The average two-year fixed-rate buy-to-let mortgage fell from 2.82% in January to 2.76% in February, reported ThisIsMoney.co.uk in March 2017. This is the lowest rate since January 2012, and compares to an average interest rate of 3.29% just 12 months previously.
After April, the tax relief on mortgage interest payments will be set to a maximum of 20%. Landlords whose tax rate is higher than 20% will see their costs increase. Purchasing buy-to-let property at low interest rates, or switching a mortgage to a lower rate one, could make up for the increased costs of the tax relief changes.
There are many five-year fixed-rate commercial mortgage deals available. Interest rates on a five-year mortgage are usually higher than a two-year one, but they do provide financial stability for landlords. Though two-year fixed mortgages are cheaper, there are high arrangement fees that must be paid when renewing the mortgage for another fixed-rate period after the two-year period ends.
Some analysts predict that mortgage interest rates will rise soon, so it makes sense for landlords to fix the rate now before rates rise.
Landlords can speak to a mortgage broker who can advise them on whether to take out a short-term or a more long-term fixed mortgage rate. There are also new affordability rules that look at whether the rental income will be sufficient to cover around 145% of the mortgage payments as a minimum. A broker can help landlords assess whether they can meet these stricter affordability tests.