The number of five-year fixed rate buy-to-let mortgage products available has more than doubled since 2012, according to Mortgages for Business’ Buy-to-Let Mortgage Costs Index Q2 2014.
In the second quarter of 2014 there were an average of 128 five year fixed rate buy-to-let mortgage products available compared to just 50 in 2012.
David Whittaker (pictured), managing director of Mortgages for Business, said: “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.
“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 research found that the increase in the number of longer term products has been at the expense of one-year rates which have really fallen out of favour with the market as a whole. In 2010 one-year products accounted for 18% of the market. By Q2 2014 this figure had dropped to just 1%.
The Index also tracks the effects of changes in the money markets. Over the quarter, two and three year swap rates moved 0.2% higher, five year rates increased by 0.1% and 10 year rates have scarcely moved. These movements have not been sufficient to affect a rise in buy to let mortgage rates. In fact, there was a general reduction of 0.1% across most buy-to-let product ranges in the 75% LTV sector.
Mortgages for Business said that with the expectation of a steady increase in rates over the next five years, it would be reasonable to assume that tracker rates would be cheaper than fixed rates; however, the research found that this is not the case. Three and five year fixed rates generally cost little or no more than their tracker counterparts giving borrowers even more of an incentive to switch to fixed rate buy to let products sooner rather than later.
The effect of fees on pricing held steady, adding an average of 0.54% to the cost of taking out a buy-to-let mortgage.
The spread between fee types also change very little in Q2 2014, although there continues to be an incremental movement away from percentage based fees (typically 1-3%) in favour of flat fees. The average flat fee currently stands at £1,421 down form an average of £1,498 in the previous quarter. For the second quarter in row 11% of products have no lender arrangement free.
Whittaker added: “This type of pricing won’t be around forever and investors know it. We have witnessed a continued uplift in business throughout 2014 and expect it to carry on for the foreseeable future.”