Mortgage lenders are slashing the cost of buy-to-let mortgages in a move that will bring some relief to private investors eyeing up a potential buy-to-let acquisition.

The average two-year fixed rate has fallen by 0.71% in just two years, from 4.03% in April 2014 to 3.32% today, according to Moneyfacts.co.uk.

Landlords are feeling the squeeze of recent tax changes, including the introduction of a stamp duty surcharge on buy-to-let homes.

Since 1 April, anyone acquiring property costing in excess of £40,000 to let or use as a holiday home have been required to pay stamp duty on the purchase at a rate of 3% higher than the standard charge, which has almost trebled the purchase tax on a typical £275,000 buy-to-let home from £3,750 to £10,800.

Aside from the extra 3% stamp duty surcharge, the amount landlords can claim in mortgage interest relief will be limited to 20% from 2017, which will eat into many landlords’ rental returns, especially higher and additional rate taxpayers. Additionally, the 10% Wear and Tear tax relief for landlords who rent out furnished homes will also be scrapped from 1 April, leaving landlords free to only claim for the amount that they have spent, making buy-to-let a far less attractive proposition; the upward trends seen over the last few years in the buy-to-let market could be reversed.

“Over the past four years, there have been 14 tax changes targeted at residential property and in particular buy-to-let landlords, making the economics of such an investment less and less attractive,” said Dermot Callinan, at KPMG in the UK. 

Landlords also do not benefit from April’s cut to the basic rate of capital gains tax from 18% to 10%, or the fall in the higher rate from 28% to 20%, as the cuts do not apply to any gains made on the sale of residential properties.

The buy-to-let market has faced intense pressure recently, which could reduce the appetite among landlord investors. However, the fall in mortgage lending rates could soften the blow.

Skipton building society, for instance, has cut its buy-to-let mortgage rates by as much as 0.34% on some deals. Landlords who are acquiring a property can opt for a two-year fix at 1.99% with a minimum deposit of 40% cent and a fee of £1995. Alternatively, there is a fee-free deal at 3.81% fixed for five years with a minimum deposit of 30%.

Charlotte Nelson, finance expert at Moneyfacts.co.uk, said: “Mortgage rates have continued to fall across all fixed rates. However, while the current pressures on the market are not yet causing rates to rise, borrowers should remember that they will now be facing tax changes and tighter lending rules, including stricter affordability checks, so it is even more important for potential landlords to seek financial advice to see if buy to let really is the right option for them.”