Furthermore, buy-to-let mortgage rates have not fallen by as much as mainstream mortgage rates following the decreases in the Bank of England base rate. Since June last year the average rate for mainstream mortgages has reduced by 2.6%, whilst buy to let rates have only fallen by 1.51%.
Banks are also demanding larger deposits from buy-to-let landlords; there are no buy-to-let mortgages left at 85% loan to value, meaning prospective landlords will need at least a 25% deposit to secure a mortgage.
Louise Cuming, head of mortgages at moneysupermarket.com, said: “The credit crunch has killed off the majority of buy-to-let deals. Because banks view buy-to-let borrowers as riskier than normal customers, the deals that are still available require an extra large deposit.
“Even if you are lucky enough to have a sufficient deposit and have found a suitable buy to let mortgage, you must watch out for the fees levied on arranging the deal, as these can be extortionate.
“On top of all this, banks are also increasing the minimum rent they require landlords to charge. In 2007 the average requirement was for the rent to represent 112% of the mortgage payment. The average requirement now is for rent to cover 123% of the mortgage payment. However, this is against a trend of falling rents. Over the past twelve months rental property supply outstrips demand and it is a tenant’s market. The average rent now stands at £819 in comparison to £873 in April 08.”