Cost of buy-to-let mortgages could fall in 2017

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Commercial mortgage rates may be set for a drop in price this year because of fierce competition from lenders.

A number of small financial organisations have entered the commercial mortgage market in recent years and challenged the larger, more established lenders.

Sarah Davidson, writing for this month, has talked to industry experts and reported that they see 2017 as a year when competition amongst lenders will cause a drop in buy-to-let mortgage rates. However, not all landlords will benefit from rate cuts.

Small landlords with one or two properties who own a lot of equity in their properties are regarded as low risk, and it is these people who will probably be targeted by mortgage lenders offering reduced rates.

Landlords with three or more properties will not probably benefit from the cuts as they are regarded as a higher risk. It is possible that rates could rise for them.

Though rates will reduce or remain low, new rules that came into force on January 1 make it more difficult to obtain a commercial mortgage. Most buy-to-let mortgages will only be approved if rents cover at least 145% of the mortgage payments, based on rates going up 5.5%. This is a significant increase from 125% rent needed at lower interest rates.

This will affect landlords wanting to take out new mortgages on new property, or remortgaging existing property.

Some landlords are setting up limited companies to purchase new properties, as some lenders have reduced their mortgage affordability calculations for companies.

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