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29th July 2011

Mortgage price wars

Investors in buy-to-let properties are set to benefit from a price war developing among mortgage lenders.

A number of firms have slashed rates on their buy-to-let products in recent weeks, with Skipton the latest to do so after announcing last week that it is cutting interest on certain products by up to 0.3 per cent.

It follows similar moves by The Mortgage Works and NatWest earlier this month, which cut rates by 0.4 per cent and 1.4 per cent respectively.

And, as lenders seek to cash-in on a boom in the private-rented sector, it has been predicted that a full-blown price war could erupt, leading to further rate reductions.

Speaking to moneymarketing.co.uk, Buy To Let Funding Services principal Geoff Laird commented: "I believe some lenders are relying upon buy-to-let to get them through this year because they will not be able to achieve their lending targets on residential properties.

"The demand for rental property is continuing to increase and lenders are going to try to get a share of the business if they are competitive. This might be through rate reductions or lower completion fees."

Recently released figures from Paragon Mortgages suggests that landlords are already beginning to take advantage of cheaper lending by investing in more buy-to-let properties.

A survey by the firm found that 47 per cent of buy-to-let mortgages processed by intermediaries in the second quarter of this year were for landlords looking to extend their current portfolios, up from 43 per cent in the first quarter.

This has coincided with growing demand for rented accommodation among tenants who are finding themselves priced out of the owner-occupier market, which in turn is helping to boost landlords' rental yields.

During the second quarter of 2011, almost a third of landlords (29 per cent) said that their rental income increased, Paragon said.