Interest rates: Buy to let v. owner occupier

[milic]

Why should it be that mortgage interest rates for buy to let properties are higher than rates for first time buyer owner occupiers?

What is the rationale for this practice?

 

[Howitzer]

People default on investment properties, they don't on the home that their family live.

 

[milic]

OK Howitzer. However the buy to let is or should be capable of generating an income to support loan repayments. That cannot be said of family home

In addition, LTV ratios on buy to lets are around 75% while for owner occupiers can be in excess of 90%

I am not sure difference can be fully accounted for by difference of default risk

 

[Vega]

Lending for investment is a higher risk for the banks so they charge a higher rate.

However the buy to let is or should be capable of generating an income to support loan repayments.

Average rent is €760 per month, that's €9,120 p.a. According to DKM the average house price is "just under €200,000". That's a yield of 4.5% (or less). If investors want a yield of 7% then it looks pretty risky to invest in buy-to-let now, the banks have to factor that extra risk into their prices.