Contractors' Questions: Which buy-to-let deal?

Contractor’s Question: Does the resurgence of mortgage lenders jostling for custom extend to the buy-to-let market? I’m looking to oversee what will be my first rented property, but heftier arrangement fees than were being offered 6 months ago have so far put me off.

Expert’s Answer : You are not alone in your ambition. We are seeing a growing number of contractors looking to capitalise on the increased demand for rental properties, partly as first-time buyers are continuing to struggle and because of the cuts to social housing unveiled in last month’s spending review. Even more pertinent to your situation, further good news came this week with the release of a 3.75% two-year tracker mortgage at a 75% Loan to Value.

Whilst this rate is only available for applications made before Saturday – so act quickly if you’re interested - it does represent a significant improvement on recent buy-to-let schemes because it has an arrangement fee of only 0.5% of the loan. As you point out, these costs have been uncomfortably high recently with many lenders charging over 2.5%!

This new, low rate makes rental versus repayment calculations work once more for purchases that would have been impossible even a few weeks ago. The lower fee will also help remortgaging a buy-to-let viable again for contractors in that position. Our most nimble clients have already begun using this rate to release equity that can then be used to help fund future purchases. With ‘cash in on the rental boom’ messages expected from lenders, we expect this trend to continue, in the immediate term at least, as contractors have already been patiently waiting for this opportunity to set up a second income stream.

The expert was Tony Harris, founder of specialist IFAs Contractor Money.

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