Two-year buy-to-let fixed rates are growing in popularity

Fixed rates remain the most popular option for buy-to-let remortgage borrowers but the gap between a two-year or five-year preference is closing.

These findings are from Landbay’s latest landlord survey, which has found that 79% of landlords expect to opt for a fixed rate when it is time for them to remortgage.

Four out of 10 landlord respondents (40%) said they will take a five-year fixed rate, down from 46% last December and significantly lower that 68% in August 2022.

But more than three out of 10 landlords (32%) said they will opt for a two-year fix, up from 24% (December 2022) and 13% (August 2022).

The change in sentiment towards two and five-year fixed rates partly stems from the fall out of Liz Truss’s mini-Budget last September when rates rose sharply. Other contributory factors are the volatile economy and the cost of living crisis fuelled by high inflation leading to rising interest rates.

The nod towards two-year terms by a rising number of landlords is due to the perception that mortgage rates will reduce in the next couple of years as inflation heads back towards the government’s 2% target.

In addition, two and five-year fixed rates have been fairly close in recent months and some landlords don’t want to lock into five years if they think rates might come down.

Long-term fixed rate mortgages (7/10 year terms) were favoured by 7% of the survey respondents and tracker mortgages were only selected by 4%.

Paul Brett, managing director, intermediaries at Landbay, commented: “It’s interesting to see that there has been a rise in the number of remortgaging landlords considering two-year fixed rates and a drop in those opting for five-year fixes. No one knows where rates will go but many of our survey respondents are hoping to see a fall within two years.

“With more borrowers considering short-term fixed rates when remortgaging, Landbay has listened to the market and introduced a suite of two-year fixed rate like-for-like remortgage products. They come with the added advantage of a lower Interest Cover Ratio (ICR) stress test to help with affordability. As long as landlords are borrowing the same as their current mortgage, the remortgage stress test will be at pay rate plus 1% instead of the standard calculation of pay rate plus 2%.”