Five year fixed rate BTL mortgage products on the increase

Five year fixed rate BTL mortgage products on the increase

According to the latest research from specialist broker Mortgages for Business, the number of five year fixed rate buy to let mortgage products available to borrowers has more than doubled since 2012.

The second quarter of 2014 saw an average of 128 five year fixed rate buy to let mortgage products available in comparison to just 50 in 2012.

David Whittaker, managing director of Mortgages for Business, said of the findings in the Buy to Let Mortgage Costs Index Q2 2014: “This is a welcome development. We’ve been recommending five year fixed rates for some time now and even the FCA has expressed a preference in this regard.”

He added: “Recent feedback from our landlord customers identified that 34% would currently choose five year fixed rates not only because they are competitively priced but also to protect themselves against pending rate rises.”

The increase in the number of longer term products has been at the expense of one-year rates, the research found. For example, one-year products accounted for 18% of the market in 2010. By the second quarter of 2014, this figure had dropped to only 1%, possibly a sign that they will disappear completely in the not too distant future.

In addition, the Index tracks the impact of changes in the money markets. Over the second quarter of 2014, two and three year swap rates moved 0.2% higher, five year rates rose by 0.1% and 10 year rates scarcely moved. These movements, however, have not affected a rise in buy to let mortgage rates. Quit the opposite. There was a general reduction of 0.1% across most BTL product ranges in the highly competitive 75% LTV sector.

With a steady increase in rates expected over the next five years, it might have been assumed that tracker rates would be cheaper than fixed rates. The research, however, found this is not the case. Three and five year fixed rates usually cost little or no more than their tracker counterparts, thus giving borrowers even more of an incentive to switch to fixed rate buy to let products instead.

Q2 2014 also saw very little change in the spread between fee types. There does, though, continue to be a small move away from percentage based fees (typically 1-3%) in favour of flat fees. The average flat fee is currently £1,421, down from an average of £1,498 in the previous quarter.

“This type of pricing won’t be around forever and investors know it,” Whittaker concludes. “We have witnessed a continued uplift in business throughout 2014 and expect it to carry on for the foreseeable future.”