The latest Buy-to-let Mortgage Costs Index from Mortgages for Business has indicated good news for landlords.
Increased competition in the market is forcing buy-to-let lenders to drop their fees and charges and therefore landlords benefit from falling mortgage rates. In addition, lenders are offering more long-term fixed interest rates to beat off competition.
The average effect of fees and charges on buy-to-let mortgages was to increase the cost for comparison by only 0.54% per annum in quarter three of this year. This was down on the average of 0.67% at the start of 2013 and down again from 0.58% in quarter two of 2014.
Away from the downward trend seen with the average effect of fees and charges, there is an additional divide between fees charged for buy-to-let borrowers at varying loan-to-value ratios. The charges for low and medium loan-to-value mortgages have dropped substantially. Low loan-to-value mortgages attribute to 65% of property value, with medium loan-to-value buy-to-let mortgages constituting between 65 -75%.
In contrast, charges on high loan-to-value (80% and over of property value) loans have increased. Charges have risen from 0.71% in the first quarter of 2013 to 0.84% in the third quarter of 2014.
Managing Director of Mortgages for Business David Whittaker was pleased with the findings of the Buy-to-let Mortgage Cost Index. Whittaker said, ‘Healthy competition is good news for landlords, who can now choose from a pool of in excess of 700 different buy-to-let mortgages. Meanwhile, the wider benefits of more buy-to-let funding are being felt by everyone in the private rented sector – including tenants who have seen a growing supply of homes to let this year.
“This is a vote of confidence in landlords, at a time when lenders remain under serious pressure to maintain the safest possible loan books.’
Mr Whittaker went on to express that, ‘prioritising middle and lower LTV’s is prudent,’ and that, ‘the most encouraging signs are lenders offering landlords what they need.’ He believes that, ‘longer-term fixed rates are the best option for landlords looking to protect their future income,’ and was pleased that, ‘there are now many more of these options available.’
Five-year deals are now said to be part of almost 20% of fixed mortgage rates on the market, a marked increase from 15% during quarter two of 2014. Three-year deals have fallen slightly from 19% to 17% of all mortgages in quarter three. Two-year fixed-rate deals remain the most popular at 54%.
Whittaker said that the figures were in line with predictions, saying, ‘As we predicted at the start of the year, buy-to-let lending looks set to total at least £25 billion in 2014. However, as the industry starts to look ahead to 2015, the most positive signs aren’t from the headline figures – but in the detail of how lenders are responding to demand for longer-term deals.’
Mr Whittaker also believes that, ‘all landlords tend to have a long view,’ and that, ‘careful buy-to-let borrowers will not be thinking about the precise timing of the first rise in Bank Rate but rather looking what variable mortgage rates might look like in two or three years’ time.’
In the future, Whittaker believes that there will be more long-term rates available on the market. He said that, ‘we may see a further increase in longer term fixed rate mortgage products as lenders respond to an increased demand for products that provide more stability.’