Analysis of the buy to let mortgage market by independent financial research company, Defaqto, has found that average interest rates have fallen significantly in the last year across all types of buy to let mortgage, and average arrangement fees have also generally fallen.
However, interest rates and arrangement fees for buy to let mortgages remain markedly higher than for normal residential mortgages.
Defaqto data shows that average rates for 2, 3 and 5 year fixed rate and 2 year base rate tracker buy to let mortgages at 75% Loan-to-Value have dropped markedly since September 2010, and that average arrangement fees have also fallen for several types of buy to let mortgage:
Buy-to-Let Mortgages at 75% LTV:2 year fixed rate
- Average interest rate & arrangement fee Sept 2010:5.78% & £2,492
- Average interest rate & arrangement fee Sept 2011: 4.86% & £2,603
3 year fixed rate
- Average interest rate & arrangement fee Sept 2010: 6.03% & £2,859
- Average interest rate & arrangement fee Sept 2011: 5.56% & £2,559
5 year fixed rate
- Average interest rate & arrangement fee Sept 2010: 5.94% & £2,122
- Average interest rate & arrangement fee Sept 2011: 5.69% & £1,956
2 year base rate tracker
- Average interest rate & arrangement fee Sept 2010: 5.01% & £2,861
- Average interest rate & arrangement fee Sept 2011: 4.11% & £2,300
At the same time, Defaqto analysis shows that average interest rates and arrangement fees in the buy to let mortgage market remain significantly higher than for their equivalent residential mortgages.
For example, the average rate for a regular 2 year fixed rate mortgage is currently 3.52% with an average arrangement fee of £844. For a 5 year fixed rate mortgage the respective figures are 4.25% and £727.
David Black, Defaqto's Insight Analyst for Banking, 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.
"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.
"Many borrowers will want to use the expertise of an adviser to help choose the best buy-to-let mortgage for their circumstances."
