Buy to Let Mortgage Trackers
Buy to Let Mortgage Tracker
When it comes to deciding on what type of buy to let mortgage is right for you, you have a range of options to choose from. Tracker deals are often described as the most transparent of the buy to let mortgage products.
How does a tracker rate buy to let mortgage work?
A tracker rate works by following another rate. It can sometimes track below the rate it is following, but more often than not, it tracks at a percentage above it. A tracker tends to be marketed as ‘base rate plus x per cent’, the x percent being the amount the lender adds on top.
Changes to buy to let mortgage regulations
Tracker mortgages may provide a viable buy to let option, but before applying for a tracker mortgage it is important to note the changes in the buy to let mortgage market.
The Bank of England’s Prudential Regulation Authority implemented changes to the regulations that govern the buy to let mortgage market in 2017. As a result, lenders have changed the way they review landlord’s buy to let mortgage applications.
Firstly, lenders require landlords to have a rental coverage ratio of at least 145% of the mortgage payments for a standard buy to let and 170% for a house in multiple occupation. It should be noted that landlords cannot simply raise the rent themselves, as lenders will only accept a rental coverage ratio that is based on a professional surveyor’s valuation.
Secondly, landlords’ income will be more heavily scrutinised than before. Lenders will implement a stricter income stress test than in previous years. To satisfy the income stress test, landlords will have to prove that they can afford mortgage payments in the event that interest rates increase to 5.5%.
Finally, lenders will not provide a buy to let mortgage to landlords with one or more properties that are not profitable. Lenders will review the landlord’s entire property portfolio to ensure that all of their properties provide a positive return. As a result, landlords can no longer spread equity across their portfolio and if they have one or more properties that do not provide a profit then they will not receive a buy to let mortgage.
Things you should know about a tracker mortgage
Tracker rate buy to let mortgages can offer an attractive deal. However, there are some key considerations you should look at when making your decision. Tracker mortgages often appeal to investors, as they can take advantage of:
Low interest rates – A tracker mortgage deal can have the potential to offer a very low rate of interest. For instance, if you took out a tracker mortgage at a +1% above the base rate, you would only pay 1.50%. If interest rates remain low, you could benefit from paying less back monthly on your mortgage than you might do with a fixed rate or variable rate buy to let mortgage.
Not being subject to change in your lender's SVR – As a tracker rate is determined by the base rate, you will not be affected by increases in your lender's SVR.
Flexible overpayments – The majority of lenders offering tracker rates will allow borrowers to make penalty-free overpayments on their tracker mortgage. Whilst your tracker rate is low, you can take advantage of it by overpaying on your mortgage and shortening the total length of time it takes to pay back.
Whilst these factors make a tracker buy to let mortgage a lucrative and appealing investment opportunity, there are also other aspects that you should consider when looking to apply for a tracker rate loan.
Early repayment fees – If you decide to leave a tracker buy to let mortgage before the end of the set term, you might face early repayment penalty fees.Security of rate – Although your tracker rate may not be subject to changes in your lender's SVR, it still has the potential to skyrocket, should the Bank of England’s base rate suddenly increase.
If you would like to compare top buy to let tracker mortgage deals, or would like any advice on whether a tracker rate is for you, call us today on 0117 403 4474, or fill in our online contact form to request a call back.