Landlords urged to opt for five-year fixed rates

Landlords urged to opt for five-year fixed rates

Specialist broker Mortgages for Business has suggested landlords consider fixing their mortgage rate for five years.

The broker says that three-year costs are virtually the same as when swap rates bottomed out in April 2013.

At the same time, five-year costs are around 0.1% per annum higher than the same point, with landlords advised to switch if possible. 

The Buy to Let Mortgage Rates: The Real Costs Q4 2013 report also revealed that swap rates have risen by 0.75% for three-year deals and five-year swap rates are 1% higher than April last year. 

David Whittaker, the managing director of Mortgages for Business, said that competition is set to intensify in the year ahead, while lenders will need to recognise that the cost of funds is increasing.

"So whilst lenders’ margins are likely to fall during 2014, it is highly likely that interest rates will rise on medium term fixed rate mortgages, reflecting the impending rise in Bank Rate,” he explained. “That is why we maintain our advice to investors to consider taking out five-year fixed rate mortgages.”

The LTV rate on buy-to-let products has also dropped by 10% on average since 2008, from 85% LTV to 75%.

In 2008, the other products were almost entirely 75%, 80% and 90% products, while significant ranges are now available at the 60, 65 and 80% marks. 

There was also no significant change in additional costs that were added to buy to let mortgages between Q3 and Q4 in 2013. 

These included aspects such as lender arrangement fees, valuation fees and legal costs. Charges amounted to around 1.5% on average across all products.

This equates to 0.75% per annum on a two-year loan, 0.5% on a three-year product and 0.3% on a five-year option. 

The number of products with no lender arrangement fees also crept up in Q4, reaching 10.8% from 7% in the previous two quarters – highlighting increasing competition among lenders.

It would suggest that lenders are taking borrowers’ preferences into consideration, while the majority of the increase was at the expense of percentage-based fees.

These now account for 40.2% of arrangement fees, down from 43% the previous quarter while flat fees made up the remaining 49%.