What is the average Buy-to-let mortgage interest rate?

Thursday 1st June 2023 | 3 minute read

And how much will it cost me to get a buy-to-let mortgage?

Let’s look at all the costs involved in securing an average buy-to-let mortgage.

What is the average Buy-to-let mortgage interest rate?

The average buy-to-let mortgage interest rate is between 3% and 6%. Interest rates are currently higher. The average buy-to-let fixed-rate mortgage deal has a 5.81% interest rate.

Please note all figures provided in this article are based on current UK averages as of June 2023. The value of your property directly affects the total cost of your buy-to-let mortgage.

How much do buy-to-let mortgages cost?

The cost of a buy-to-let mortgage has increased considerably in the past 5 years. Which is more reason to shop around and find the best possible deal for purchasing your buy-to-let property.

In 2018, interest rates were around 2.95%. Today, you can expect to pay almost double the interest with the average buy-to-let mortgage interest rate of 5.81%.

But don’t let this deter you from purchasing with a buy-to-let mortgage. Interest rates have increased, but so have rent prices.

In 2018 the average monthly rent in England was £792pm. In 2023 it’s up to £1,199pm. That’s a whopping 51.38% increase. 

So rent prices are increasing at a faster rate. This means that despite the buy-to-let mortgage interest rate inflation, rent is likely going to cover the costs for you compared to 5 years ago.

To make the calculation for how much a buy-to-let mortgage will cost you, we’ll use the current average property value in the UK of £294,000.

Let’s calculate how much the average buy-to-let mortgage costs…

The two figures from the lender you need to consider when calculating how much a buy-to-let mortgage will cost are interest rate and arrangement fee.

Average Interest rate = 5.81% 

For this example, to make it easy to understand, we’ll assume the fixed-term length is just one year. We’ll use the average 75% LVT (loan-to-value) to calculate the total amount to borrow on the £294,000 property. This makes the amount to borrow £220,500. So the fixed-rate BTL mortgage interest cost £12,811 over the term of the buy-to-let mortgage.

Average Arrangement fee = £1,500

The arrangement fee is sometimes referred to as a product fee and it can be either a fixed fee or a percentage of the overall loan. Whilst £1,500 is the average arrangement fee in the UK some lenders charge arrangements fees up to 2%, so on a £294,000 loan this could be a fee of £5,800.

Total average lender costs - £14,311

Other fees to consider

You’ll also need to pay typical property purchase fees to secure a buy-to-let mortgage. So you should include these figures in the total cost of your buy-to-let mortgage: 

  • Surveyor costs - Lenders will require a property inspection from a surveyor to finalise your buy-to-let mortgage agreement and release your funds. The average surveyor cost is around £800.
  • Property valuation fees - As buy-to-let mortgage rates are largely calculated based on the rental income and the property value, you’ll need to get a professional property valuation as part of your buy-to-let mortgage application. For the average value property in the UK, a valuation will cost around £320.
  • Stamp duty surcharge - The stamp duty surcharge for buy-to-let property varies depending on the property value. Here’s a breakdown of current buy-to-let stamp duty costs:
Property value Buy-to-let stamp duty % rate
Up to £40,000 0%
£40,000 - £125,000 3%
£125,001 - £250,000 5%
£250,001 - £925,000 8%
£925,001 - £1.5m 13%
£1.5m+  15%

For the average property value, this would make the stamp duty surcharge £11,025.

Total average other fees - £12,145

If you choose to use a broker to find the best buy-to-let mortgage rate for you, you’ll also have broker fees. These fees average between 0.35% and 1%. This means using a buy-to-let mortgage broker will cost you as little as £772. A small fee to make the process easier for you.

If we include the broker fees the total average cost of a buy-to-let mortgage is currently £27,228 

This total is based on

  • the average UK property value of £294,000 (as of January 2023)
  • a 75% LTV, average lender fees and interest rates
  • surveyor costs
  • property valuation costs
  • stamp duty surcharge 
  • and buy-to-let mortgage broker fees

Is it better to use a broker for a buy-to-let mortgage?

Of course, you can shop around for a buy-to-let mortgage yourself. But this task is very time-consuming, and time is money. Plus unless you know all the things to be looking for, you could miss out on little details in a seemingly “great” deal. And this could end up costing you more upfront or in the long run.

Entrusting your buy-to-let mortgage search to experienced finance experts means you can sit back and let us find the best buy-to-let mortgage rate for you. Learn more about why using a broker for your buy-to-let mortgage is better in our detailed article.

Contact us if you'd like help securing the best buy-to-let mortgage

If you’d like our experts to help you find the best buy-to-let mortgage rates with low broker fees to save you both time and money, call our team today on 01202 612934.

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