An increasing number of landlords are choosing five-year
fixed rate deals when investing with a mortgage, according to the latest
Buy-to-Let Index from Mortgages for Business.
In the fourth quarter (Q4) of 2018, 84% of landlords opted
for five-year fixed rate deals, which is up from 70% in Q3.
In total, 97% of landlords now choose a fixed rate mortgage.
The popularity of five-year fixed rate deals is likely linked to less stringent
tests and the promise of greater security in the current uncertain economic
Steve Olejnik, the
Managing Director of Mortgages for Business, says: “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 mortgage applications
were from landlords using limited companies in Q4, which is up from 44% in the
previous quarter. This indicates a shift away from borrowing personally.
By value, these
applications accounted for 51% of all requested borrowing, which is up from 39%
in Q3. Over half of the buy-to-let lenders tracked in the report now offer
products to limited company landlords.
“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 [Prudential Regulation Authority],” Olejnik claims.
The way that lenders charge
borrowers has also changed. Nearly half of all products had a percentage-based
arrangement fee attached to them, which has risen from 42% at the beginning of
2018. The reason for this is likely to be the market becoming increasingly
specialist in nature.
explains: “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 from £1,423 in Q4 2017 to £1,506 in Q4 2018 –
the first time this figure has increased above £1,500 since Q1 2016.
At that time, the average flat fee rate stood at £1,556, as there was a
rush of buy-to-let applications as landlords raced to complete transactions
ahead of the introduction of the Stamp Duty
surcharge on purchases of additional homes.