Northern Rock has introduced a five-year fixed-rate buy-to-let mortgage for loans of up to 75 per cent of valuation.
The mortgage is fixed at 6.99 per cent for the first five years and borrowers who pay off the mortgage during the fixed rate period must pay 2 per cent of the original loan as a penalty. Up to four properties can be bought within a total maximum advance of £1m. Each property is subject to a maximum loan of £250,000.
Bradford & Bingley's Residential Lettings for Investor Landlords for Autumn 2001 shows 47 per cent of people aged 25 to 35 are renting properties rather than buying them, which indicates the demand for buy-to-let properties.
According to Moneyfacts on September 17, 2001, Leeds & Holbeck has a more competitive five-year fixed-rate buy to let mortgage for loans up to 75 per cent of valuation. It is fixed at 6.24 per cent until November 1, 2006 and borrowers who pay off the mortgage during this period must pay a decreasing early redemption penalty. In years one to three, this penalty amounts to six months' interest and in years four and five it is three months' interest.
Borrowers who redeem early pay a lower penalty with Northern Rock in the first three years, but a lower penalty with Leeds & Holbeck in years four and five. Those with a £500,000 mortgage would pay £16,475 in years one to three and £8,237.50 in years four and five with Leeds & Holbeck and £10,000 with Northern Rock.
Although the Leeds & Holbeck mortgage has a more competitive fixed rate, it limits borrowers to a maximum of three properties within a total advance of £500,000. However, the maximum advance for each property is higher than the Northern Rock mortgage which could benefit borrowers in areas where house prices are high.