Buy-to-let loan rates plunge in price war (2024)

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Lenders have slashed rates on buy-to-let mortgages to record lows in a desperate drive to keep the market alive following a crackdown by the Chancellor.

Experts say efforts by George Osborne to put the brakes on the buy-to-let boom have triggered a ‘price war’ as banks try to tempt aspiring landlords.

Estate agents and banks reported a last-minute rush to buy second properties before a 3 per cent stamp duty surcharge on second homes was imposed on April 1.

The Bank of England is preparing to enforce stricter affordability checks to curb risky buy-to-let loans, and tax relief for landlords is being stripped away gradually from next year.

Lenders had been widely expected to push up the costs of buy-to-let mortgages, with the Bank predicting a sharp fall in lending following the stamp duty increase.

But the Chancellor’s attempt to cool the £200billion market appears to be having the opposite effect as lenders compete fiercely to attract new business.

The average rate for popular two-year fixed-rate deals has fallen to 3.32 per cent – down from 3.59 per cent last April and 5.21 per cent in April 2011. Both HSBC and Virgin Money have cut rates on two-year loans to below 2 per cent.

Average rates for five-year loans had fallen to a record low of 4 per cent, according to analysis from financial data firm Moneyfacts.

And Virgin Money has slashed rates on three-year fixed-rate buy-to-let deals to a new low of 2.48 per cent.

Charlotte Nelson, finance expert at Moneyfacts, said rock-bottom returns from savings accounts and pensions annuity rates had prompted households to plump for buy-to-let property to fund their retirement, despite the fact it has become less attractive.

Savers have also withdrawn almost £3billion from their pensions since the Chancellor’s pension freedoms came into force last April. Miss Nelson suggested much of this cash is being reinvested in second homes and buy-to-let properties.

She said: ‘We are in the midst of a price war with the most deals on offer since the financial crisis and lower and lower rates.

‘The buy-to-let market has faced intense pressure recently, but despite this, rates have continued to fall across all fixed rates.

‘A year on from the pensions freedoms and almost £3billion has been paid out in cash lump withdrawals, so it’s highly likely that some of this money has been accessed with buy-to-let in mind.

‘Savings rates are currently so poor that many are looking elsewhere to fund their retirement, so lenders have tried to capitalise on this new pool of cash by offering some of the best rates the buy-to-let sector has ever seen.’

James Daley, founder of consumer finance website Fairer Finance, added: ‘Banks are doing whatever it takes to get more people to borrow from them. With rates on other assets like cash at rock-bottom, lots of people are turning to buy-to-let as they see it as a safe option with the promise of greater returns.’

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