The first quarter of the year saw the availability of buy-to-let mortgage products one-third higher than the number of products available in early 2008, just before the onset of the credit crunch, according to the latest research from Mortgages for Business.
The firm’s Buy to Let Mortgage Costs Index Q1 2014 found that at the end of March this year there were 644 products – more than 10 times higher than the number at the nadir in May 2009.
The research also concluded that competition between lenders was the cause of changes in prices rather than the cost of funds in the money markets.
The number of mortgages at 75% loan to value increased in Q1 2014 and now stands at just over 45%, up by 1% on the previous quarter. Meanwhile, the average 75% LTV mortgage is either no more expensive than, or actually cheaper than the average 65% LTV mortgage. Only five year fixed rate mortgages are cheaper at 65% than 75%.
David Whittaker, managing director of Mortgages for Business, said: “It is evident that the 75% LTV market is now where the competitive action is – although the full extent of this counter-intuitive pricing is only apparent once the full costs of arranging the mortgage are factored in.
“This has all happened in the space of the last nine months or so during which time the differential costs have moved from 75% LTV mortgages commanding a premium of up to 1.75% p.a. over 65% mortgages – to the current situation of there being no appreciable difference in average pricing. This is certainly good news for investors with smaller deposits.
“We can only conclude from all of this that lenders are taking the opportunity to increase significantly their margins on the lower LTV products in order to recoup some of their lost margin in the 75% range.”
The spread of fee types between products also remained fairly constant (flat fees 48%, percentage-based fees 41% and no fees 11%) as did the average cost of a flat fee which now stands at £1,498.
Two-year rates continue to dominate the market despite Whittaker’s view that investors should be considering five year fixed rates to help protect them against future rate rises. Five year rates account for only 14% of the market, having recovered from a low of just 5% pre-market recovery in 2010.
Whittaker added: “Borrowers like two year products because the lower pay rate and stress test usually fit their cash flow and RTI cover requirements. Lenders like them because they are easy to shift and, because of the way lenders are funded, they are easier to price than five year rates.”
