Buy-to-let investments are becoming an alternative to traditional savings accounts for many, an industry broker has revealed.
Unsubstantial rates on savings accounts are pushing people into property investment, with buy-to-let mortgages offering higher yields.
Chief Executive of mortgage broker SPF Private Clients, Mark Harris, says that the sector is attractive and mortgage deals are appealing to new investors.
He says: “The buy-to-let market continues to attract investors fed up with poor returns on savings accounts. With lenders reducing rates and loosening criteria, it is also getting easier to obtain a buy-to-let mortgage.”
Harris notes that aspiring investors should remember that buy-to-let loans generally require higher deposits: “Typically, the deposit required on a buy-to-let mortgage is higher than on a residential deal, with 25% the norm, but there are deals available for those with just a 15% down payment.
“However, rates are higher the smaller the deposit you have. For those with a 40% deposit, two-year fixes are available from 2.25%. If you have a 25% deposit, expect to pay around 50 basis points more. For those with a 15% deposit, the rate rises to around 5%.
“Five-year fixes are available from 3.29% (40% deposit). However, this has a 2.5% fee. If you prefer a flat fee of £2,000, the rate increases to 3.49%.
“Variable rates are available from less than 2% for those with a 40% deposit. This increases by 50 basis points for those requiring 75% loan-to-value [LTV]. Again, for those with a 15% deposit, the rate is around 5%.”1
Harris says that most landlords go for interest-only mortgages, as the interest can be offset against rental income for tax purposes.
1 http://www.yourmortgage.co.uk/buy-to-let/buy-to-let-an-alternative-to-poor-savings-rates/