Mortgage Advisor & Director
Mortgage Advisor & Director
Most buy-to-let mortgages tend to have interest-only repayments, although it’s possible to repay the capital if you prefer. But what interest types are available when you take out a buy-to-let mortgage? We look at how tracker rates work with buy-to-let deals, which lenders offer them, and how to get one.
What is a buy-to-let tracker mortgage?
A buy-to-let (BTL) tracker mortgage is a type of mortgage you can use to purchase property you intend to let out to tenants, with an interest rate that moves in line with an external marker, usually the Bank of England’s base rate or the Sterling Overnight Index Average (SONIA).
The ‘tracker’ aspect of the mortgage refers to its product type, the main alternative of which would be a fixed-rate buy-to-let mortgage, which would have more consistent repayments.
How do they work?
The rate you pay on a BTL tracker mortgage is set by the external marker plus a percentage the lender adds. So, for example, your tracker rate might be the current base rate plus 1.5%.
As the base rate changes, your interest rate tracks it, while remaining 1.5% above. This means that what you pay could go up or down at any time, depending on how the assigned economic indicator moves. In a market where the base rate is trending downward, this can be a good way to save money on your interest payments.
Tracker mortgages can be used for residential and buy-to-let mortgages, but are a common choice among landlords as they can keep business costs low. Investment buyers also tend to have slightly more flexibility when it comes to accommodating fluctuating repayments, which could go down as easily as up.
Another selling point for trackers is that not all of them have the same type of tie-in period as a fixed-rate mortgage, meaning you may be able to leave the deal without paying ERCs (early repayment charges) if the interest rate goes up. However, be sure to check the individual deal as this is not true of all tracker mortgages.
Lending criteria
Lending criteria are largely the same as it is for any other buy-to-let mortgage. The loan will be based on the expected income and the LTV of your borrowing. Some lenders will want your expected rental income to meet a higher stress test. For example, you may need to show a rental income of 125% of the mortgage repayments for a fixed-rate deal, but up to 145% for a tracker.
You may also need a slightly higher deposit for a tracker deal than for a fixed-rate deal because of the increased risk of repayments rising. As with all criteria, the deposit size and maximum LTV will vary by lender.
What interest rates to expect
Initial interest rates on tracker mortgages are typically lower than fixed-rate options because they don’t have the built-in security that your repayments won’t rise during the deal period. This can make them particularly appealing in a climate where interest rates are generally trending downward, as there is the potential for them to fall even further.
Keep in mind, however, that the best buy-to-let tracker mortgage rates will usually be available to those with a larger deposit. Longer tracker deals also tend to have more favourable rates, although they are also more likely to have ERCs attached.
You can compare tracker deals with Teito, or let us help you to compare them against other buy-to-let mortgages, to see which is the most suitable deal for you. Use our buy-to-let comparison tool or get in touch below:
Compare BTL tracker mortgage rates for FREE
Advantages and disadvantages
The pros and cons of buy-to-let tracker are summarised in the table below:
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Advantages |
Disadvantages |
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Initial rates are usually cheaper than fixed-rate deals, keeping business costs low |
You have less certainty around your monthly outgoings |
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The interest rate falls if the economic indicator its tracking falls |
The interest rate rises if the economic indicator its tracking rises |
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Not all tracker deals have a tie-in period, meaning you may be able to leave early without paying a fee |
Longer tracker deals often charge ERCs if you want to leave the deal early |
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Portfolio’ landlords may find this a particularly helpful way to keep their monthly outgoings low in the right economic environment |
Tracker deals with collars can restrict how much you can save when interest rates fall so it’s best to avoid this type of deal where possible |
Available mortgage lenders
There are plenty of buy-to-let mortgage lenders offering tracker deals, but whether or not this is the right type of mortgage for your needs will depend on your specific circumstances.
Lenders that specialise in buy-to-let mortgages may be more flexible with their tracker mortgage terms than a high street bank. However, as with any mortgage, there are substantial differences in lender requirements from one to the next.
NatWest buy-to-let tracker mortgages are available to some landlords, however, they have a fairly small portfolio allowance of 4 properties. For more flexible criteria, specialist buy-to-let lenders such as Accord, Landbay, and Kent Reliance also have tracker deals available for investment mortgages. To find the right deal for you, it’s a good idea to speak with a mortgage broker that specialises in buy-to-let mortgages, like ourselves.
Potential alternatives to consider
Keeping your buy-to-let mortgage repayments as low as possible can be crucial to the success of investment property ownership. If a tracker is not the right choice for you, there are a few other buy-to-let mortgage options you could go for.
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If you want to stick with a variable-rate buy-to-let mortgage deal, you could also look at discount-rate or standard variable rate deal. Keep in mind, however, that the lender sets both variable rate types, whereas a tracker sticks to an external economic indicator, which is typically less vulnerable to fluctuations
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If you’re looking for more certainty, you can also get fixed-rate buy-to-let mortgages, which have an interest rate that remains unchanged for a set period
Why choose Teito for your buy-to-let mortgage?
With us, you can choose to compare buy-to-let mortgage tracker rates for free, or speak to one of our Teito buy-to-let specialists for further guidance. Whether you’re looking to buy as an individual or through a limited company, we can ensure you find the best deal for your needs and help everything go smoothly with your application.
We can offer
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Exclusive buy-to-let mortgage deals
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Bespoke advice for limited company, portfolio, and first-time landlords
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5-star rated service, including a free initial consultation, with no obligation
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Access to the latest rates and deals in seconds
Ready to compare the latest buy-to-let mortgage rates and speak to a broker who specialises in arranging tracker deals? Get started here.
FAQs
Yes it’s possible to find lifetime tracker deals for buy-to-let mortgages, although they are generally less common than short-term trackers. Precise mortgages may be able to offer lifetime tracker mortgages to certain individual and portfolio landlords. Speak to our helpful brokers if you think this might be the right type of investment finance for you.
A lifetime tracker mortgage will last for the full term of the mortgage, so expect rates to be a bit higher than shorter-term tracker deals. They may also have early repayment charges to switch deals.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.