Finance News

Two-Year Fixed Rates Popular Among BTL Landlords

Andrew Truglia - February 18, 2020

Buy-to-let (BTL) landlords are increasingly choosing to go with shorter-term mortgages when compared to previous years according to Mortgages for Business.

When compared to the last quarter of 2018, more landlords than ever have chosen shorter-term mortgages in the past 12 months, with 26% now opting for two-year fixed term products in Q4 2019, compared to just 8% in the same period in 2018.

This increase in demand for shorter terms may be fuelled by shorter Early Repayment Charge (ERC) periods, which allow landlords to refinance sooner without incurring a penalty- something that was seen as particularly useful in the politically turbulent time we saw last year. 

Despite the increase, five-year fixed rate mortgages remain the most popular option, with 68% of landlords going in this direction. This is because two-year fixed rates include a higher standard of stress-testing to qualify, meaning that effectively, landlords can borrow more if they opt for longer-term products. 

It is also worth noting that tracker mortgages have seen a slight increase in interest, up from 2% in Q3 2019 to 4% in Q4 of the same year, as landlords speculate that interest rates could be cut in the near future. 

Commenting on the findings, Steve Olejnik, managing director of Mortgages for Business said: 

“Recent political uncertainty has led more landlords to opt for 2-year fixed rates over longer-term fixed rate products. Landlords are drawn to the shorter Early Repayment Charge periods associated with these types of products, which provide greater flexibility. Given we now have more certainty in the political system, we forecast that landlords may start to look at longer term fixes again in the future.”  

Landlords are also finding that on average, they can borrow 0.7% more through a limited company than when they borrow personally.

“More landlords are expanding their portfolios through a limited company which has proven to be a more effective borrowing vehicle both from a tax perspective and financially. Lenders have responded to that and demand has fuelled an increase in the number of products available.”

The number of buy-to-let mortgage products available increased by 72 to 1,981 in Q4 2019 up from 1,909 in the previous quarter. In addition, the number of buy-to-let products available to limited companies increased by 51 to 738 up from 687 in Q3 2019.

Olejnik said: “The increase in the number of products available to limited companies gives landlords more choice. Since Brexit was assured by the clear General Election result in December, British house prices have risen at their fastest rate since 2002, according to Rightmove. Houses in Multiple Occupation (HMOs) continued to produce the most substantial yields for landlords handling more complex portfolios, in at 9.2% Q4 2019.”