8:55 AM, 11th October 2011, About 12 years ago
Cheap fixed rate and tracker buy to let mortgages may be on the way out as the rate lenders pay for money has increased.
This is likely to lead to higher mortgage rates even if the Bank of England base rate stays at the record low of 0.5%.
Banks and building societies pay returns based on the London Inter Bank Offer Rate (LIBOR) for money they borrow – and the rate went up from 0.83 per cent in August to 0.95%.
The supply of money has also tightened due to the Euro-zone debt crisis.
Buy to let mortgage rates have dropped during the past 12 months, but are still higher than homeowner rates.
A market analysis by independent money monitor Defaqto also revealed arrangement fees have also dropped.
Average rates for 75% loan-to-value two, three and five year fixed rate and two year base rate tracker buy to let mortgages have dropped September 2010.
The average rate for a regular two year fixed rate mortgage is currently 3.52% with an average arrangement fee of £844. For a five year fixed rate mortgage, the figures are 4.25% and £727.
David Black, Defaqto’s banking analyst, said: “For those looking to get into the buy to let market, the last year has seen some positive developments. While interest rates and arrangement fees have reduced we have also seen a number of new lenders enter the market as well as existing lenders expanding their product ranges.
Black also warns borrowers to ignore headline mortgage rates and to add all fees and charges to a loan to find the cheapest buy to let mortgage deal.
“People should factor mortgage fees into their calculations as, like the interest rate, they tend to be much higher for buy to let mortgages than for residential mortgages, and can make a real difference to the overall cost of the mortgage,” he said.