Picking the cheapest buy to let mortgage is not as easy as you think.
Bank and building society marketers deliberately dress up their deals to make comparison difficult. A Which? survey scrutnising home mortgage comparison revealed that most borrowers had no idea how to choose the best mortgage.
So here’s how a landlord looking for a cheap mortgage can find the right deal.
Try this test. If you borrowed £100,000 over 28 months from these buy to let lenders – who are among the leading best buy fixed rate mortgages for June 2013 – which is the cheapest?
1. Halifax
3.69% until August 31, 2015, then switching to 4.84% variable. £265 completion fee and £995 arrangement fee – APR 5.0%
2. NatWest
4.15% fixed until October 31, 2015, then 4.5% variable. No fees – APR 4.6%
3. HSBC
3.49% fixed until August 31, 2015, then 5% variable. £999 booking fee – APR 4.9%
4. RBS
4.15% fixed until October 31, 2015, then 4% variable. No fees – APR 4.6%
5. Virgin Money
3.48% fixed until October 1, 2015, then 4.79% variable. £1,995 fee – APR 4.9%
How to work out mortgage costs Compare each buy to let mortgage over the same period, regardless of when the fixed rate runs out. That way, the comparison is always like-for-like.
Here’s the Halifax buy to let mortgage in more detail.
Work out the mortgage repayments at the fixed rate for 26 months until the end of August 2015 – £100,000 x 3.69% = £7,995, divided by 12 and multiplied by 26, which is £7,995 interest over the term.
Then work out the mortgage cost at the standard rate of 4.84% for the remaining two months – £100,000 x 4.84% divided by 12 then multiplied by 2 = £806
Add up the interest and fees. £7,995 + £806 + £1,260 = £10,061. This is how much the mortgage costs over 28 months, so divide by 28 to arrive at the monthly cost of £359.32
The same calculations apply to each mortgage.
The cheapest buy to let mortgage
The mortgages ranked from cheapest to most expensive gross monthly repayment including fees:
• HSBC – £305.71 (APR 4.9%)
• RBS – £345.82 (APR 4.6%)
• NatWest – £345.83 (APR 4.6%)
• Halifax – £359.32 (APR 5.0%)
• Virgin – £365.14 (APR 4.9%)
The lowest APR does not mean the mortgage is the cheapest.
RBS and NatWest are the same lender under different brands.