The principal products on offer in the buy to let BTL Market

The principal products on offer in the buy-to-let (BTL) market

are the following:
-discounted
-fixed
-base-rate tracker
-variable.

A discounted rate (i.e. a discount on the current variable rate)
will normally be offered for a period of two or three years, after
which the rate reverts to the variable. During the discount period
the pay rate can move up or down in line with the lender’s
variable rate. It is not fixed. There will be a penalty for redeeming
all or part of this mortgage during the discount period.

A fixed rate is just that – fixed, immovable. Fixed-rate terms are
generally from one to five years, with the longer fixed rates the
most expensive. There is a penalty for redeeming all or part of the
loan during the fixed period. There may also be a non-refundable
fee for booking the fixed rate at the outset.

Base-rate trackers (BRTs) are linked to the Bank of England base
rate (usually 0.5–1% above) and will follow that rate up and
down. They can apply for the full term of the mortgage or for a
limited period. A BRT will generally be cheaper than the variable
rate. Many BRTs have no redemption penalty at all. Those with a
limited BRT term will usually charge a fee for redemption.
The lender’s variable rate is the standard rate available on all its
products. It can be varied at any time and will be more expensive
than the other products offered. There are no redemption
penalties.

The choice of product will depend on your circumstances but the
following points are worth noting:
- If it is important to be able to redeem the mortgage in the
early years, then the variable rate or a BRT (without a
redemption penalty) are the only suitable products. The others
will tie you in for a number of years with severe penalties (as
high as 5%) for early redemption. This is particularly
important if you think it likely that you will remortgage with
another lender during the period to which the redemption
penalty applies.
-You may be quite happy to stay with a lender for the duration
of any special deal on offer. It is unlikely, however, that you
will want to be tied to the same lender for a number of years
after your deal has come to an end (and you are back on the
lender’s more expensive variable rate). That is an extended tiein.
It is surprising how often this detail is missed when a
tantalisingly cheap interest rate is on offer. Extended tie-ins
should be avoided at all costs. There are no free lunches!