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What does the mortgage price war mean for buy-to-let?

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Josh Hall

Josh Hall

24 April 2017

Residential mortgage rates are falling to record lows as lenders become further entrenched in a mortgage price war.

Last week Yorkshire Building Society launched the UK’s lowest ever mortgage rate at 0.89 per cent, and Santander are expected to follow suit this week.

The moves follow the introduction of Atom Bank’s 1.29 per cent deal earlier this month, a package that was so popular that the bank has been forced to withdraw it from new borrowers.

Atom say their deal is part of a new suite of rates across their LTV spectrum, which could see borrowers cutting up to 0.16 per cent from their interest rates.

Buy-to-let stagnation

But there is confusion about the state of the buy-to-let market, which has suffered significantly following the introduction of new tax rules.

While first time buyers and remortgagers are enjoying record low rates, the market for buy-to-let loans has remained relatively static.

However, some buy-to-let investors are choosing to make the most of low residential rates in order to improve their positions.

Residential remortgaging

Some landlords have remortgaged their own homes in order to pay down the loans outstanding on their buy-to-let properties. This may prove a benefit as the rate on the residential loan is significantly lower than the rate on the rental property.

Mortgage broker Mark Harris told the Telegraph: “Residential mortgage rates are lower than buy-to-let rates, so it makes sense to raise equity on your main residence.”

Rates are commonly spread by more than half a percentage point between residential and buy-to-let loans. Combined with the remaining tax relief offered on buy-to-let mortgage payments, this can lower bills for landlords who wish to hedge against recent tax changes while taking advantage of record lows in residential rates.

Wait it out?

However, many commentators believe that residential rates will fall lower, meaning that landlords may benefit further by waiting to secure better deals on their main residence.

Martin Stewart, of brokers London Money, said: “Lenders are fighting fiercely to get more customers onto their books and that’s why they are offering these ludicrously low mortgages at the moment.

Nearly all of them are behind on their lending targets so they think they will attract more borrowers by slashing their rates, according to Stewart. “This is going to continue for the forseeable future.” he concluded.

Are you concerned about buy-to-let tax changes? Let us know in the comments.

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