Menu

Call Us0333 0146 683
Knowledge centre

Lenders offer landlords mortgages with a 15 per cent deposit

2-minute read

Lenders offer landlords mortgages with a 15 per cent deposit
Mollie Millman

Mollie Millman

11 March 2019

Some of the latest mortgage products for landlords are aimed at those with a deposit of just 15 per cent – but is this deal too good to be true?

These products with loan-to-value rates as high as 85 per cent are only being offered by a handful of lenders.

In this article we take a look at how different deals compare, and how certain factors could mean landlords are be better off paying a higher deposit.

Buy-to-let deposit requirements

Before the credit crisis a decade ago, it was commonplace for lenders to offer deals to landlords with a smaller deposit.

But a small deposit means a smaller buffer against negative equity if house prices drop significantly.

And so after the financial crisis, the market adjusted, leading to most buy-to-let lenders typically requiring a deposit of at least 25 per cent. It means there’s a larger buffer if things go wrong in the future.

However, in a bid to attract landlords, lenders are now beginning to lower the amount of deposit they require.

At first glance, this may seem like a positive shift. However, further investigation reveals that the products have higher-than-average mortgage rates and arrangements fees. These costs reflect the higher risk that lenders are taking with these high loan-to-value products.

Property investors shouldn't overlook these high fees as they can eat into their profits.

Who's offering this 85 per cent loan-to-value?

Vida Homeloans is one mortage provider that's offering this deal as a two-year fixed-rate with a mortgage rate of 4.49 per cent and a five-year fixed-rate with a rate of 5.04 per cent.

There’s also a large arrangement fee of £1,995 on both of the products.

Further restrictions on the mortgage product include that it’s not available to first-time landlords, and it’s only available for loans up to £250,000 outside the M25.

How does it compare?

Other buy-to-let mortgage lenders that offer deals for those with a deposit of only 15 per cent include Kensington Building Society and Kent Reliance.

Kensington has a lower rate of 4.39 per cent on its two-year fixed-rate deal, but there’s an arrangement fee of 1.5 per cent.

This rate increases to 4.49 per cent if landlords opt for the product with a flat arrangement fee of £1,999, and to 4.74 per cent for no arrangement fee.

Meanwhile, Kent Reliance charges an arrangement fee of 2.5 per cent of the mortgage amount on its products for landlords with a 15 per cent deposit.

Its products offer a two-year fixed-rate deal with a rate of 5.19 per cent and a five-year fixed-rate at 5.29 per cent, which is marginally higher than what’s being offered by Vida Homeloans.

Once the high arrangement fees are factored into the overall cost of a mortgage, borrowers may be better off selecting a deal aimed at those with a 20 per cent deposit.

Get set with tailored landlord cover

Over 200,000 UK landlord policies, a 9/10 customer rating and claims handled by an award-winning team. Looking to switch or start a new policy? Run a quick landlord insurance quote today.

Start your quote

Find this article useful? Spread the word.

Share
Tweet
Post

Keep up to date with Simply Business. Subscribe to our monthly newsletter and follow us on social media.

Subscribe to our newsletter

© Copyright 2020 Simply Business. All Rights Reserved. Simply Business is a trading name of Xbridge Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Registration No: 313348). Xbridge Limited (No: 3967717) has its registered office at 6th Floor, 99 Gresham Street, London, EC2V 7NG.