Short term fixes are now less prevalent as longer initial terms form a growing proportion of mortgages and almost one in five of all available buy to let mortgage products (19%) are now five year fixed rate deals, says the latest index from Mortgages for Business.
It says that overall competition is driving buy to let lenders to cut their charges and fees as well as to offer longer term fixed rates.
On average the effect of fees and charges on buy to let mortgages was to raise the overall cost for comparison by just 0.54% per annum in the third quarter of the year. This is significantly lower than the average of 0.67% extra in fees and charges seen at the start of 2013, and down from 0.58% in the second quarter of 2014.
However, beneath this overall trend there is also a growing divide between fees for buy to let borrowers at different loan to value ratios. For example, charges for low LTV up to 65% of property value and medium LTV from 65% to 75% buy to let mortgages have fallen dramatically.
By contrast, charges for high LTV at 80% and above loans have increased. In the first quarter of 2013 the effect of these, at 0.71%, was broadly in line with that for medium LTV loans. Yet since then charges have mounted, to add an additional 0.84% to the average cost of buy to let borrowing at higher LTVs in the third quarter of 2014.
‘Healthy competition is good news for landlords, who can now choose from a pool of in excess of 700 different buy to let mortgages,’ said David Whittaker, managing director of Mortgages for Business.
‘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,’ he explained.
‘Yet the details are even more encouraging. Prioritising middle and lower LTVs is prudent but the most encouraging signs are lenders offering landlords what they need. Longer term fixed rates are the best option for landlords looking to protect their future income and minimise any risk associated with interest rate rises, and there are now many more of these options available,’ he added.
The index report also shows that five year deals now make up almost one in five fixed rate mortgages on the market, at 19%, up rapidly from 15% in the second quarter of this year. By contrast three year fixed rate deals have dropped from 19% to 17% of all products in the third quarter while two year fixes, standing at 54%, still dominate in absolute terms but have also dropped from 57% of products in the second quarter.
‘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,’ said Whittaker.
