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The latest data has revealed that an average two-year buy-to-let mortgage now comes in at 5.98%, having reached highs of 7% or more earlier this year.

Mortgage rates have been heading in a more promising direction for borrowers over recent months, and the buy-to-let mortgage sector is now catching up with the mainstream as its new average drops once more, according to the latest statistics from Moneyfactscompare.

This news was revealed over the weekend in the aftermath of the Bank of England once again holding its base rate steady, for the third consecutive time, at 5.25%. While the hope – and expectation – is that interest rates will fall next year, lenders have been reacting more closely to falling swap rates when setting out their products.

This is backed up by the latest analysis from Octane Capital, via data from UK Investing, which found that fallen from 5.3% in November to 5.2% in December, down from 6.09% in July, even while the base rate has remained the same.

Similarly, five-year swap rates were down to 4.32% in December, from 4.48% in November, and a fall from 5.25% in July. According to Octane Capital, these trends can “bring hope” to borrowers as lenders are passing on the effects of beneficial swap rates to borrowers.

The best buy-to-let mortgage deal

Landlords in the market for a new buy-to-let mortgage now, or looking to remortgage on an existing property, are encouraged to shop around for the best deal, or employ the services of a broker who can take your unique circumstances into account.

While some landlords will simply be looking for the lowest rate, others may favour a fee-free (or low fee) option, or even a product that offers additional incentives such as free legal fees or cashback. Many will also be weighing up their options when it comes to selecting the ideal product term.

Although the market average two-year buy-to-let mortgage comes in at 5.98%, according to Moneyfactscompare, there are even cheaper deals on the market. It highlights a two-year buy-to-let product from HSBC with a fixed rate of 5.04% until February 2026, with a £1,999. Landlords need a 40% deposit to qualify, but it does come with a free valuation incentive.

For landlords with a smaller deposit, Moneyfactscompare points towards two deals from TSB that are competitive, both of which offer 75% LTV mortgages. One has a rate of 5.19% with a £1,995 arrangement fee, while the other has a rate of 5.49% with a £995. Both also include a free valuation.

If you’re looking for a lower rate with a longer initial fixed term, Moneyfactscompare highlights a Lloyds Bank buy-to-let mortgage with a fixed rate of 4.98% until 28 February 2029, which offers up to 70% LTV. It includes incentives of a free valuation, free legal fees and no arrangement fees.

Interest-only remains the most popular option

The vast majority of UK landlords (82%) have interest-only buy-to-let mortgages, meaning that only the interest owed on the mortgage is paid down each month. This has the effect of reducing the loan-to-value at a lower rate, as the main factor that increases equity in the property is rising house prices.

While the landlord is not paying off the capital of the mortgage, they can either have an endowment policy or other savings strategy in place to pay off the property when the balance is due, or plan to sell the property at the end of its term.

This is a popular option among those investing for retirement, on the basis that a property owned over a long period of time will have gained – sometimes considerably – in value in order to pay off the mortgage and leave the owner with a lump sum.

However, it is worth speaking with a mortgage adviser or financial adviser to decide whether this is the best option for your investment goals and financial situation.

If you’d like to speak to an independent mortgage adviser, we can connect you with our trusted partner who has particular expertise in property investment and the buy-to-let mortgage space. Get in touch to find out more

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