Fixed rate mortgage rates are reducing and set to fall further to the benefit of buy-to-let investors with more competition in 2020.
More competition from lenders in 2020 will help buy-to-let investors by reducing the interest on fixed mortgage rates according to Moneyfacts, already lower by a quarter of a percent over the last year.
Lenders have reduced interest rates by 0.30% for both short-term and long-term mortgage deals applying to new purchases and buy-to-let landlords remortgaging existing properties.
First time buyers, home movers and remortgage buyers have benefited from lower rates with their mortgage interest repayments to lenders, making home ownership more affordable.
Rachel Springall finance expert at Moneyfacts said, it’s encouraging to see that, despite economic pressures, the buy-to-let market is expected to grow in 2020.
Fixed mortgage rates reducing
Reducing interest costs is likely to be an important consideration for buy-to-let landlords as the government has changed tax relief to their detriment.
Taxation for buy-to-let landlords has been increasing since April 2017 as the government has been phasing out the ability to deduct mortgage costs from rental income which ends in April 2020.
This table from Moneyfacts shows two and five fixed mortgage rates for the past five years to February 2020.
| Year | 2-year fixed | 5-year fixed |
|---|---|---|
| Feb 15 | 3.5% | 4.39% |
| Feb 16 | 3.25% | 4.09% |
| Feb 17 | 2.90% | 3.74% |
| Feb 18 | 2.90% | 3.44% |
| Feb 19 | 3.07% | 3.56% |
| Feb 20 | 2.75% | 3.20% |
The two-year fixed rates have reduced from 3.07% last year to 2.75% in February 2020 and for five-year mortgages these are 3.20% now having been 3.56% a year ago.
Savings from lower interest rates can be substantial and for a landlord with a five-year fixed rate mortgage taken out in 2015 this has reduced by 1.19%.
If a landlord had an interest only mortgage of £250,000 on their rental property with a 25-year term starting in 2015 would reduce their payments by £1,947 each year.
Landlords could set-up as a limited company where interest payments can be used as a cost although this may involve stamp duty tax corporation tax on profits.
Interest costs are lower for the equity release mortgage buyer, securing fixed rates at under 3.0% without evidence of earnings and using the cash to maintain their lifestyle, home improvements or purchasing a new car.
Factors impacting mortgage rates
Fixed mortgage rates are influenced by a number of factors but mainly by the ability of banks to secure access to low cost money they can lend to homeowners.
The main source for banks is savers or borrowing from other banks using money markets at a particular ‘swap rate and specified period of time.
Swap rates are sensitive to global economic changes, rising or falling based on the expectation of future interest rates and inflation which impacts the fixed mortgage rates paid by homeowners.
With lower fixed interest rates, first time buyer mortgage repayments are going to be more affordable compared to their household income and they are more likely to get on the property ladder.
For remortgage buyers switching to a lower preferential rate can reduce your monthly repayments allowing you release capital to make home improvements without increasing your monthly repayments.
What are your next steps?
Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.
Learn more by using the mortgage cost calculators, property value tracker chart and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to repay an interest only mortgage or even buy a more expensive home.
