%.

The trend is surprising as, although rates for people taking out 60% loan-to-value mortgages remain lower than those for people with smaller deposits, lenders are usually keen to attract borrowers in this segment of the market.

Top three takeaways

• The buy-to-let mortgage market is showing signs of recovery after the number of deals nearly halved during the early weeks of the coronavirus pandemic
• A total of 1,660 different mortgages are currently available to investment landlords, up from a low of just 1,455 deals at the beginning of May
• The average cost of two-year and five-year fixed rate mortgages have also fallen slightly compared with March, to stand at 2.72% and 3.11% respectively