According to Mortgages for Business’ Buy to Let Index, an increasing number of landlords are choosing five year fixed rate products; 84% opted for these mortgage terms in Q4 2018, up from 70% in the previous quarter.
In total, 97% of landlords now choose a fixed rate. The popularity of five year fixed rates is likely linked to less stringent tests and the promise of a greater degree of stability in the current, uncertain economic climate.
Commenting on the figures, Steve Olejnik, managing director at Mortgages for Business said:
“Whilst for landlords, the preference for five year rates is both a protective measure and an opportunity to maximise borrowing, from a market perspective, it will reduce the volume of remortgaging over the next few years. Both lenders and brokers need to take this into account when projecting business growth.”
Elsewhere in the sector, more than half (55%) of all newly submitted buy to let applications are from landlords using limited companies, up from 44% in Q3 2018, indicating a shift away from borrowing personally. By value, these applications accounted for 51% of all requested borrowing, up from 39% in the previous quarter. More than half of the buy to let lenders tracked now offer products to limited companies.
“I expect the uptick in the use of limited companies to continue as landlords adjust their investment strategies to cope with the new tax environment and underwriting guidelines for lenders from the PRA.”
The way lenders charge borrowers has also changed. Nearly half of all products had a percentage-based arrangement fee attached, up from 42% at the beginning of 2018. The reason is likely to be due to the market becoming increasingly specialist in nature.
Mr Olejnik explained:
“Loans for specialist scenarios tend to be higher and so lenders are able to claw back some of the margins they have lost through competitive pricing by applying a percentage-based fee rather than a flat fee. Almost always, there is no incentive for lenders to offer products without fees for more complex borrowing scenarios.”
The average flat fee rose too, from £1,423 a year ago to £1,506– the first time the figure has risen above £1,500 since Q1 2016. At that time, the average flat fee rate stood at £1,556 when there was a rush of buy to let applications as landlords raced to complete transactions ahead of the introduction of a stamp duty surcharge on purchases of buy-to-let property.