Could we be set for a buy-to-let mortgage war?

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Due to increased stamp duty and cuts to the tax relief on commercial mortgage interest payments, there has been less demand for buy-to-let mortgages, which has caused some lenders to reduce interest rates, reported The Telegraph in August 2017.

The buy-to-let finance index has revealed that demand for buy-to-let mortgages has fallen by around 23% in 2017. In order to attract borrowers in a shrinking market, some lenders have been cutting interest rates.

Moneyfacts, the price comparison website, has stated that the lowest rate is 1.33% on a fixed rate two-year mortgage. However, to qualify for this rate, landlords must put down a 40% deposit, and there could also be arrangement fees. Moneyfacts warns that potential borrowers need to carefully do their sums to decide whether a very low-interest rate is the most cost effective solution.

Commercial mortgage brokers can help landlords calculate the total cost of a commercial mortgage. Some landlords may be tempted to go for a rock bottom interest rate, but will then borrow money to help towards the high deposit. This may cost more than paying cash for a lower deposit and paying extra in interest payments.

Buy-to-let investments can still be profitable, especially if landlords are careful about which areas to invest in. The Financial Times reported in August 2017 that there is a high demand for rented accommodation in Manchester, where rental prices are high and property prices are a lot lower than London. High rental yields and good expected capital growth can provide profitable buy-to-let investments in such cities.

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